The ERCOT region remains a living example of how to make a successful transition to restructured wholesale and retail markets for electricity. At the same time, the market continues to witness...
Understanding the value of pumped storage.
with many complicated and uncertain factors to consider. For example, no one knows with any certainty what power prices will be in the next hour, day or week, so all decisions to pump and generate have market risks associated with them. Additionally, there are many physical limitations to consider, such as the hourly rate at which the plant can pump or generate, the minimum and maximum allowed elevations for the reservoirs, and, in some cases, issues of water requirements for irrigation or fisheries management can come into play.
More Revenue Sources
Pumped storage makes energy available on a dispatchable basis during peak-load conditions, and that generating capacity counts toward a load-serving entity’s capacity responsibility in whatever power pool or independent system operator (ISO) it is operating in. If the asset is located in an ISO with a functioning administrative capacity market (as currently exists in New York, New England and PJM), then it will qualify for that ISO’s form of ICAP (installed capacity) payments. In other markets the pumped-storage asset will be able to compete with other generation technologies for capacity payments in bilateral contracts. And in the context of the vertically integrated utility business model, pumped storage is one of many competing technologies to consider in the integrated resource-planning process.
Revenue from capacity payments can make up a significant portion of the total value of a pumped-storage plant. Another significant revenue source can come from payments for ancillary services. The power system requires ancillary services (AS) to provide short-term balancing between load and generation. Without careful balancing, grid frequency and voltage can become unstable, and the entire transmission system risks collapse. Various forms of AS have been developed to reflect that having a quicker response to correct imbalances has greater value to the system, and therefore will generate higher payments. The classic division of AS products follows this pattern:
• Regulation. This is a “real-time” service that moves generation via automatic generation controls. It is often further divided into “regulation up” and “regulation down,” reflecting that the need to regulate generation in a certain direction tends to depend on the time of day.
• Spinning Reserves. Typically, these resources need to respond to imbalances within 10 minutes.
• Non-spinning Reserves. These resources are off-line, but can be started and respond to imbalances within 10 minutes.
• Replacement Reserves. These resources are off-line, but can be started and respond to imbalances within 60 minutes.
• Voltage support (VARs) and black-start capability. While needed to operate a transmission system, generators that provide such services generally aren’t compensated for them in wholesale power markets.
There’s a temporal relationship between the various AS markets (see Figure 3) . Using the California ISO as an example, one can see that the value of AS varies dramatically by time of day, and services with quicker response obligations carry higher values. Also, the price levels of the services are quite high, representing a significant potential revenue stream.
Pumped-storage assets are in an excellent position to participate in AS markets. Since there is no “warm-up” period in the starting