october 8, 2014 | NEPOOL markets committee

1. october 8, 2014 | NEPOOL markets committee Jonathan Lowell Principal analyst | market development Improving the ISO’s Ability to Operate Reliably, Produce Efficient Outcomes, and Reduce Avoidable Curtailments of Wind Resources “Do Not Exceed” Real-Time Dispatch

2. Increased Penetration of Intermittent Resources Creates Need for Improved Congestion Management • The system is facing more frequent localized congestion as more intermittent/renewable resources come online • Today, this congestion must be handled manually through curtailment instructions • To ensure reliability, system operators must take a conservative approach. Can’t risk operating “too close to the edge”. • Manual curtailments do not result in price separation • Wind resources and other Intermittent resources are “non-dispatchable” • Unit Dispatch Software (UDS) is unable to manage congestion by sending dispatch instructions • Creates local economic incentives to maximize output when reliability requires reduced output • LMPs are inconsistent with “dispatch” decisions to curtail zero-price resources • Intermittent Power Resources • Defined in III.13.1.2.2 as resources without control of their net power output • Includes wind, solar and run-of-river hydro

3. The Solution - “Do Not Exceed” Dispatch • Goals of the DNE Dispatch • Ensure reliable operation • Congestion management through economic dispatch to improve utilization of transmission facilities, minimize manual curtailments • Maximize , and avoid unnecessary “spillage” • Create prices and incentives consistent with efficient market outcomes (lowest production cost) • Enhance system operators’ ability to manage the system during rapidly changing weather conditions • Dispatchable Intermittent Power Resources (DIPRs) will receive DNE dispatch instructions that reflect: • Current plant output and forecast of plant’s expected unconstrained output • The forecast will reflect a plant’s current operating status • Economic energy offers submitted by the intermittent resource (i.e. price/quantity pairs defining an offer curve) • transmission operating limits and system conditions • offers and operating status of non-intermittent resources

4. DNE Dispatch Overview • A DNE limit is the maximum amount of economic wind generation that system can accommodate from a DIPR without causing any reliability issues. • The DNE limit will be the lesser of the reliability limit and the economic output level for the plant, consistent with DIPR’s offer curve and the LMP • DIPR may operate freely between 0 MW and the DNE limit • A DIPR must not exceed its DNE limit • This is true whether the DNE limit is determined by reliability limits or the plant’s economic offer

5. How is a DNE Limit Determined? • Conceptual overview: • ISO produces a high confidence “expected unconstrained output” forecast for each DIPR for the next dispatch interval • For each DIPR, set EcoMax to the expected output forecast • Run Unit Dispatch System (UDS) to produce DDPs for all resources, and LMPs for all pricing nodes. • Determine the economic output level (EOL) at which each DIPR would wish to produce, consistent with its economic offer and the LMP • Calculate a reliability-based limit (RBL) for each DIPR, representing the maximum acceptable output consistent with reliability constraints • The DNE Limit is the lesser of EOL and RBL • Some observations • The DDP for a DIPR is not the DNE Limit and is NOT telemetered to the plant • DNE might equal DDP if the plant is constrained due to economic competition from less expensive resources • The DDP for a DIPR may be less than the expected output when the LMP is less than the offer price • The DNE limit can exceed the expected output forecast

6. DNE – A Simple Illustration of One Scenario $/MW • The DDP for a DIPR is not the DNE Limit (although they could be equal) and is NOT telemetered to the resource • DNE might equal DDP if the plant is constrained due to economic competition from less expensive resources • The DDP for a DIPR may be less than the expected output when the LMP is less than the offer price • The DNE limit can exceed the expected output forecast DNE Limit LMP Offer Curve MW Economic Output Level Reliability Based Limit Forecast, EcoMax, & DDP

7. How Will the Expected Unconstrained Output Forecast Be Developed for Wind Resources? • Every five minutes the ISO will evaluate: • Current plant output • Wind High Limit - plant operator’s “nowcast” of output if not constrained by the ISO, and considering current wind conditions and operational status of wind turbines • Real-Time High Operating Limit – plant operator’s estimate of what the plant can produce with optimal wind conditions and considering the operational status of wind turbines • ISO’s 50% probability of exceedance (P50) forecast of plant output • Given the high accuracy of the ISO wind forecast to date, the “expected unconstrained output” forecast will generally be the P50 forecast • The additional information will be used to identify, understand and correct any errors and biases in the P50 forecast that may emerge

8. Source: September 2014 COO Report

9. Price Setting • LMPs are determined by UDS • DIPRs are not treated differently than other resources in the price calculation • In general • When a DIPR is unconstrained (expected output is less than DNE Limit) it will not be setting price. • When a DIPR is constrained (expected output is greater than DNE Limit), it would be able to set price. • Please see the presentation “Real-Time Dispatch of Intermittent Resources” by T. Zheng & J. Zhao at the September 29, 2014 VRWG meeting. • Comprehensive discussion and examples of DNE Limit determination and pricing impacts

10. DNE Dispatch Eligibility • The DNE Dispatch is designed to accommodate all intermittent resource types, when the following necessary conditions are met: • Telecommunications, metering, and other requirements, as specified in OP-14 • Physical controls/equipment that enable a resource to follow dispatch instructions to reduce output to a specified level • ISO is able to produce an accurate plant-specific short term forecast of output for the next dispatch interval • Initially, this will include only wind assets that are not Settlement Only Generators (SOG) • OP-14 Appendix F already includes wind-specific specific requirements • OP-14 also governs eligibility for registration as an SOG • All non-SOG intermittent assets that meet the above necessary conditions will be required to receive and follow DNE Limit dispatch instructions

11. DNE Dispatch Eligibility – Forecast Considerations • An accurate short term forecast for wind resources is already in place • Phase II of the wind forecast project will automate publication of a fleet-wide wind forecast prior to DNE Dispatch implementation • The ISO has not evaluated the required effort or feasibility of developing short term forecasts for solar or intermittent hydro • Due to size and location, solar resources are not anticipated to be a cause of frequent curtailments in the next several years • The ISO is participating in a collaborative R&D effort to identify best practices for solar forecasting • The Distributed Generation Forecast Working Group is inventorying existing solar resources and developing a long term forecast of solar penetration • No timeframe has been established to extend DNE Dispatch to non-wind intermittent resources.

12. DNE Dispatch – Operational Considerations • Transmission lines in remote locations where many wind plants have located tend to be “skinny”, with line limits that cannot be exceeded, even for short periods • Normal rating = Short Term Emergency Rating = Long Term Emergency Rating • The ISO will not be reserving space on transmission lines to allow wind resources to temporarily exceed a DNE Limit to take advantage of increasing wind • The short term forecast will recognize the increasing expected wind output, and UDS would begin ramping down higher priced resources • Once telemetry confirms space has been created by the down-ramping resources, wind resources would receive new, higher DNE Limits, and could begin ramping up. • Wind resources generally have much faster ramp rates than other dispatchable resources. A wind plant could “fill up” the space to be created by a down-ramp before the down-ramp was completed. • Reserving space effectively locks in inefficient use of transmission facilities whenever a line is constrained and a wind plant on the line is operating below its Real-Time High Operating Limit (RTHOL)

13. Day-Ahead and Real-Time Markets • DIPRs with Capacity Supply Obligations will be required to submit offers into the Day-Ahead Market (DAM) up to the actual RT production expected by the Lead Participant • This is consistent with “physical capability” offer requirements placed on other dispatchable capacity resources, including Demand Response • This requirement would take effect at the start of the Capacity Commitment Period beginning June 1, 2018 (associated with FCA #9) • How does the ISO use the wind forecast in DA and RT? • The wind forecast is not included in the DAM • Current practice is to include 100% of the wind forecast MW in all Resource Adequacy Assessments (RAA) of capacity requirements • In real-time, 25% of forecast MW is normally assumed when making supplemental commitments for specific reliability needs

14. DNE Dispatch – NCPC Impacts • NCPC cost allocation will be addressed in a separate comprehensive design effort later this year • This effort will consider the role of generator energy deviations (including DIPRs), along with all other aspects of cost allocation • The recent NCPC Credit redesign (effective 12/3/2014) makes intermittent resources eligible for all NCPC credits except: • Hourly Shortfall credit (cleared in DA but constrained off in RT) • RT Dispatch Out of Merit credit (Not explicitly excluded, but the calculation for non-dispatchable resources would never produce a credit) • DIPRs will be eligible for both of these credits • Since DIPRs will be able to set price, the Hourly Shortfall exclusion is no longer necessary • Out of Merit credits are considered unlikely, but could occur during Min Gen Emergencies • “Following dispatch”, as applied to DIPRs, will mean operation at any output level between 0 MW and the DNE Limit.

15. Providing Reserves • DIPRs may qualify as Fast Start resources if able to meet all Fast Start eligibility conditions • wind plants should generally qualify • Intermittent resources today are not eligible to: • provide real-time reserves • meet Forward Reserve Obligations • provide regulation • DIPRs will continue to be ineligible to provide these services

16. Local Min Gen Emergencies • The current tariff at III.2.5(c) provides for the possibility of local Min Gen Emergencies • DNE Dispatch eliminates the need to declare a local MGE • Local MGE is just manual congestion management • DNE Dispatch will do this accomplish this economically • Procedures to declare and settle a local MGE have never been implemented, so the tariff language serves no purpose • The portion of III.2.5(c) relating to local MGE will be eliminated.

17. DNE Dispatch – Operating Procedure Conforming Changes • Some of the terminology used in OP-14 may need conforming changes to be consistent with new terminology and meanings associated with DNE Dispatch • For example, “dispatch” generally implies an ability to follow instructions to move both up and down. DNE Dispatch only implies an ability to move down to prevent operation above the DNE limit. • OP-18 may need technical updates to the datapoints being telemetered, etc. • Any necessary changes will be brought through the normal Reliability Committee stakeholder process • No schedule has yet been determined. • 2015 Q3 or Q4 is a reasonable guess, depending on the RC’s anticipated workload

18. Anticipated Schedule • October MC meeting – conceptual overview • MR1 language available, but not discussed • November MC meeting – MR1 language presented • December MC meeting – request MC vote • January PC meeting (or later) - request PC approval • FERC filing in January 2015 • RC review of any changes to Operating Procedures sometime in 2015 • Implementation no earlier than late-2015