how to change a capacity market that serves BAU

In States like Western Australia there is potential for around 1 gigawatt of “avoided power purchase” to insulate against price rises through wide scale adoption by 2020, or in WA’s case 25% of the existing market. This is base load regenerative power capacity. In this discussion, Peter Davies of ID Gasifiers, also said “I was struck by the potential for increasing significant reduction of demand. Small scale efficient biomass energy plants are on the way.

CO2Land org recently posted, 10 September 2013:

the claim a capacity market only serves BAU

The quote in the story was from Dr Jeffery Doyle after posting his précis of a recent conference paper ‘A Cautionary Tale’ and reported through Greentech Media.

CO2Land org included in the story that advances in waste to energy technologies could have sufficient volume available in time for the next bidding cycle – assuming a two year timeframe – they have the potential to create an industry that has multiple product streams with the developing technology. This innovation can be described as ‘batteries’. The key is that reliable and predictable supply can be managed to provide the volume needed.

What might help readers understand the story better is some background facts on how the market operates in WA. The state operates its power supply under the Wholesale Electricity Market (WEM) that was set up so generators can offer electricity for sale to retailers who purchase electricity for their customers. It was part of the Western Australian Government’s reform of the way electricity is generated, distributed and retailed in Western Australia.

The WEM is not state wide in its supply, it in effect ‘islands’ grid connected supply to the more populist corner of the state and calls this bound the South-West Interconnected System or SWIS (an area bound by Kalbarri in the north, Kalgoorlie in the east, and Albany in the south). If you need to know, the ocean forms the boundary to the west. The dominant generation supplier is Verve Energy. Verve provides about 60% of the generating capacity in the SWIS. Verve Energy sells its electricity on the WEM as well as through bilateral contracts with other participants in the market. The majority of Verve electricity is sold to Synergy.

The operator and administrator of the market is called the Independent Market Operator (IMO). The IMO arranges the orderly dispatch of all the electricity traded and the System Operator, which is an independent operating arm of the network business, manages the dispatch.The bulk of electricity is traded as contracts between generators and retailers. In addition, the Short Term Energy Market provides for day-ahead and ‘realtime’ trading.

Reliability of supply is the paramount concern in the SWIS.

More information about the market is available on www.imowa.com.au and www.era.wa.gov.au.

What concerns the discussion, in this instance, is the Reserve Capacity mechanism as is intended to ensure that the South West Interconnected System (SWIS) has adequate installed capacity available from generators and demand-side management options at all times in order to:

  • Cover expected system peak demand including additional capacity to cover the failure of the largest generator on the system and a capability to respond to frequency variations.
  • Remove the need for high and volatile energy prices in the wholesale electricity market (WEM).

The Independent Market Operator (IMO) administers the Reserve Capacity mechanism.

If there is insufficient Certified Reserve Capacity to fully cover the total Reserve Capacity Requirement in a future Capacity Year, the WEM Rules (clause 4.1.16) require a Reserve Capacity Auction to be held to secure additional Certified Reserve Capacity.

A Maximum Reserve Capacity Price (MRCP) is set for each Capacity Year (clause 4.16.1) and determines the expected cost of new entrant peaking plant and other costs required to establish plant capable of supplying electricity to the SWIS (clause 4.16.4). MRCP has the following price setting functions in the WEM:

  • MRCP is the maximum offer price to apply for the Capacity Year for which a Reserve Capacity auction is being held (clause 4.18.2.(b)).
  • MRCP is scaled down by the IMO when there is more Certified Reserve Capacity than required in a particular Capacity Year (clause 4.29.1).

Clause 2.26.1 of the WEM Rules requires the Economic Regulation Authority (ERA) to review a report provided by the IMO that proposes a revised value of MRCP. In approving the value submitted by the IMO, the ERA is only required to consider if the revised value reasonably reflects methodology specified in clause 4.16 of the WEM Rules and whether an adequate public consultation process has been conducted.

Clause 2.26.3 of the WEM Rules requires the ERA to conduct a review of the methodology specified by clause 4.16 of the WEM Rules on each fifth anniversary of the first Reserve Capacity Cycle.

The opportunity to influence the MRCP is also an opportunity to have in place mechanisms to encourage innovations, albeit Co2Land org has in the 10 Sept 2013 story said would require a courageous action. Writing in a preference to supply clause to alternative solutions or innovations to break the bidding ‘status quo’.

The typical Certified Reserve Capacity notices are typically listed Feb 2012 notices for MRC 2014/15, Jan 2013 for MRC 2015/16. Hence this might help you understand that bids are accepted 2 years into the future, but the need to influence should commence 2 years prior to that time of notice.

Can you bank on that?

the claim a capacity market only serves BAU

An unlikely scenario “Do you think we should run a high voltage line to 
Hawaii?” came from a talk that bidding practices for the Western Australia Electricity Capacity Market having lessons for what might happen in Texas USA. It happens they all have in common that they are isolated grid systems and not part of a national grid. If they were part of a National Grid then they could exchange excess capacity, peak loads and help with a transition to an energy spot market. The quote was from Dr Jeffery Doyle after posting his précis of a recent conference paper ‘A Cautionary Tale’ and reported through Greentech Media.

It is a serious matter that the claim a capacity market does not allow the effective operation of an opportunity to be set for demand response. This assumes demand response can only be reactionary to spot price pressures to be effective. However, at about 2007 it was proven the principles of demand management could be a good fit with the bidding practices of the capacity market, providing an advance intention to provide capacity as a virtual and apparent delivery.

What Dr Doyle exposed was that the problem of ‘business as usual’ is being supported by the bidding system. In practice that is a problem no matter where you provide a market (recently the outgoing CEO of Microsoft was quoted as saying they did not promote their capability to compete against their own Windows Operating System as they would have to destroy their infrastructure advantage in the market). If that is so, then courageous actions are needed to encourage innovation to meet the demand. An example of what could be done is changes to the conditions attached to the bidding requirements.

CO2Land org has noted the advances in waste to energy technologies and they can have sufficient volume available in time for the next bidding cycle – assuming a two year timeframe – they have the potential to create an industry that has multiple product streams with the developing technology. This innovation can be described as ‘batteries’. The key is that reliable and predictable supply can be managed to provide the volume needed. It can also be a multiple of aggregated provider units. 
All that is needed to make these ‘batteries’ available is the authority figures to be a courageous promoter and write into the bidding process that preference would be given to ‘new multi product’ generation. Why because cost of generation is then part of a mix of revenue potential and it encourages business opportunities to price in a way to be competitive with conventional supply for peak demand. Note: I did not claim total energy demand as that would be unrealistic.

That said, Peter Davies then offered after reading through Dr Doyle’s analysis that: “

“I was struck by the potential for increasing significant reduction of demand. Small scale efficient biomass energy plants are on the way.

In States like WA there is potential for around 1 gigawatt of “avoided power purchase” to insulate against price rises through wide scale adoption by 2020, or in WA’s case 25% of the existing market. This is base load regenerative power capacity.

What is most interesting here though is if grid connected they can act as load following systems for wind and industrial solar, negating the argument of the existing coal burners that they need to maintain capacity anyway for when these falter in their dispatch. To add insult to injury the same biomass systems can co-fire coal…so fuel supply limitations are not an issue, and being modular such plants can be expanded as required on quite short lead times. The high quality syngas produced can also be used as feed stock for other processes and products, increasing both plant flexibility and resilience to fluctuations in the electricity market (real or forced by monopoly generators).

Start throwing in advances in lower cost domestic solar energy storage coming out of China shortly and demand for fossil energy generation can only fall even further…anyone want to bet on getting a good return on investment in building a new conventional coal or NG power station?”

As we said: A serious matter – this cautionary tale.