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Elephants, Camels, and Ducks

March 21st, 2013 by Spence Gerber

In late February, the CAISO and CPUC held a Long Term Resource Adequacy Summit. Resource Adequacy, or RA, is a critical part of ensuring reliability in California. Because it greatly impacts demand-response, I thought it might be helpful to share some thoughts from that meeting.

The CAISO and the CPUC effectively restarted the Long Term Resource Adequacy process with a gathering of their leadership, the CEC, industry luminaries and over 400 interested observers. Three separate panel discussions provided excellent insight into the challenges of a forward procurement construct in California, implementation in other regions and potential alternatives that might work within the California framework. There was significant coalescence around the gap between the current annual RA showing and 10 year Long Term Procurement Process and the need to find a way to close that gap with a 3 to 5 year construct that provides sufficient revenue to resources in a cost-effect manner.

The Elephant and the Camel

The Elephant (blue) and the Camel (red)

None of this is new to anyone who has followed the Long Term Procurement Proceeding (LTPP) and RA over the last decade, but the current discussion is now less about procurement of generic or “plain vanilla” capacity.  Now it is more about the need for resources with specific capabilities to meet the shifting needs driven by the infusion of renewables that are changing the net system requirement.

This new RA is being called Flexible Capacity by the CAISO and is well illustrated with some graphs, both of which come from the Flexible Resource Adequacy Criteria and Must Offer Obligation presentation made by the CAISO on December 20, 2012. Clicking on the graphs will expand the image to its full size.

Anyway, you can see the evolution of the net load requirements graph from an elephant to a camel (in the first figure) and finally to a duck (in the last figure). Procurement gets more complicated since the “duck” will require ramping capability at times and levels that were never needed when all we had to deal with was an “elephant.”

Further, as the belly of the “duck” gets fatter, there is the possibility of increased over-generation in the middle of the day.

The Duck

The Duck

So we have identified a problem that can be solved with fast ramping and energy consumption on demand no matter whether it is procured via a centralized capacity auction or some other method. The encouraging take away is that the discussion is partially focused on capability and the success story of how DR and Storage met that need in PJM without the need and lead time necessary to build new thermal generation. It is worth mentioning that the PJM starting point was an impending capacity shortage rather than what we have created in California with generic capacity resulting in a 40% over-procurement and overpayment for thermal resources. The discouraging take away is that we’re enamored and seemingly locked into a model in California that focuses on resource characteristics rather than capability. Hopefully as we work out the method by which we address the mid-range procurement needs, we can dismiss some of the barriers that currently prevent DR and emerging technologies from attaining the capacity revenue that will provide a sustainable business model for their participation.

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