In regard to “Goldman’s ReNew Says India Wind-Forecast Rule Will Erase Profits”, Bloomberg News, July 28, 2013, (http://www.businessweek.com/news/2013-07-28/goldman-s-renew-says-india-wind-forecast-rule-will-erase-profits) the problem is not the forecast rule but that the Central Electricity Regulatory Commission (CERC) has begun moving away from the competitive market concepts that it installed 11 years ago, moving toward a system of penalties.
Under a competitive market, if one wind generator was 10 MWH over forecast and anther was 10 MWH under forecast, both would see the same price, though with opposite but offsetting financial effects. The price might be very high which would please the generator that was over and displease the generator that was under. Or the price might be very low which would please the generator that was under and displease the generator that was over. But both would see the same price. The utility would pay one wind generator the same amount for the overage that the utility collected from the other wind generator for the underage.
Under a penalty concept, both generators will be displeased, both facing an economic impact that was harmful to their financial interest. The penalty would inure to the befit of the utility. Even when the amount of wind forecast errors netted out to zero, the utility would make money because the penalties always flow to the utility. Under a competitive market, the payments can balance out.
In the U.S., the Federal Energy Regulatory Commission (FERC) seems enamored with the imbalance penalty contained in Bonneville Power Administration’s tariff. When a generator is too far out of balance (25%), penalties accrue, even if the imbalances of the various generators balance out. The utility makes money on imbalances, just as is proposed by CERC.
I wrote about how to modify the BPA penalty concept in “Reply Comments Of Mark B. Lively In Regard To Using Prices Instead Of Penalties For (1) Regulation And Frequency Response, (2) Energy Imbalance, (3) Generator Imbalance, And (4) Inadvertent Energy,” Preventing Undue Discrimination and Preference in Transmission Services, FERC Docket No. RM05-25-000 and RM05-17-000, 2006 September 20. (Go to http://www.livelyutility.com/library.php# and look for RM05-25.) The result would be something like the imbalance mechanism that CERC is abandoning.
In 2002 and 2003, India implemented an imbalance mechanism that looked at the net imbalance on the network to set the price for imbalances at generators and loads. When the system imbalance was a shortage, the price for generator and load imbalances would be high. When the system imbalance was a surplus, the price for generator and load imbalances would be low. Recently, CERC has been abandoning this competitive market for large imbalances and is moving toward the BPA penalty concept that FERC embraces. I think this change is a step backwards and the wind scheduling issue is part of that backward movement.
I don’t think that the 2002 method for pricing imbalances is perfect. The prices don’t get extreme enough. The prices don’t change geographically. The prices don’t reflect various market forces. (See http://abt-india.blogspot.com/2007/10/windpower-discussion-on-inpowerg.html) But the mechanism tries to create a competitive market structure instead of a penalty structure, a penalty structure that always rewards the utility.