Standard Market Design (SMD)
in New England
Federal Energy Regulation Commission
Conference on Standard Market Design
January 22, 2002
David LaPlante
Vice President, Markets Development
ISO New England Inc.
Presentation Topics
•
•
ISO-NE selection of Standard Market Design
SMD description
– Initial implementation
– Planned enhancements
•
SMD and smaller market participants
2
What is SMD?
•
PJM’s current market design (Locational Marginal Pricing,
Multi-Settlement) with the following enhancements:
– Spinning reserve market
– Electronic Dispatch signals sent directly
to all generators every five minutes
– Marginal losses included in prices
– Automated market mitigation procedures
– Dispatch of Hydro-electric units with offers and self-schedules
– Detailed business processes for SMD operation
– Auction all financial transmission rights
3
Why SMD in New England?
• Decision made in early 2001 based upon:
– Schedule for New England custom CMS/MSS design
showed:
• CMS
Q1
• CMS/MSS Q1
2003
2004 at Best
– New, unproven/untested market design
– Final budget of $100 - $120 Million
– Expiration of retail standard offers at year-end 2003
4
Why ISO-NE Switched to SMD
•
•
Full implementation of locational marginal pricing and multisettlement one year earlier and at lower cost
Reduced risk of market problems upon implementation
– Proven market design
•
Reduced risk of implementation problems
– Use of existing software for day-ahead market, real-time market and
external transactions
•
•
Step toward convergence of northeast markets
Provides long-term benefits in market design and software
development
5
Standard Market Design Features
•
•
•
Market participation voluntary
Provides ability for participants with physical supply to
self-supply their requirements and self-schedule
resources opt out of the market
Anticipate 75-80% reliance on bilateral marketplace for
energy needs to continue
6
SMD Enhancements
•
Spinning reserve market
– Needed in New England because of need to back down thermal
units to provide reserves
•
Electronic dispatch signals sent every 5-minutes
– ISO-NE dispatches all generation directly
•
Marginal losses included in prices
– Dispatch in NE includes penalty factors, for losses must be
included in prices
•
Automated market mitigation procedures
– Extend current ISO-NE mitigation into SMD
7
SMD Enhancements: Hydro Generation
Options in the Day Ahead Market
A. Self-schedule generation and offer
prices for any additional water
B. Submit all available water and
associated prices for dispatch by ISO
C. Combination of A and B.
•
These produce financially binding hourly schedules
8
Hydro Options - A Picture
Prices for
incremental
output
Output MW
$100
$90
Available
capacity
$80
$70
$60
$50
Day-ahead
Schedule
$40
$30
$20
$10
1
3
5
7
9 11 13 15 17 19 21
41 43 45 47 49 51 53 55 57 59 61 63 65 67 69
9
SMD Enhancements: Hydro Generation
Options in the Real-Time Market
A. Fixed day-ahead schedule coupled with owner option to
increase/decrease output via self-schedule
- Allows owner to respond to market conditions
B. Fixed day-ahead schedule with economic dispatch
priced below it
- Allows owner to respond to market conditions stay
below maximum dispatch
C. Full economic dispatch based upon offer prices
10
SMD Enhancements - Business
Processes
•
•
Market rules define market for market participants
ISO-NE has developed detailed set of internal business
processes on how to run market internally
•
•
These are being validated with PJM
Once complete, we will make them available to all for
SMD implementation at no cost
11
SMD Enhancements - Financial
Transmission Rights Auctions
•
•
All financial transmission rights will be auctioned off
Revenue from those auctions allocated to load
•
•
Assures those who value them most highly will get load
Semi-annual/annual auctions
12
SMD and Smaller Market Participants
•
•
•
•
New England has many small (10 MW to ~ 100 MW)
public power utilities
Two “joint action agencies” have been formed to support
their participants in the wholesale markets
These agencies provide the technical and managerial
support for the municipals
The allocation of financial transmission rights to those
utilities is an outstanding issue
13
Future Enhancements to SMD(V2.0)
•
New York ISO and ISO-NE have agreed to enhancements
to SMD based on review of “best practices”
– Hourly bidding
– Co-optimizing energy with regulation and spinning reserves
– Off-line reserve markets
14
Reasons for Enhancements
•
Hourly bidding
– Improves ability of generators to schedule limited energy
resources; both hydro and interruptible gas
•
Co-optimization of energy and reserves in real-time
– Improves efficiency of real-time dispatch and may allow more
complete utilization of transmission system
•
Off-line reserve market options under review
– Longer-term option-like market
– Day-ahead with associated real-time Market
15
Developing a “Standard” Market
Design
•
•
The bulk of the standard has to be absolute
However, some portion should be open to innovation and
evolution
– Allows vendors to distinguish products and compete
16
Applying this Theory to a
Standard for Electricity Markets
•
Candidate features for standardization:
–
–
–
–
–
•
Locational Pricing
Day-Ahead Market
Real-Time Market
Financial Transmission Rights
External Transaction Scheduling Rules
Candidate Features for Innovation:
– Ancillary service market design, including co-optimization
– ICAP product and market for it
17