# Presentation: 440655

## Implications of Regional Transmission Organizationsfor Renewable Energy Technologies

**Kevin Porter**
**Exeter Associates Inc.**
**301-622-4500**
- _[porter@exeterassociates.com](mailto:porter@exeterassociates.com)_
**NREL Energy Analysis Seminar Series**
**Washington, D.C.**
**April 11, 2002**

## Road Map

- In the beginning...
- Where Things Stand Now
- Market Strategies for Renewable Generators in Four RTOs
- New Developments

## Basis of Talk

- Subcontractor’s Report to NREL on RTOs and Renewable Energy Technologies
- Looked at Impact of Operating Rules in Four RTOs On Intermittent Renewables
- Other Analysis on Biomass Power and Ancillary Services and Boundary Issues Between RTOs (“Seams”)
- Hopefully Published This or Next Month

## What is a RTO?

- 	Broadly defined, a regional transmission organization (RTO) is an independent organization (profit or non-profit) established for the purpose of operating the transmission assets and providing wholesale transmission services within a defined (usually multi-state) geographic region and that meets the requirements of  FERC Order 2000.  Typically, the RTO does not itself own the transmission facilities but instead operates them on behalf of the transmission-owning utilities.  A RTO may operate a central energy market in addition to providing transmission services.  The functions of RTOs can include facilitating or operating a day-ahead energy market; planning transmission; monitoring markets; managing the queue for generator interconnections; and administering the transmission tariffs for transmission service, congestion pricing and ancillary services.

## In the Beginning...

- Public Utility Regulatory Policies Act of 1978
- Energy Policy Act of 1992 (EPAct)
- FERC Order 888 in 1996

## Emergence of Independent System Operators

- Conversion of PJM, NYPP, and NEPOOL into ISOs
- Creation of California ISO
- Conversion of ERCOT into ISO in 1996
- Formation of Midwest ISO in 1998

## FERC Order 2000

- Issued in 1999
- FERC Impatient with Progress in Forming Regional Organizations
- FERC Imposed Filing Requirements on Transmission-owning Utilities Related to RTOs
- Four Principles and Eight Characteristics Must Be Met Before FERC Would Certify a RTO
- Current ISOs (except ERCOT) Had to Re-apply for RTO Status

## Where Things Stand Now

- 14 RTOs in Various Stages of Planning or Operation
- FERC Has Approved Two RTOs
- PJM
- Midwest ISO
- Merger or Collaborative Arrangements under Discussion in Northeast, Southeast and Midwest
- Further FERC Rulemakings in Market Design Expected this year

## Implications for Renewables

- In PURPA Era, Received Bundled Transmission and Ancillary Services as Part of Contract
- All That is Unbundled; Renewable Generator May Have to Arrange Those Services
- May Be Able to Access Wider Market, *but*
- Other Complicating Issues
- Congestion charges
- Energy imbalance charges
- Other ancillary service charges

## Evaluating RTOs

- Is There a Central Energy Market?
- Is there a Capacity Reserve Market?
- Does Load or Generators Pay for Energy, Transmission and Ancillary Services?
- Is There a Balancing Energy Market, or is There Heavy Reliance on Penalties?

## Analytical Approach

- Look at Intermittent Renewable Energy Plant in Four RTOs:
- PJM
- ERCOT
- Midwest ISO
- New York ISO
- Presentation Brief Summary of Report

## Categorization of RTOs

- Results Differ Largely by Whether RTO Has Central Energy Market or Not
- PJM and NYISO Have a Central Energy Market
- ERCOT, Midwest ISO Do Not
- Other Important Differences
- Network Transmission (All But Midwest ISO)
- Capacity Markets (PJM, New York ISO)

## Market Strategies

- Renewable Generators Generally Not Economic on Market Price Alone
- Must Rely on Other Revenue Sources
- Renewable Portfolio Standards
- Systems Benefit Charges
- Green Tag Sales
- Green Marketing Transactions
- Installed Capacity Markets

## Strategies for Intermittent Renewables for Central Energy Market

- Bid into Day-Ahead Energy Market
- Bid to be Dispatched
- Bid Zero and Take Market-Clearing Price
- Bid into Hour-Ahead Market (If Applicable)
- Alternative in PJM is Bid Unavailable
- Enter into Bilateral Transaction with Another Party

## Issues to Consider

- Balancing Energy Requirements
- Capacity Markets
- Intermittent renewables eligible for capacity markets in NY and New England but not PJM
- No Scheduling Penalties

## Overview:  Strategies for Intermittent Generators in Bilateral Markets

- Bilateral is Direct Sales and Purchases Between Buyer and Seller; No Central Energy Market
- Characterize ERCOT and Midwest ISO.
- Energy Imbalance Provisions A Big Driver in Midwest ISO; Minimized in ERCOT

## Energy Imbalance Provisions in Order 888

- Transmission Providers May Apply a Penalty if Energy Deliveries Vary 1.5% or More from Advance Energy Schedules
- Penalties Left Up to Transmission Provider
- Midwest ISO Relying On Individual Utility Transmission Tariffs For Now

## Strategies for Intermittent Generators in Midwest ISO

- Reserve Transmission (If Applicable) and Sell to Buyer
- To Minimize Energy Imbalance Penalties, Reserve Smaller Amount of Transmission
- Sell to Load Serving Entity (and Transfer Energy Imbalance Risk to Buyer)

## Issues to Consider

- Energy Imbalance Penalties Waived in ERCOT if Within 50%/150% Band
- Not Waived in Midwest ISO But May Be Redesigned
- Can Be Significant Barrier for Intermittent Renewable Generators

## Strategies for Dispatchable Renewable Generators in Central Energy Markets

- Focus More on Bidding into Central Energy Market
- Less Focus on Balancing Energy Provisions
- Capacity Markets Just as Important
- Depending on Circumstances, May Receive Out-of-Dispatch and Start-Up Payments

## New Developments

- Standard Market Design
- FERC’s March 27th Order on California ISO

## Standard Market Design

- FERC Staff White Paper
- FERC View That Time for Experimentation Has Ended
- Order 888 Provisions Need to be Updated
- Common Market Elements Necessary to Encourage Competition
- Applies to All Transmission Service, Whether Part of RTO or Not
- Draft Rule Expected Soon
- Final Rule Later This Year

## Standard Market Design, cont.

- Provisions in FERC Staff White Paper
- Independent Administrator of Energy Imbalance Markets
- Bid-based Markets For Day-Ahead and Real-Time
- Energy Imbalances Settled At Real-Time Price
- Market Rules Must Be Technology- and Fuel-Neutral.  Intermittent Resources Must Be Able to Participate in Energy, Capacity and Ancillary Service Markets
- Transmission Service Network Service with Tradable Transmission Rights.

## March 27th FERC Order

- FERC Approved California ISO (CA ISO) Proposal on Intermittent Renewables
- CA ISO Will Net Scheduling Imbalances Monthly, Instead of Every 10 Minutes
- Energy Imbalance Penalties Are Waived
- Intermittent Renewables Will Telemeter Data to CA ISO and Pay Forecast Fee
- CA ISO Will Generate Forecast of Intermittent Energy Output to be Used by Scheduling Coordinators

## Summary

- Emergence of RTOs May Provide New Opportunities (or Pitfalls)
- Details Matter
- Intermittent Renewable Generators Have Different Issues Than Dispatchable Renewable Generators
- FERC Initiatives Will Result in Still More Changes