Investigate of Balanced Offer Bend

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Essentials of the Nodal Market are painstakingly planned so that ... climbing the bend) or purchase (when moving down the bend) from the business sector. At the point when ERCOT dispatches the unit to a ...

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Slide 1

Scrutinize of Adjusted Offer Curve Shams Siddiqi, Ph.D. Sickle Power, Inc. (512) 263-0653 April 17, 2009

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Problems with AOC Violates Fundamental Principle of Market Design Adversely Impacts Reliability Has Efficiency Issues Sends Distorted Price Signals Hits Consumers Twice

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Violates Fundamental Principle Fundamentals of the Nodal Market are painstakingly outlined so Participants have the motivator to take after ERCOT dispatch directions Reliability of the framework is guaranteed through Participants being monetarily persuaded to conform to ERCOT's activities to keep up unwavering quality LMPs must mirror the cost that spurs the generator to take after ERCOT dispatch guidelines Breaking this central standard of the Nodal Market plan would bring about the market not working appropriately – specifically Reliability & Efficiency would be antagonistically affected AOC disregards this crucial rule

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Basics of Market Design Generator offer bends speak to that unit's ability to offer (when climbing the bend) or purchase (when moving down the bend) from the market When ERCOT dispatches the unit to a specific point on the bend, the LMP at that unit's hub is precisely equivalent to its offer by then on the bend – consequently the unit has no impetus to produce pretty much than the dispatch level When the unit is completely dispatched, the LMP is more prominent than its greatest offer and the other way around – all motivating force good If cost is sure and unit produces over ERCOT's dispatch level, that measure of vitality is sans given to the framework as a Penalty

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LMP & Offer Curve Example Nodal LMP Price ($/MWh) Willingness to offer or Offer Curve Quantity (MWh) Base Point

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Adverse Reliability Impacts AOC falsely changes wind assets' offer bends to such an extent that they don't mirror the asset's eagerness to purchase or offer at the offer cost With AOC, ERCOT dispatch guidelines and LMPs at the wind asset hubs make a solid motivator for the wind asset not to take after ERCOT directions E.g., LMP at the hub could be sure but then the wind asset is in effect completely diminished The "Punishment" for the wind asset would pay $0 for its abridged yield – given PTC and REC wage, this "Punishment" still gives a solid motivation twist assets to not take after guidelines Financial motivators to guarantee Reliability lost w/AOC

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LMP & Offer Curve Under AOC Adjusted Offer Curve Nodal LMP Willingness to offer or genuine Offer Curve Price ($/MWh) Quantity (MWh) Base Point

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Efficiency Issues AOC will dependably bring about more twist abbreviation than under an undistorted Nodal Market (Societal welfare boosting level) AOC may completely shorten Non-need twist with little effect on an imperative instead of diminish a couple MWs of Priority twist with expansive effect on the requirement Due to the coincided way of the matrix, AOC may reduce twist even before dispatching down more costly warm assets

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Distorted Price Signals AOC will build costs on occasion that wind delivers the most while keeping up the high costs when the wind does not create – this contorted value flag may energize awful ventures choices (say base load assets) and debilitate inventive capacity arrangements Bad speculation choices would prompt to significantly more wind decreases but then, the length of all wind isn't reduced, costs would in any case be misleadingly mutilated by AOC would counteract more proficient wind or different assets to supplant more seasoned twist (identical to securing gas steam unit by not permitting more up to date joined cycle unit to offer underneath GS unit cost)

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Consumers Pay Twice AOC will bring about higher costs far reaching and tremendously lessened blockage lease (as planned); along these lines (pick any two): Consumers pay for the CREZ lines Consumers pay higher market costs because of AOC Consumers get less clog incomes because of AOC, especially those not purchasing wind from West Texas

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Conclusion: AOC is Problematic Violates Fundamental Principles of Market Design Adversely Impacts Reliability Adversely Impacts Efficiency Distorts Price Signals Hits Consumers Twice Has numerous execution issues