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NRG Suggests ERCOT Should Develop Day-Ahead Demand Response Procurements From Retail Electric Providers
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As an alternative to the current Emergency Response Service (ERS) in ERCOT, NRG Energy in comments to the Texas PUC said that ERCOT could alternatively procure day-ahead demand response from retail electric providers.
NRG's comments came in a Texas PUC project reviewing ancillary services in ERCOT
NRG suggested that, in place of ERS, ERCOT could develop day-ahead demand response products tailored to different groups in the retail market; specifically, (1) large non-residential customers; (2) small and mid-sized non-residential customers or aggregations of these customers; and (3) aggregations of residential customers
NRG proposed that ERCOT would establish for each DR product the desired amount of megawatts to be procured, as well as the characteristics for each product.
ERCOT would, on a daily basis, procure each product from REPs or other LSEs.
Prices would be set through clearing prices, "with no annual fixed dollar funding limit," NRG suggested
Most notably, the products would be, "deployed by REPs or LSEs, not ERCOT, during scarcity events," NRG said
NRG explained that performance requirements could individually be developed in recognition of each customer group's characteristics and to maximize participation. For example, residential aggregations would not be subject to telemetry requirements, NRG suggested
NRG said that the day-ahead REP demand response products would, "target resource adequacy as their reliability goal[.]"
Products could be developed to meet "distinct" resource adequacy needs, NRG said, such as short duration scarcity events or longer duration scarcity events.
"While many details would need to be worked out, NRG offers this initial concept for the Commission to consider to significantly increase demand response participation in the retail market and better match the design of retail demand response products to the reliability needs of the ERCOT system," NRG said
Apart from NRG's proposed REP-provisioned DR product in the ERCOT market, the most notable aspect of the PUC's ancillary services (A/S or AS) review, with respect to the retail market, is PUC Staff's question about whether the amount of ancillary services to be procured should be calculated on a dynamic basis, or whether the A/S amount should be set in advance as a known quantity (currently, the minimum required A/S quantities are set in advance annually)
Numerous parties, both REPs and other stakeholders, noted that determining the amount of A/S to be procured on a dynamic basis would present hedging challenges for retail electric providers (as the ultimate future exposure to A/S responsibility would be unknown), and could hinder the availability of fixed rate contracts in the retail market. Retail electric providers' fixed price products would also have higher risk premiums under dynamic A/S determinations, several REPs said.
Several commenters suggested fixing a portion of the A/S requirement in advance, with additional quantities determined on a more dynamic basis.
In separate comments, Shell Energy North America said, "The final AS requirement quantity for procurement in Day Ahead
Market (DAM), should be set at least five days before the DAM so that the market has the ability
to adjust hedges as we approach extreme scenarios. If it is infeasible to finalize the amounts five
days before DAM due to approaching extreme weather, then an estimate should be published a
week ahead of DAM and the requirement should be finalized two days before DAM."
In separate comments, NRG said, "NRG would support a hybrid approach that combines the current annual [A/S] assessment with a dynamic refinement of AS amounts throughout the year. For example, ERCOT could post an indicative range of AS amounts annually (e.g., with expected minimum and maximum procurement amounts), and then adjust those amounts dynamically closer to real-time, within a preestablished bandwidth, as more accurate forecasts for the operating day enable a more refined assessment of the amount of AS needed to match expected grid conditions."
In contrast, while noting hedging concerns, Texas Industrial Energy Consumers argued that dynamic A/S procurements will become manageable for REPs as the market gains experience with the approach and trends develop. TIEC said that dynamic A/S procurement will likely reduce overall A/S costs to REPs and "large customers", due to fewer quantities of A/S procured compared to the current annual forecast approach
"[D]ynamic ancillary service procurement can offer significant potential benefits to customers (and
REPs) and should be pursued to the extent feasible, while reasonably managing risk to the retail
market through notice and transparency," TIEC said
In separate comments, Calpine warned against the impact on generator revenues from a reduced amount of A/S that is ultimately procured (as is possible under a dynamic calculation).
Notably, Calpine suggested that ERCOT collateral requirements should reflect the "choice" of a REP not to hedge A/S costs to the extent A/S quantities are determined dynamically
"[P]roviding a 'range' of AS may disincentivize retail entities from hedging in
advance of an operating period, since the quantity of AS may not be set. If an entity does not hedge,
ERCOT collateral requirements should reflect this choice, so as not to expose other consumers to
periods when more AS are procured at a potentially higher price," Calpine said
Generators and aligned parties generally also used their comments to repeat their claims that the energy-only market will not assure that the PUC's adopted (ECM ed. note: target) reliability standard will be met, and said that the PUC's decisions on A/S product design and procurement should reflect this averred insufficiency.
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Calpine Says If A/S Quantities Determined Dynamically, ERCOT Collateral Requirements For REPs Must Reflect Heightened Risk REPs Will Under-hedge A/S
October 21, 2024
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Reporting by Paul Ring • ring@energychoicematters.com
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