The Goldilocks Dilemma

An old posting about why intermittency is not a big deal came to my attention today.  I re-read some of what had been said, especially when I had just sent out a paper on the topic yesterday.

I believe that the value of electric “energy” is often overstated.  The author of the old posting, Chris Varrone, inadvertently acknowledges this when he wrote

However, the energy in wind is worth 100% of the energy in nuclear (or anything else) in the spot market; wind energy in the day-ahead market may be worth a little less, but this can be “firmed” using energy trading desks or by using other assets in the operator’s fleet.

If the day to day differential can be handled by firming with other assets, then the value of the electricity is not just energy.  It is not worth debating what to call this other value, but a substantial part of the value in the spot market is something other than energy.

As to The Goldilocks Dilemma, the paper I sent out yesterday, I began by asking

Is the price paid to dispatchable generation too high, too low, or just right for intermittent generation?

I then answer

Though intermittent generators often argue that they should receive the same price as dispatchable generation and some utilities argue that they should pay less to intermittent generators, sometimes intermittent generators should face a higher price than dispatchable generators, such as when intermittent generation is part of the market during instances of extreme shortage.

The entire paper is available on my web site, the companion to this blog site.  Look for the hot link to the library near the bottom of the first page.  A hot link for the article is near the bottom of library index in the section called drafts.

Goldman’s ReNew Says India Wind-Forecast Rule Will Erase Profits

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.