The Councils Regional Portfolio Model

1
The Councils Regional Portfolio Model

• Michael Schilmoeller
• Northwest Power and Conservation Council
• for the
• Idaho Power Company
• Wednesday, April 30, 2008

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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Model operation

3
A Military Example
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Significance to Resource Planning
This Example?
Resource Planning?
5
Significance to Resource Planning
This Example?
Resource Planning?
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Significance to Resource Planning
This Example?
Resource Planning?
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Different Kind of Risk Modeling

• Imperfect foresight and use of decision criteria
  for capacity additions
• Adaptive plans that respond to futures
• Primarily options to construction power plants or
  to take other action
• May include policies for particular resources
• Scenario analysis on steroids
• 750 futures, strategic uncertainty
• Frequency that corresponds to likelihood

Planning Principles
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Council Use of Terms

• Futures circumstances over which the decision
  maker has no control that will affect the outcome
  of decisions
• Plans actions and policies over which the
  decision maker has control that will affect the
  outcome of decisions

Planning Principles
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Sources of Uncertainty

• Load requirements
• Gas price
• Hydrogeneration
• Electricity price
• Forced outage rates
• Aluminum price
• CO2 tax
• Production tax credits
• Green tag value (Renewable Energy Credit)

Planning Principles
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Most Elements of the Resource Plan Are Options To
Construct
Planning Principles
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Spinner Graphs

• A given plan, across all futures
• Illustrates scenario analysis on steroids
• Link to Excel Spinner Graph Model

Planning Principles
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Review

• Imperfect foresight and use of decision criteria
  for capacity additions
• Adaptive plans that respond to futures
• Likelihood analysis that captures strategic
  uncertainty

Planning Principles
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Model operation

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Distribution of Cost for a Plan
Number of Observations
Selection of Resource Plans
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Risk and Expected Cost Associated With A Plan
Risk average of costsgt 90 threshold
Likelihood (Probability)
Power Cost (NPV 2004 M)-gt
Selection of Resource Plans
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Feasibility Space
Increasing Risk
Increasing Cost
Selection of Resource Plans
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Feasibility Space
Increasing Risk
Increasing Cost
Selection of Resource Plans
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Efficient Frontier
Selection of Resource Plans
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Resource construction flexibility
• Valuation calculation
• Thermal resource dispatch
• Decision criteria
• Supply curves for conservation and
  price-responsive hydro
• Model operation

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The Construction Cycle

• After an initial planning period, there typically
  large expenditures, such as for turbines or
  boilers, that mark decision points.

9 months
9 months
18 months
Cash expenditures
Resource construction flexibility
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Modeling Cohorts

• Each period can have a cohort of plants, usually
  of different size or capacity
• All cohorts will be affected by changing
  circumstances, but may be at different stages of
  development

Capacity
time
Resource construction flexibility
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Resource construction flexibility
• Valuation calculation
• Thermal resource dispatch
• Decision criteria
• Supply curves for conservation and
  price-responsive hydro
• Model operation

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Computation
Valuation calculation
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Traditional Costing
Hourly variable cost calculation
Valuation calculation
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Valuation Costing
Complications arise when we use extended time
periods
price
Loads (solid) resources (grayed)
Valuation calculation
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Valuation Costing
Average loads and resources are the same, but in
the first case, our system has net cost and in
the second it has net benefit.
Valuation calculation
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Valuation Costing
N(N1)/2 correlations (upper triangular matrix)
Valuation calculation
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Valuation Costing
Valuation calculation
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Valuation Costing
Only correlations are now those with the market
Valuation calculation
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Resource construction flexibility
• Valuation calculation
• Thermal resource dispatch
• Decision criteria
• Supply curves for conservation and
  price-responsive hydro
• Model operation

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Dispatchable Resources
Thermal resource dispatch
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Gross Value of Resources
Thermal resource dispatch
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Gross Value of Resources
Thermal resource dispatch
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Gross Value of Resources Using Statistical
Parameters of Distributions
Assumes prices are lognormally distributed
Thermal resource dispatch
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Estimating Energy Generation
Thermal resource dispatch
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Estimating Energy Generation
Thermal resource dispatch
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Estimating Energy Generation
Applied to equation (4), this gives us a
closed-form evaluation of the capacity factor and
energy.
Thermal resource dispatch
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Resource construction flexibility
• Valuation calculation
• Thermal resource dispatch
• Decision criteria
• Supply curves for conservation and
  price-responsive hydro
• Model operation

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Decision criteria for each resource
Decision criteria
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Logic Flow for Decisions
Stop
Does the resource pay for itself?
Go
yes
Is the resource least cost of alternatives?
Is forecast requirement on or before the
earliest on-line date?
no
yes
no
Decision criteria
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Prediction for Decisions
Decision criteria
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Prediction for Decisions
Decision criteria
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Predictors

• CCCT and SCCT identical logic for fixed and
  variable costs for the unit itself with three
  exceptions
• the size of the plant is 1MW,
• the electricity price is an 18-month average of
  flat electricity prices, and
• the natural gas price is also an 18-month
  average.

Decision criteria
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Predictors

• Wind identical logic for fixed and variable
  costs for the unit, except
• the size of the plant is 1MW,
• the electricity price is a six-month average of
  flat electricity prices

Decision criteria
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Predictors

• Coal identical logic for fixed and variable
  costs for the unit, except
• the size of the plant is 1MW,
• the electricity price is a 18-month average of
  flat electricity prices
• There was no variation or uncertainty in coal
  prices

Decision criteria
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Predictors

• Conservation
• Discretionary
• Annual, energy-weighted average of year before
  lasts flat electricity price (lagged for
  budgeting)
• Optional premium over market
• Lost Opportunity
• Energy-weighted average of last five years
  electricity prices
• Ratchets upward to reflect represents such things
  as market transformation and the implementation
  of codes and standards
• Optional premium over market

Decision criteria
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Resource construction flexibility
• Valuation calculation
• Thermal resource dispatch
• Decision criteria
• Supply curves for conservation and
  price-responsive hydro
• Model operation

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Supply Curves
Supply curves
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Supply Curves
Supply curves
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Price Responsive Hydro
Supply curves
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Price Responsive HydroGross Value
Supply curves
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Price Responsive HydroNet Value or Cost
At right, value associated with use of hydro to
meet higher market price.
At left, value to return hydro using purchased
market power at lower price.
Supply curves
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Supply Curves
Supply curve representations also include
constraints on utilization rate and on upper and
lower prices.
Supply curves
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Conventional Hydro

• User-defined lookup function, with a random draw
  from 50 hydro years each simulation year
• Derived from Genesys BPAREGU.OUT file and 2000
  Bi-Op and includes independents and the three
  non-PNCA Idaho hydro units
• Estimates of east-side and west-side generation
  by month, by hydro condition
• Estimates of on- and off-peak generation (6x16
  definition)

Not! Supply curves
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Overview

• Planning Principles
• Selection of Resource Plans
• Key techniques
• Model operation
• Equilibrium search
• Order of calculations

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Energy Balance

• First Law of Thermodynamics In a closed system,
  energy may not be created or destroyed.
• generation loads imports (exports)
• We assure balance by controlling generation
  through electricity price. The model finds a
  suitable price by iteration.

Model operation
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Equilibrium search
Model operation
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Computation
Model operation
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End