By Rich Heidorn Jr.
RTOs and ISOs would be required to incorporate fast-start resources into energy and ancillary services pricing under a Notice of Proposed Rulemaking approved by FERC on Thursday (RM17-3).
The commission said new rules are required to allow fast-start resources to set LMPs — changes regulators said should reduce uplift and provide more accurate price signals to encourage investments.
“Without some form of fast-start pricing, most fast-start resources are not eligible to set prices even when they are the marginal resource,” Daniel Kheloussi, a staffer in FERC’s Office of Energy Policy and Innovation, said during a presentation at the commission’s monthly meeting. “Further, even when fast-start resources can set prices, they may not be able to recover their commitment costs, such as start-up and no-load costs, through prices. As a result, prices may not reflect the marginal cost of serving load.”
The commission said fast-start resources are unique because they are often dispatched to inflexible minimum or maximum operating limits, making them ineligible to set LMPs. They also are usually committed in real-time.
“As a result, the cost to commit these resources is incurred at roughly the same time the incremental energy costs are incurred, which raises the question of whether the commitment costs should be included in the LMP,” the commission said. “Finally, fast-start resources can arguably respond quickly enough to be considered part of an RTO’s/ISO’s operating reserves even when they have not yet been committed.”
Seeking to build on the RTOs’ best practices, the NOPR would:
- Standardize the definition of fast-start resources to include any resource committed by the RTO/ISO that is able to start up within 10 minutes or less, has a minimum run time of one hour or less and that submits economic energy offers to the market. The definition would be technology-agnostic.
- Require that an RTO must incorporate the start-up and no-load costs (commitment costs) of a committed resource in energy and operating reserve prices for the resource’s minimum run time.
- Require RTOs to relax the resource’s economic minimum operating limit (eco min) when calculating prices — treating it as if it is dispatchable from zero to the economic maximum operating limit (eco max).
- Allow offline fast-start resources to set prices under certain system conditions when they are economic and feasible.
- Require RTOs to incorporate fast-start pricing in both the day-ahead and real-time markets to support price convergence between the two.
The NOPR is the third issued by the commission since it initiated a proceeding on price formation in RTO/ISO markets in June 2014 (AD14-14). It follows a June order requiring RTOs to align their settlement and dispatch intervals and implement shortage pricing during any shortage period (RM15-24). (See FERC Issues 1st RTO Price Formation Reforms.) In November, the commission doubled the “hard” offer cap for day-ahead and real-time markets to $2,000/MWh. (See New FERC Rule Will Double RTO Offer Caps.)
Inflexible
Fast-start resources are often required to be dispatched at their eco min or are block-loaded — in which the eco min equals its eco max.
Because the system may not need all of the resource’s eco min to meet load, other resources must be dispatched down, making them the most economic option to serve the next increment of load. “Therefore, despite the fact that a fast-start resource is essentially marginal, this restriction prevents a fast-start resource dispatched at its economic minimum operating limit from setting the LMP,” the commission said.
Thus, some RTOs have relaxed the resources’ eco min limits, treating them as dispatchable in a pricing algorithm separate from the dispatch algorithm. But while these changes can improve price signals — especially during stressed conditions when the need for fast-start resources is the greatest — the disconnect between prices and dispatch instructions can cause over-generation. Only some RTOs conduct reconciliations between the pricing and dispatch runs to prevent excess generation, FERC said.
RTOs Have Differing Approaches
In comments filed following the commission’s technical workshops on price formation, many stakeholders said they would support changes allowing resources dispatched at their operating limits to set LMP and allowing start-up and no-load costs to affect prices. The Electric Power Supply Association and Western Power Trading Forum said such changes could help address CAISO’s “duck curve” by redistributing excess costs incurred during the middle of the day to the ramping periods.
| Region | Fast-Start Resource Definition | No-load costs incorporated in LMPs? | Startup costs incorporated in LMPs? | Set DA prices? | Set RT prices? | Offline prices set LMP? |
|---|---|---|---|---|---|---|
| FERC NOPR | Start-up: within 10 minutes or less. Minimum run time: one hour or less. Other: Submits economic energy offers. | Yes | Yes | Yes | Yes | Yes |
| CAISO | Start-up: online within two hours or less. Other: can be committed in CAISO’s 15-minute market or short-term unit commitment process. | Yes | No | Yes | Yes | No |
| ISO-NE | Start-up: 30 minutes or less. Minimum run time: one hour or less. Minimum down time: one hour or less. | Yes (1) | Yes (1) | No | Yes | No |
| NYISO | Does not apply fast-start pricing to all fast-start resources.(2)(3) | N/A | Yes | Yes | Yes | Yes |
| PJM | Start-up: two hours or less (fast start CT). Block-loaded resource: eco min = eco max. | No | No | Yes (4) | Yes | No |
| MISO | Start-up: 10 minutes or less. Minimum run time: one hour or less.(6) | Yes | Yes | Yes | Yes | Yes (5) |
| SPP | Start-up: 10 minutes or less. Minimum run time: one hour or less. Other: total minimum down time one hour or less. (10) | No (7) | No (8) | Yes (9) | Yes | No |
- (1) New rules effective March 1, 2017 (ER15-2716).
- (2) Uses “hybrid gas turbine pricing logic” and “offline gas turbine pricing logic” for all fast-start block loaded resources in its real-time energy market. Allows all fast-start block loaded resources to set price in its day ahead energy market.
- (3) Worked with Market Monitoring Unit and stakeholders on revising its “hybrid gas turbine pricing logic.” In a Dec. 14 FERC filing (ER17-549), the ISO proposed broadening its eligibility criteria to allow all fast-start resources to be eligible to set prices in its real-time energy market.
- (4) Yes. But generally limited to certain operational conditions like constraint control.
- (5) Yes. Only under reserve or transmission scarcity conditions.
- (6) Extended LMP took effect in 2015 (150 FERC ¶ 61,143). Planning to implement ELMP Phase II to apply fast-start pricing to more peaking resources.
- (7) No. But does allow inclusion of no-load costs in mitigated energy offer curves for unit commitment.
- (8) No. But does allow inclusion of start-up costs in mitigated energy offer curves for the unit commitment.
- (9) Yes, if offered into day-ahead market.
- (10) Implementing fast-start pricing to commit quick-start resources more efficiently in real-time in Q2 2017.
| ERCOT (Not subject to FERC NOPR) | Start-up: 10 minutes or less. No minimum run time requirement (11) (17) | Yes (12)(13) | Yes (13)(14) | Yes (15) | Yes (13)(16) | Yes |
- (11) Resource is exempted from following instructions for the first five-minute dispatch. Regulation reserves are used to cover missing energy.
- (12) Yes. Market participants may include no-load costs in energy offer curves.
- (13) Uplift may occur in cases in which the assumptions built into the energy offer curves are not correct and costs are not fully recovered.
- (14) Yes. Market participants may include startup costs in energy offer curves.
- (15) Yes. Day-ahead market is voluntary. Market participants may include no-load and start-up costs in energy offer curves.
- (16) Market participants may include no-load and start-up costs in energy offer curves.
- (17) Analyzing the feasibility and benefits of implementing a multi-interval real-time market.
The commenters noted that start-up time requirements for quick-start resources range from 10 minutes in NYISO, MISO and SPP, to 30 minutes in ISO-NE and two hours in PJM and CAISO.
Several stakeholders praised MISO’s extended LMP. The program, implemented in March 2015, is designed to reduce uplift by incorporating all offer costs into market clearing prices. (See MISO Study Undercuts IMM Proposal on Expanding ELMP Pricing.) The RTO is planning to implement ELMP Phase II to apply fast-start pricing to more peaking resources.
NYISO and ISO-NE also received some praise, while Golden Spread Electric Cooperative criticized SPP, saying the RTO’s market design and operator practices fail to reflect fast-start resources’ costs and their value to the system.
NYISO worked with its Market Monitoring Unit and stakeholders on revising its “hybrid gas turbine pricing logic,” resulting in a Dec. 14 FERC filing in which the ISO proposed broadening its eligibility criteria to allow all fast-start resources to be eligible to set prices in its real-time energy market (ER17-549).
ISO-NE will be implementing new rules effective March 1, 2017, to incorporate no-load and start-up costs in LMPs (ER15-2716).
SPP said it will be implementing fast-start pricing to commit quick-start resources more efficiently in real time in the second quarter of 2017.
PJM was criticized by its Independent Market Monitor, which said that relaxing eco mins for price setting is subjective and overrides “fundamental pricing logic,” sometimes increasing total production costs.
The RTO also was criticized for limiting its fast-start definition to combustion turbines and excluding reciprocating engines.
“A natural gas-fired reciprocating engine that has a cold start-up time of only five minutes and has an economic minimum of 50% of its economic maximum is much, much more flexible, and provides significantly more value to the bulk electric power grid, on a per-megawatt-hour basis, than an inflexible block-loaded resource that takes two hours to start,” IMG Midstream and Tangibl said in comments to the commission.
ERCOT, which is not subject to the FERC NOPR, is analyzing the feasibility and benefits of implementing a multi-interval real-time market.
Comments Sought
The commission asked stakeholders to comment on its proposals, including whether they could result in the exercise of market power. “The concentrated ownership of fast-start resources could raise market power concerns that are not addressed in existing RTO/ISO market power mitigation procedures,” FERC said.
The commission also acknowledged that the changes could require complex and expensive software changes. “We seek comment on the required software changes, updates to optimization modeling and parameter inputs, estimated costs and time necessary to implement” the changes, FERC said.
Comments are due 60 days after publication in the Federal Register.
