DAY AHEAD ENERGY MARKET PROPOSAL IN ERCOT

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DAY AHEAD ENERGY MARKET PROPOSAL IN ERCOT
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Outline of Presentation

• Key Concepts
• Operation of the Day Ahead Energy Market
• Example
• Wholesale Products Task Force (WPTF) discussions

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Key Concepts

• The market will be voluntary.
• Bids submitted for resource and load are used to
  clear the market (Bulletin Board Approach)
• Congestion management will not occur initially in
  Day Ahead Energy Market (DAEM).
• Day-ahead market financially binding
• QSEs
• provide zonal load information and buy curves
  for DAEM purchases.
• provide zone and sell curves for generation
• enter the resource and load zones for bilateral
  transactions
• may enter buy curves for resources in bilateral
  transactions to allow the market to supply their
  load at a lower cost

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Process Diagram
Submit Schedule Bids
Market Clears
Revised Day Ahead Schedule
Settlement
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Submission of Day Ahead Schedules and Bids

• Day ahead QSEs submit their day ahead schedule
  for resources and loads by zone
• A QSE may insert DAEM as the resource or load
  for any imbalances on their schedule
• QSEs bidding resources into the spot market must
  submit sell curves by zone for each resource in
  the spot market
• QSEs with bilaterals
• enter the resource and load in their schedule.
• may enter in incremental bid curves for any
  unused and available capacity.
• may enter buy bid curves to allow the day ahead
  market to replace any capacity scheduled if it is
  more economic.

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Clearing the Market

• ERCOT develops aggregated Buy and Sell bid
  stacks from the bids provided by the QSEs.
• ERCOT then clears the market at the greatest
  whole MW quantity below the intersection of the
  bid curves.
• Buyers who participate in the DAEM pay the zonal
  price for that portion of their buy curve that
  was struck.
• Awarded resources are paid the zonal clearing
  price for the awarded quantity.

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Revised Day Ahead Schedule

• Awarded buyers will have their day ahead schedule
  revised to show DAEM as the resource for their
  load.
• Awarded sellers will have the term DAEM entered
  into their obligations side at the level of MWhs
  struck in the day ahead spot market.

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Treatment of Revised Day Ahead Schedule

• The revised day ahead schedule will go through
  the same process currently performed by ERCOT
  today.
• The resources on line will be measured against
  ERCOTs load forecast to determine resource
  adequacy both on an ERCOT wide and local
  congestion standpoint.
• Replacement Reserves will be purchased for
  insufficiencies found in the market.
• For ERCOT wide insufficiency, the market
  participants who are found to be short in their
  supply in the revised day ahead schedule will be
  charged the capacity charge for all MWs short
  (same as today).
• There are issues in this process that affect
  virtual bidding.
• Adjustments to schedules may be made throughout
  the adjustment period except for DAEM quantities.

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Settlement of the Market

• All DAEM quantities will be paid by or to the
  QSEs for the quantities struck at the clearing
  price of the day ahead market
• Imbalances that come in the real time market will
  be settled at the real time price

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DAEM Examples

• Refer to DAEM Examples.xls
• Example 1 - Resource QSE Optimizes Resources
• Example 2 - Load QSE Purchases from the DAEM
• Example 3 - Virtual Bidding

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What We Hope to Achieve

• The ability for load entities to gain day ahead
  price certainty and price discovery in the ERCOT
  energy market.
• An additional outlet for suppliers seeking to
  sell excess output from available generation.
• The ability for suppliers to optimize their
  supply.
• Greater stability for prices in the Real Time
  Balancing Energy Market.
• Greater flexibility in the use of the day ahead
  and real time markets.
• Greater market efficiency and lower costs for
  end-use customers.

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Notes From the Meetings

• There is not consensus as to whether a Day Ahead
  Energy Market is needed in ERCOT.
• The general feeling of the group is to support a
  DAEM if the cost is not significant and it
  provides true savings to the market.
• Since there is the ability for third parties to
  develop similar markets and none has successfully
  developed the obvious question is why havent
  they been successful and why do we think we will?

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Significant Impediments to Success

• CREDIT!!!
• Cost
• Insufficient Participation

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Credit

• This is one of the largest concerns of many
  parties in the group.
• DAEM may increase exposure to ERCOT.
• QSEs currently post credit for balancing energy
  exposure.
• Energy purchased in the DAEM would carry similar
  credit requirements.
• The settlement of the DAEM could also occur
  weekly as the market is financial in nature.

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Cost

• The cost of developing the market could be a
  significant factor in determining true success.
• The approach shown attempts to limit costs of the
  market by limiting features and functionality.
• The transaction fees related to other third party
  products of this type have caused them to be
  ineffective and ultimately pulled.
• The costs will be weighed against benefits prior
  to the development of the DAEM.

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Insufficient Involvement

• You cant have a party if no one shows up!
• To have success in the DAEM buyers and sellers
  will be needed in volume (MWh) to justify the
  cost of installing and maintaining the system.
• Attempts to develop markets and products in ERCOT
  have been tried and have failed due to lack of
  participation.

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Conclusions

• Further investigation is needed to determine if a
  DAEM will justify its costs.
• The benefits to the market will be recognized
  with vigorous participation.
• Beginning with a bulletin board approach, costs
  are limited and participation can be gauged.
• Further expansion using security analysis on
  transmission constraints can be added later.
• Virtual bidding may need to wait a while.