By Robert Mullin

CAISO’s Board of Governors last week approved proposed Tariff revisions that will require new renewable resources be capable of providing grid-stability services as a condition for interconnecting with the ISO’s system.

While stakeholders largely support the amendments, some market participants contend they don’t go far enough in guaranteeing adequate compensation for what has become an increasingly important service as more intermittent resources link up with the grid.

The proposed revisions follow FERC’s June issuance of Order 827, which requires that all newly interconnecting non-synchronous generators have reactive power capability. Resources undergoing upgrades would also be subject to the new rules.

“We are pleased to now take this next step, in which clean power resources can contribute to the reliability of the grid,” CAISO CEO Steve Berberich said in a statement. “By providing reactive power, these resources are better suited to help us integrate increasing numbers of renewable resources.”

“It’s really good utility practice to require all resources in the fleet to have reactive power,” Keith Johnson, CAISO manager of infrastructure policy and contracts, told board members during an Aug. 31 meeting.

The ISO’s Tariff changes go beyond FERC’s mandate for reactive power capability by adding a provision requiring that non-synchronous resources also provide voltage regulation.

“Maintaining voltage is very important for how we operate in the West,” Johnson said, explaining the ISO’s rationale for the additional requirement. “The incremental cost of [automatic voltage regulation] equipment is very, very minimal.”

Thermal Generators Seek Raise

Although the new requirements had broad support among stakeholders, a disagreement arose over CAISO’s decision not to use this FERC filing to alter its compensation for reactive power — a move that would especially benefit thermal generators that are steadily losing market share to renewables.

Under current ISO practice, any generator that is dispatched down to provide reactive power is paid its opportunity cost for lost energy revenues. Generators want the ISO to implement a new market provision that would compensate them for the capital cost of installing reactive power equipment — effectively creating a capacity payment for providing reactive power service.

CAISO contends that generators can recover those costs through their power purchase agreements, given the West’s continued reliance on bilateral contracts for the provision of capacity. Any additional market mechanism would run the risk of creating double payments for the service, Johnson said.

“Providing reactive power is a service essential to the operation of the grid,” said Brian Theaker, director of market affairs at NRG Energy. “Today’s disappointing decision doesn’t advance that.”

Theaker said that the current compensation structure does not provide “reliable signals” for generating units that require longer-term guarantees to remain financially viable.

“We feel like there’s been an opportunity missed here,” said Carrie Bentley, a consultant representing the Western Power Trading Forum. “The ability to provide reactive power is not free,” she continued, adding that five other organized markets offer compensation for the service.

“It’s not a secret that renewable power is disrupting the [capacity] and energy market — a lot of thermal generation will not be able to remain in the market,” Bentley continued. “How do you provide a market signal strong enough to keep the thermal generation we need.”

“The ISO did talk about compensation and looked at some of the other ISOs and RTOs across the country,” Johnson responded. “When PJM or MISO was formed, there were legacy arrangements for capacity payments for reactive power. We have no such system of capacity payments — we have bilateral contracts.”

Keith Casey, CAISO vice president for market and infrastructure development, said Bentley’s concerns about the ISO’s thermal fleet were “spot on.” He pointed out that the ISO’s new flexible ramping product — which compensates generators for the ability to rapidly respond to intermittent output from renewables — is one effort to reward “needed” generators.

“We just view the reactive power capability as a fundamental requirement,” Casey said. “The capital cost for that capability should be addressed through bilateral contracts.”