By Tom Kleckner

AUSTIN, Texas — Normally, Texas’ electricity industry points to ERCOT’s energy-only — and deregulated — market as a model for the rest of the country to follow.

Last week, however, ERCOT staffers and stakeholders gathered to hear advice from the RTOs that have already implemented real-time co-optimization (RTC) in their markets. MISO, PJM and SPP staff gave high-level overviews of their forward markets and lessons learned from their experience with the practice.

The Texas grid operator is just months into a multiyear effort to improve its market by adding RTC, a market tool that procures both energy and ancillary services (AS) every five minutes to find the most cost-effective solution for both requirements.

Gary Cate, SPP’s manager of market design, told members of the Real-Time Co-optimization Task Force gathered at ERCOT’s headquarters that his RTO’s implementation of RTC was “clean once we went there” with its integrated marketplace in 2014.

“[Our] real-time market doesn’t have performance issues,” Cate said, rapping the podium in front of him. “The day-ahead market did have commitment issues initially, with reg[ulation] up and reg down as separate products … but we didn’t have a lot of issues from a co-optimization perspective. We did co-optimization after multiple RTOs did it, so we kind of learned from their missteps.”

MISO added RTC to its market in 2009 at a cost of $75 million. Jeff Bladen, MISO’s executive director of digital strategy, said the tool provides an annual return of at least $60 million through a more efficient commitment and dispatch of energy and reserves.

“Our fundamental belief is co-optimization for all our products is necessary to be as efficient as our customers expect us to be. The market is now compensating for availability and flexibility, not just energy,” Bladen said. He noted the RTO plans to file a request with FERC to offer a short-term, 30-minute spinning reserve product.

MISO suggested ERCOT pay attention to ramp sharing, where energy and reserves share the same ramp capability. Bladen said the RTO observed frequent price spikes during parallel operations, which increased reliability risks because insufficient reserves were cleared. With ramp sharing, he said, reserve requirements are scaled up to account for the sharing.

ERCOT’s Matt Mereness, who chairs the RTCTF, said he found the information beneficial for the team’s current principle design phase, including the need to focus on “market education and technical details.”

MISO, PJM and SPP operate capacity markets, designed to ensure reliability by requiring suppliers to have enough resources to meet customer demand and a reserve amount. ERCOT’s energy-only market pays generators only when they provide power day-to-day, relying on scarcity pricing to incent additional generation.

‘Grappling’ with RTC

Reliant Energy’s Bill Barnes said RTC will work well in ERCOT’s market, pointing to the construction of demand curves as being the important difference.

“The energy-only market relies on the ASDC [ancillary services demand curve] to set scarcity prices to drive operational and investment decisions,” he told RTO Insider. “The must-offer requirement in the other markets is due to resource adequacy requirements that don’t exist in ERCOT.”

Resmi Surendran, senior director of regulatory policy for Shell Energy, agreed with Barnes. She said the AS demand curve’s design and the restrictions placed on AS offers could significantly affect the reserve margins the market can sustain.

Capacity markets expect must-offers from resources with capacity obligations, “which seems reasonable as they are paid to be available,” she said. She pointed out SPP and MISO were “very explicit” during their discussion that AS must-offers and near-zero offers for the services shouldn’t be expected if the RTO values the AS product.

“They don’t require resources that don’t have capacity obligations to offer into the AS market, and their offer caps for these AS products are high,” Surendran said. “AS markets are not a key revenue stream for the generators in those markets. In ERCOT, that is not the case. … How we design it could have an impact on the new type and amount of investments the market will attract.”

Shams Siddiqi, who has been involved in much of ERCOT’s market design and is now president of consulting firm Crescent Power, has freely offered his expertise to the RTC task force. He said the tool will be more efficient in ERCOT’s nodal market, where all AS-capable resources are required to offer or let the system create proxy offers.

ERCOT’s must-offer requirement and reduced risk to selling AS under co-optimization will likely reduce AS prices, he said.

“Even if [ERCOT’s] proxy AS offers are set to [$0], when the resource does not submit an offer [under RTC], it’s unlikely that AS clearing prices will be $0, as AS clearing prices always take into account opportunity cost,” Siddiqi said. “Unlike what’s being proposed by ERCOT, other ISOs substitute higher-value AS capacity for lower-value AS capacity and maintain the substituted AS capacity as the higher-value service. This … results in higher level of reliability, making the ASDC continuous so that additional higher-value products always have value greater than or equal to lower-value AS service, and ensures higher or equal clearing price for higher-value AS compared to lower-value AS.”

Barnes said stakeholders are “grappling” with how to set AS proxy offers for RTC. “The pricing of AS in other markets with RTC helps inform our decision,” he said.

TAC Endorses 2 More Key Principles

The RTCTF also received endorsement last week of two additional key principles (KPs) from ERCOT’s Technical Advisory Committee. (See related story, ERCOT Technical Advisory Committee Briefs: Sept. 25, 2019.)

The latest KPs are:

• KP 1.1: Replaces the operating reserve demand curve’s adders with ASDCs to determine market-clearing capacity prices for AS products, while continuing to adjust for ERCOT’s defined out-of-market actions to maintain reliability.
• KP 1.2: Evaluates the values of and interaction between the systemwide offer cap, value of lost load and power balance penalty price as part of RTC’s implementation. The principle also sets parameters for the values.

The KPs will be sent to the ERCOT Board of Directors, which will now “consider,” rather than “approve,” the principles as a result of a tweak to the group’s scope. Following the KPs’ consideration, staff will draft and sponsor the necessary revision requests, according to the protocols.

The task force plans to consider 19 more KPs during its Oct. 9 meeting.

The TAC also reaffirmed Bryan Sams as the task force’s vice chair. Sams recently left Lone Star Transmission for a position with Calpine as director of government and regulatory affairs.