Monday, February 18, 2019

Report: MISO, PJM Must Change Markets for Renewables

By Rory Sweeney and Amanda Durish Cook

A new report released by the Wind Solar Alliance last week says full market participation for renewables will require revisions to electricity markets, particularly in MISO and PJM, that were not designed with widespread renewable deployment in mind.

Fenton wind farm near Chandler, Minn.

“We think it’s helpful to have a vision of where we see the market heading, even if we’re not going to get all these market changes right away,” said Rob Gramlich, founder and president of Grid Strategies, the consulting firm that authored the report. “It was gratifying to see the level of consensus between the wind and solar companies. We’ve never really had to opportunity to step back like this with the [number] of companies involved.”

The report says several market reforms aimed at incorporating renewable generation are needed to keep electricity reliable and affordable. Among the more than 30 market changes it recommends are:

  • Creating multiday forecasts for units;
  • Compensating reactive power;
  • Creating primary frequency response markets;
  • Pricing “inflexibility costs” of conventional generation;
  • Incentivizing better forecasting from renewable generators;
  • Allowing flexible resources to bid without market power mitigation; and
  • Furnishing contingency reserves to cover “abrupt” drops in renewable output.

The paper also calls for grid operators to relax a year-round capacity performance requirement and create seasonal capacity procurements while abandoning fuel security requirements unless they have been demonstrated to improve reliability or efficiency. The study says grid operators should also make sure “conventional generators are not awarded excess credit relative to renewable resources.”

“Many of the current market rules were originally designed and adopted in the 1990s and early 2000s, based on the grid operations protocols from earlier decades when the grid was dominated by large, slow-moving fossil-fired, nuclear and hydroelectric resources. There were few wind and solar generators, independent power producers and non-utility electricity purchasers,” the report said.

Modern grid response needs to be faster and cover more megawatts, and today’s technology is advanced enough to manage it, the report says, concluding that electricity grids need to be flexible, fair, geographically widespread and free of barriers for entry or exit. It also contends that markets should not inhibit the ability of states or other authorities to achieve energy-related policy goals.

Gramlich told RTO Insider there isn’t a specific timeline for implementing the changes, but some are timely because they are part of ongoing discussions about other market revisions. He noted statements of support released by other organizations as examples of “broad agreement” that might signal “some things can move forward relatively quickly.”

While the report did not directly address the current national focus on grid resilience, fuel security and unrecognized benefits of large, “baseload” coal and nuclear plants, Gramlich said that has “sidetracked” the discussion from addressing what needs to be done for the grid to handle the current influx of intermittent, seasonal resources and the additional growth that is coming in the future.

He noted that in MISO, the “renewable community” plans to analyze self-scheduling.

In PJM, recommendations to allow resources to avoid the minimum offer price rule (MOPR) through bilateral contracts and to abandon efforts to add a fuel-security component in the capacity market “are important and very timely,” he said, although he acknowledged they’re “also very controversial right now.”

“If you get the right prices during times of stress, maybe that’s all the compensation you need in order to get the resources the revenue they want,” he said.

Overall, he said RTOs should be “as broad as possible and as seamless as possible” to ensure that renewable generation — which is often sited in remote regions — can be delivered to load where it’s needed, though he noted that PJM and MISO are at the top of the list for geographic scope.

“They do pretty well on the geographic breadth score, but there are some seams issues they could work on,” Gramlich said, specifically noting the seam between MISO and SPP.

MISO: Working on it

MISO said several of the recommendations in the report are already under evaluation by staff and stakeholders.

“MISO is still reviewing the report — so we can’t speak to its conclusions at a detailed level. However, we generally see this report as an affirmation of the major themes we’ve been working on and talking about with stakeholders for over the last decade,” spokesperson Mark Brown said in an email to RTO Insider.

The RTO said it has already rolled out new market designs, including extended LMP, ramping products and a new emergency pricing structure.

“MISO continues to assess new products and designs to get ahead of the evolving needs of the system,” Brown said.

It pointed out that it has already successfully integrated more than 18 GW of wind capacity and more than 300 MW of solar capacity.

“Wind and solar resources make up about 11% of MISO’s total market capacity. Based on the ongoing discussions, MISO plans to publish a long-term market strategy report next year with key recommendations for accommodating these long-term trends,” Brown continued.

MISO is currently in discussions with stakeholders about what market reforms are needed to address the growing mismatch between its changing resource availability and demand. The RTO has decided to separate solutions into the near and long terms, hoping to free up an additional 5 to 10 GW of supply through stricter outage and load-modifying resource rules, giving itself time to come up with bigger solutions. (See MISO Pivots to Near-term Resource Availability Fixes.) The long-term solutions discussion has already included the prospects for a seasonal capacity market and multiday forecasts.

MISO’s ongoing renewable integration impact assessment recently found the system will need significant upgrades at a 40% renewables penetration. (See Study: MISO Grid Needs Work at 40% Renewables.)

Conclusions ‘Consistent’ with PJM goals

In an emailed statement, PJM called the report “thoughtful” and said its conclusions “are consistent with PJM’s priorities.” The RTO pointed to its Extended Resource Carve-out proposal for revising its capacity market as an example of respecting state policy choices “while affording a level playing field where renewables and other competitive resources can thrive.” (See PJM Stakeholders Hold Their Lines in Capacity Battle.)

“PJM shares the alliance’s goals of reducing barriers to entry, properly pricing resources for their reliability and other valued attributes, and allowing the wholesale electricity markets to facilitate competition on a fuel-neutral, technology-agnostic basis,” the RTO said. “We continue to seek refinements of our energy market and ancillary services market rules to properly compensate generation sources for the services they provide.

“PJM looks forward to engaging with the Wind Solar Alliance and other stakeholders, including state regulators, renewable resource owners and consumer advocates, on proposals that will help us to maintain and improve PJM’s wholesale electricity market,” the RTO said. “We believe that the markets can provide far-reaching, regional solutions by pricing attributes and incenting the competition and innovation that have already helped achieve a cleaner, more reliable, less expensive system.”

Some of the recommendations tied in with existing stakeholder processes in PJM. For example, the Primary Frequency Response Senior Task Force has been working on revising primary frequency response requirements and measurement standards, as well as considering whether units should be compensated for the service. (See “Primary Frequency Response Moving Forward,” PJM Operating Committee Briefs: Nov. 6, 2018.)

Gramlich acknowledged that MISO and PJM have made progress toward the recommendations “in some cases,” but said “there are some other areas … where we have some concerns.”