The California ISO's intermittent resource program addresses a key market barrier to wind power: how to schedule wind energy in forward markets.
On July 1, the California Independent System Operator will launch its Intermittent Resources Program-the first of its kind in the nation. The new scheduling system encourages renewable resources such as wind to bid into the ISO's markets. The program will open with about 300 MW of new wind capacity this summer, with another 2,000 MW possible for the ISO's markets by the fall. Current estimates suggest that a total of 4,000 to 5,000 MW of new wind power capacity may be integrated into the California transmission grid over the next 15 years.
This projected growth from wind and other intermittent renewable resources is in response to the passage by the California legislature of the Renewable Portfolio Standard (RPS) last year. The law requires California to double the amount of renewable energy resources consumed in the state-from 10 to 20 percent-by 2017. This new law will encourage investment and construction of a substantial amount of new wind power capacity in California. Consumers will benefit because wind power is the lowest-cost renewable power generation option currently available.
The ISO's intermittent resource program addresses a key market barrier to wind power: how to schedule wind energy in forward markets without subjecting wind generators to major imbalance penalties when they do not deliver energy as forecast. The ISO's program is designed to achieve this objective in an open, competitive market environment without cross subsidies from other resources.
The development of the new program for intermittent resources will help grid operators anticipate the amount of energy that intermittent resources such as wind power will produce in any given hour and more easily achieve a balance in real-time between demand loads and supply resources. This program supplements the traditional protocols and payment schemes geared to the operating characteristics of dispatchable natural gas-fired electricity generators.
It was not easy arriving at an integrated program that addressed both the financial needs of a wind power industry struggling to adjust to a deregulated system of scheduling and the real-time pressures of California ISO grid operators to secure power deliveries to keep the lights on. But a consensus process involving market participants and governmental agency stakeholders came up with a novel way to satisfy everyone.
Indeed, this consensus process developed such an innovative compensation and availability forecasting system for wind power projects that the Federal Energy Regulatory Commission (FERC) incorporated its key features into its standard market design (SMD) proposal. The American Wind Energy Association (AWEA) has endorsed the SMD based on the incorporation of the ISO program's framework.
Wind in a Competitive Market
The market structure created by Assembly Bill 1890, California's restructuring legislation passed in 1996, broke up utility monopolies, and created a new wholesale transaction spot market and a centralized transmission dispatch system. The California ISO was among the new regulatory institutions that assumed control of the transmission grids of the state's investor-owned utilities. While this new market structure was designed to limit discrimination in transmission allocation, it inadvertently made it more difficult to accommodate the variability of wind power into the state's power plant portfolio.
Since ISOs have emerged in other regional power markets in the Northeast, Mid-Atlantic, and the Midwest, the challenges facing the California ISO are shared with others, making the shift away from command-and-control paradigms toward open competition. Given growing environmental pressures and concerns about increasing the diversity of power supplies, the lessons learned in California could have wide-ranging applications throughout the country.
The California ISO relies on market-based bidding of transmission resources to a much greater extent than do other ISOs. Given the large amount of existing intermittent wind power capacity in California, the California ISO was forced to evaluate solutions to accommodate the complexity of managing 1,800 MW of wind power capacity (of which 1,200 MW could show up in real time) while balancing total control area loads and generation on a continuous basis. Since the California ISO is required to forecast energy needs in the next 10 minutes, next 20 minutes and so on, and then send dispatch notices to generators, wind power's variability posed immense problems. It was the classic problem of fitting a square peg into a round hole.
Accommodating intermittent wind power resources at the state level at California ISO exposed challenges that also were mirrored at the federal level. The transmission protocols designed by FERC inadvertently penalize wind power, according to Jim Caldwell, AWEA's policy director. FERC's existing transmission pricing policies can double the wholesale cost of wind-generated electricity, he pointed out. The operational profile of wind projects represents a key hurdle to overcome if wind power is expected to play a larger role in the California ISO's power supply portfolio.
Because of its seeming unpredictability, wind generators were faced with relatively large imbalance energy costs. Why? To get price certainty, the California ISO is required to schedule energy production from generators in advance. With wind power, the actual energy production will always deviate from these day-ahead or hour-ahead schedules. The net deviation between scheduled and delivered energy created risk for wind projects, making them more difficult to finance.
Among the key challenges linked to wind power from the California ISO's perspective are the unpredictability of output from not only each wind turbine, but also entire wind projects, on a day-ahead, hour-ahead, or even minute-by-minute basis. Due to this variability, integrating wind projects into the California ISO transmission control area may require the purchase of regulation services from other generators to balance moment-to-moment deviations from schedule by intermittent resources. This may increase costs associated with electricity generated from the wind projects.
Also, many wind projects are in areas where the wind characteristically blows at night, so that is when they produce much of their electricity. This off-peak production of electricity may sometimes add to over-generation problems in California at night when energy demand is lowest. Given the unpredictability of wind project output, California's wind resources can actually add to transmission line overloads. Wind-generated electricity also is non-dispatchable, limiting what dispatchers at the California ISO can do with wind power. Lastly, voltage collapse within wind project areas due to shifts in power generation among fleets of wind turbines and transmission constraints can reduce available energy sales.
This long list of challenges is daunting. However, AWEA's Caldwell, and Jan Smutny-Jones, executive director of the Independent Energy Producers, helped pull together stakeholders to huddle with California ISO staff and see if a system could be devised that would better serve everyone, including the wind industry and state ratepayers. Members of IEP, AWEA, California Wind Energy Association, wind energy marketers, and a new trade group consisting of smaller wind project operators concerned mostly about maintaining the viability of existing wind farms were all brought into the same room with regulators. Representatives of the governor's office, California Energy Commission (CEC), and the California ISO also attended.
Consensus Process Leads to Innovative Solutions
The Intermittent Resources Working Group convened during the summer of 2001, the height of California's energy crisis. The end result was the Participating Intermittent Resources Program, which allows wind developers to reduce uncertainty regarding settlement of schedule deviations while upgrading forecasting techniques to take advantage of new information technologies that provide better information on wind energy output for grid operators at the California ISO.
The new approach is based on a more sophisticated forecasting service that uses state-of-the art methods and real-time data to develop the hourly forecasts of wind energy production. The two-hour-ahead forecast then serves as the schedule for grid operators. The basic premise underlying this new approach is the ability to predict wind generation in real time, to keep the system balanced. Each individual wind project participating in the ISO's program is required to install meters, share in the costs of forecasting, and schedule energy deliveries based on these state-of-the-art predictions of energy production.
As data is collected over time for each wind project, the accuracy of the energy production forecasts should continuously improve. The ability of the California ISO grid operators to balance load with generation only will get better as the forecasts improve for the existing and new wind projects serving the California power market.
Computer innovations already have begun to address challenges linked to wind's intermittency and problems of utility integration. A recent study performed by Southern California Edison showed a new wind forecasting system could have saved the utility $2 million in the month of December 2000 by better forecasting the day-ahead performance of 1,000 MW of wind power capacity delivered to its distribution system. The rate of previous forecasting error was reduced by as much as 50 percent with this new forecasting technique.
With the Participating Intermittent Resources Program, far greater savings can be achieved. As the forecasting database grows over time, the deviations between scheduled and delivered energy will shrink. The forecasting tool must produce an unbiased forecast for each and every hour.
On the financial side of the equation, intermittent wind resources participating in the program are exempt from deviation replacement reserve penalties. Instead, replacement reserves, as well as imbalance costs, are treated like changes in loads instead of generation. This technical change is not expected to result in any systematic financial consequences to other California ISO market participants. Though wind projects enjoy these new exemptions when participating in the ISO's markets, they are still responsible for transmission-line congestion charges.
Rather than netting scheduled energy deliveries on a 10-minute basis, as is the California ISO's standard procedure, the intermittent resources participants net the difference hourly. A monthly settlement process then nets deviations from forecasts across all hourly intervals at the weighted average electricity price for the month. Relying upon a monthly time frame for settlement is preferred by the wind industry. The variability of power production typically smoothes out the excess production and the deficit production since wind power follows seasonal patterns that are fairly predictable on a monthly basis.
This approach addresses the risk of imbalance energy costs linked to schedule deviations without shifting costs to other generators. It also lowers the financial risks for wind generators and operators.
In return for this modified settlement process, each wind generator participant is required to provide meteorological and energy production data in real time to be used in the future forecasting models for each specific facility. This will help build a database and analytical tools to better understand the generation profile for each wind project in California. This requirement allows California's wind industry to better understand how each project's production matches California loads. It also allows for a much more intelligent management of the diversity of wind projects serving California.
According to CEC figures, 11 percent of power production from California wind projects is directly matched to daily peak periods of demand; 26 percent of power production is during mid-peak daily demand intervals. The remaining 63 percent of electricity generated occurs during the off-peak hours in spring and summer, a time of the year when the demand for peak power gradually increases.
However, a review of monthly average wind speeds at various developed and undeveloped wind sites in California performed by the Renewable Energy Policy Project discovered that significant diversity exists among wind projects due to their own unique wind patterns. While direct matches to daily demands in peak occur mostly at the Solano County wind resource area, and occasionally at the Altamont Pass, monthly average wind speed patterns roughly coincide with California's seasonal demand patterns. A diversity of wind farm sites also can help match daily demand much better than in the past. For example, the Fairmont Reservoir wind resource area in Los Angeles County appears to trade off Tehachapi's lower availability in the middle of the day.
The larger a wind farm is, the less of a problem wind's short-term variability becomes, since winds pass through arrays of turbines at different intervals, smoothing out the effects of the variations. The overall power curve of the wind farm has less and less intermittency as more and more wind turbines dispersed throughout a wind resource area are added to the wind farm control area.
By collecting real-time data on the performance of all wind projects operating in California, the ISO will, for the first time, have the data to understand how wind power best fits into California's power supply mix.
The goal is to be able to forecast the amount of wind energy production for each 10-minute segment going forward 90 minutes. As better data is collected, this goal will be reached over time. The main thrust is that there be no surprises. Impacts on transmission loading can be assessed and mitigated as needed by altering dispatch instructions to other generators. If an over-generation emergency exists, wind project operators will be instructed to adjust blades of individual wind turbines to reduce power output.
Once this program is in place, California can lay claim to a state-of-the-art wind production and transmission allocation system that makes use of new communication and weather forecasting technologies to boost efficiency and reduce costs for the ratepayer.
Next Steps in California and at FERC
The Participating Intermittent Resources Program consensus proposals were submitted to the California ISO board in October 2001. Tariff language was filed at FERC at end of January 2002. On March 27, 2002, FERC endorsed the Participating Intermittent Resources Program. "This order benefits customers by addressing a major obstacle to development of new wind and other intermittent generation. Encouraging the development of intermittent generation will increase diversity in the resource base, thereby improving system reliability as a whole," FERC said.
"It is difficult to overstate the importance of this to the wind energy industry," observed AWEA's Jim Caldwell. "FERC has found that wind energy's transmission needs can be met fairly, without extra costs for either the transmission system or for owners of other types of power plants. With this ruling, FERC has demonstrated that it understands the unique situation facing a variable energy source such as wind, and that it is willing to find ways to ensure that this new, clean, potentially huge source of electricity is not unfairly barred from the market," he says.
Adds Mark Smith, director of market affairs for FPL Energy, owners of the largest fleet of wind projects in the country: "The California ISO's Participating Intermittent Resources Program offers wind generation owners and energy consumers a rational and reasonable wholesale market structure. The previous California ISO market design was conceived with dispatchable resources in mind. Penalties in some regions-such as zero pay for generation above schedule and 150 percent financial penalties for deliveries short of schedule-were created to ensure that units managed their output very closely. A vast majority of wind energy is very difficult to accurately schedule in the timeframe required by grid operators. And once scheduled, wind energy production-as driven solely by the presence of the wind-is difficult to predict with certainty."
Smith goes on to say that the new California ISO approach "more accurately exposes the underlying value of wind generation and allows for reasonable development risk and cost of capital. It recognizes the inherent unpredictability of wind generation and counters with state-of-the-art wind forecasting and reasonable accommodations to the settlement of unavoidable scheduling errors."
There are still challenges remaining when it comes to transmission and wind power. For example, transmission planning is also a major concern of the wind power industry, Smith notes.
Caldwell says there is a major mismatch between the needs and characteristics of the wind power industry and the procedures currently employed in transmission planning. "The small project size and quick development time of wind farms are not easily accommodated in today's transmission investment planning decision-making process." In addition, he says, the remote location and low capacity factor of wind farms translate into a higher transmission investment per unit of power output.
The key barrier to bringing significant new wind power capacity online in California during the 2001 energy crisis was the lack of transmission capacity from the Tehachapi area. The availability of transmission access is the single most important barrier to wind power development, not only in California, but throughout the country. California's power market reflects this reality. When the Union of Concerned Scientists modeled what types of renewable resources would come online in California if the state doubled its renewable energy purchases by 2010, they assumed interconnection costs for wind power were four times the cost associated with a natural gas power plant. The range of interconnection costs for wind power facilities to the transmission grid starts at $13/kW but can be as high as $825/kW.
A 1998 Lawrence Livermore Laboratory study that examined 36 California sites found that most of the large wind resource areas in California have interconnection costs under $50/kW. According to this study, the best existing wind site in California is San Gorgonio, which has the potential for 309 MW and is only 1.3 kilometers from a transmission line. The interconnection cost was estimated at $22.8/kW or $469,000. An additional $3.5 million would be required to lay lines within the wind power project to hook up to the transmission grid. The highest interconnection cost identified in the study was a 12-MW potential project at Boulder Park. The interconnection cost was projected to be $825/kW or $6.7 million to extend the interconnection line 50 kilometers and another $160,000 to lay lines within the project.
Since the RPS law could add 2,000 to 3,000 MW to existing 1,800 MW of wind power capacity in California, the California ISO also will be taking a closer look at renewables and the transmission infrastructure needed to foster their development.
Wind is the fastest growing power source globally. Approximately 4,500 MW of wind power is currently operating nationwide. The AWEA has set a goal of 100,00 MW by 2020. Last year was another record year for the wind industry. Though the U.S. market grew by only 10 percent due to the uncertain status of the federal wind energy production tax credit, a record 6,868 MW was installed worldwide. That figure represents a 28 percent increase in global wind power capacity. Extending the federal production tax credit is gaining broad bipartisan support as wind power moves into the mainstream of power generation options.
As wind generation increases throughout the country and the world, the California ISO Participating Intermittent Resources Program is likely to serve as a model for resolving market barriers for renewable power. It also can provide the incentives and investment signals for siting new transmission lines so that other intermittent renewables, such as solar energy, will be better able to participate in competitive wholesale markets. The program is helping establish standard protocols integrating wind seamlessly and economically into the national transmission grid, giving Americans access to a clean energy resource that has an unlimited supply of fuel.
PJM Pushes Wind Energy 'First'
In an effort to boost wind energy in its service territory, PJM Interconnection in late April said it would offer capacity credits to wind generators for the first time.
The new rule, approved by PJM's Reliability Assurance Agreement Reliability Committee, takes effect June 1.
PJM said the credits would be based on a wind-turbine facility's actual performance. "The credit is a three-year rolling average of a unit's output during PJM's peak-use hours," which fall between 3 p.m. and 6 p.m. during the months of June, July, and August, the company said.
For units that have operated for less than three years, PJM will calculate a class average of 20 percent of a wind turbine's rated capacity.
"We're applying a fair and practical method to allow wind turbines to provide generating capacity to the wholesale market," said Steven R. Herling, executive director of system planning at PJM. -C.H.
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