NDLI: Experience with Ancillary Services in ISO New England's LMP Markets

Content Provider	IEEE Xplore Digital Library
Author	Coutu, R.
Copyright Year	2007
Description	Author affiliation: ISO New England, Inc., Holyoke, MA (Coutu, R.)
Abstract	Summary form only given. ISO New England has implemented two versions of ancillary service markets. In conjunction with the implementation of the interim, single-price/single-settlement, markets the ISO had implemented bid-based markets for three categories of reserves. There was a single marginal price paid to all resources providing ten-minute synchronized reserve, ten-minute non-synchronized reserve and thirty-minute operating reserves. These prices were calculated every 5-minutes after the energy dispatch and then time-weighted into hourly values to be paid to generators. The energy and reserve markets were not "co-optimized". While generators did bid to provide the services, the markets generally functioned in a binary fashion. When capacity supplies were plentiful and reserves were "easily" acquired from the set of resources committed to meet energy requirements, the reserve market prices tended to be very low (below $.20/Mwh). When supplies were tight and commitments of most resources were needed to meet load then the prices tended to be high (near the price cap in place at the time in the $100's/Mwh). This binary nature was identified as a natural outcome in a market where there were not true incremental costs incurred to provide the service. When supply far exceeded demand, the bid then reflected the fact that resources were willing to get paid anything for providing the service since it had little to no incremental cost for providing the service. The prices in the capacity shortage hours reflected the market power of the remaining resources that could provide reserves. Unfortunately this type of market provides little to no incentive for generation resource to be built to provide off-line reserves (because of the sporadic fleeting nature of the high prices) or to provide more flexibility from on-line resources (because of the low payments for most hours). New England instituted the standard market design in 2003. That design initially did not have any direct market for reserves, especially off-line reserve capacity. After the interim market design implementation in 1999, New England began to experience a sustained lack of investment in new resources capable of providing off-line reserves. In order to address this problem, ISO New England first instituted a forward reserve market. This market was a capacity-type forward purchase of non-spinning reserves to address the lack of revenue experienced by existing non-spinning reserve resources with low capacity factors but with high availability. In October of 2006, ISO New England enhanced this forward reserve market to include locational requirements needed to cover second contingency protection for import constrained areas. At the same time, ISO New England instituted real-time reserve markets for all three categories of reserves at a system-wide level as well as locationally. This real-time reserve market does not accept bids but has similar outcomes as the previous Summary form only given. ISO New England has implemented two versions of ancillary service markets. In conjunction with the implementation of the interim, single-price/single-settlement, markets the ISO had implemented bid-based markets for three categories of reserves. There was a single marginal price paid to all resources providing ten-minute synchronized reserve, ten-minute non-synchronized reserve and thirty-minute operating reserves. These prices were calculated every 5-minutes after the energy dispatch and then time-weighted into hourly values to be paid to generators. The energy and reserve markets were not "co-optimized". While generators did bid to provide the services, the markets generally functioned in a binary fashion. When capacity supplies were plentiful and reserves were "easily" acquired from the set of resources committed to meet energy requirements, the reserve market prices tended to be very low (below $.20/Mwh). When supplies were tight and commitments of most resources were needed to meet load then the prices tended to be high (near the price cap in place at the time in the $100's/Mwh). This binary nature was identified as a natural outcome in a market where there were not true incremental costs incurred to provide the service. When supply far exceeded demand, the bid then reflected the fact that resources were willing to get paid anything for providing the service since it had little to no incremental cost for providing the service. The prices in the capacity shortage hours reflected the market power of the remaining resources that could provide reserves. Unfortunately this type of market provides little to no incentive for generation resource to be built to provide off-line reserves (because of the sporadic fleeting nature of the high prices) or to provide more flexibility from on-line resources (because of the low payments for most hours). New England instituted the standard market design in 2003. That design initially did not have any direct market for reserves, especially off-line reserve capacity. After the Interim market design implementation in 1999, New England began to experience a sustained lack of investment in new resources capable of providing off-line reserves. In order to address this problem, ISO New England first instituted a forward reserve market. This market was a capacity-type forward purchase of non-spinning reserves to address the lack of revenue experienced by existing non-spinning reserve resources with low capacity factors but with high availability. In October of 2006, ISO New England enhanced this forward reserve market to include locational requirements needed to cover second contingency protection for import constrained areas. At the same time, ISO New England instituted real-time reserve markets for all three categories of reserves at a system-wide level as well as locationally. This real-time reserve market does not accept bids but has similar outcomes as the previous real-time markets. It uses penalty prices (similar to price caps) to value reserves when the system is short of meeting requirements or re-dispatch costs (if any) to value reserves when supply meets or exceeds requirements. In this panel we can discuss the New England experiences to date in all of our versions of the markets and what the next steps are towards valuing and procuring ancillary services through market-based and other non-market mechanisms.
Starting Page	1
Ending Page	2
File Size	43450
Page Count	2
File Format	PDF
ISBN	142441296X
ISSN	19325517
DOI	10.1109/PES.2007.386114
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2007-06-24
Publisher Place	USA
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Costs Investments Availability ISO standards Protection Real time systems
Content Type	Text
Resource Type	Article

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