Transcript The Potential Effect of Locational Marginal Pricing on Renewable Resources

Electricity Industry
The Potential Effect of
Locational Marginal Pricing
on Renewable Resources
for Environmental Issues in Energy
NECPUC Annual Symposium
June 17, 2002
Janet Gail Besser
Senior Vice President
Overview
• Locational Marginal Pricing (LMP) will create
winners and losers
• Renewables are uniquely sensitive to locational
pricing
• Renewables are as important as ever
• Care should be taken in Standard Market Design
(SMD) re: LMP to avoid barriers to renewable
generation
© 2001 Lexecon Inc. All rights reserved.
Overview of Locational Marginal Pricing
• Current treatment of congestion
– Costs of transmission congestion termed “uplift” and
socialized across New England
• Treatment of congestion under LMP
– Costs of congestion become part of energy price paid
by load and to generation within transmissionconstrained regions
– Energy prices paid by load and to generation outside
constrained regions do not include costs of congestion
– Financial congestion rights (FCRs) can hedge price
risks
© 2001 Lexecon Inc. All rights reserved.
Overview of Renewables
• Unique siting needs of renewables
• Current location of most renewables relative to T
interfaces
• Impacts of LMP on existing renewables
• Impacts of LMP on ability to finance and construct
new renewables
• Potential environmental consequences
• State and federal law and policy re: renewables
• Potential market rule and policy responses re:
LMP
© 2001 Lexecon Inc. All rights reserved.
Unique Characteristics of Renewables
• Site choice limited based on availability of
necessary physical characteristics:
–
wind, water, wood
• Physical characteristics of New England such that
ideal sites for renewables likely to be on low-cost
side of transmission interface
© 2001 Lexecon Inc. All rights reserved.
Potential Effect of LMP on Renewables
• Renewables in load centers see higher energy
prices
– Some distributed generation
– Municipal solid waste?
• Renewables in remote locations see lower energy
prices
– Hydro
– Biomass/wood
– Wind
© 2001 Lexecon Inc. All rights reserved.
Transmission Sub-regions & Constraints
NB
HQ
BHE
RTEP Geographic Scope
(2002-2006)
Reliable and Economic Supply:
The 13 RTEP sub-areas shown in Figure 1.1 are designated:
Marginal
Adequate
Locked In
Figure 1.1
ME
Deficient
VT
SME
BHE ME S-ME
NH
NH VT BOST
NY
BOSTON
CMA/
NEMA
WMA
CMA-NEMA
SEMA W-MA
SEMA
RI
CT
RI SWCT
CT NOR
SWCT
NOR-
Bangor Hydro Electric
Maine
- Southern Maine
New Hampshire
Vermont
- Boston Import
- Central Mass./Northeastern Mass.
- Western Massachusetts
- Southeastern Massachusetts
Rhode Island
Connecticut
- Southwestern Connecticut
Norwalk / Stamford
NB, HQ and NY represent the New Brunswick, Hydro Quebec and
New York external control areas respectively.
Source: ISO-NE 2001 Regional Transmission Expansion Plan (RTEP01), Approved October 19, 2001.
© 2001 Lexecon Inc. All rights reserved.
Renewables Locations, by type
© 2001 Lexecon Inc. All rights reserved.
Renewable Capacity, by type
© 2001 Lexecon Inc. All rights reserved.
Objectives of LMP: Effect on Renewables
• LMP promotes economic efficiency
• LMP sends price signals about where to locate
infrastructure investment to relieve congestion
• But these price signals can not affect locational
decisions of some renewables
• Other policy goals:
Environmental, diversity, reliability
© 2001 Lexecon Inc. All rights reserved.
Public Policy Commitment to Renewables
• Renewables Portfolio Standards (RPS)
– CT, ME, MA
• Renewables System Benefits Charges (SBC)
– CT, ME, MA, RI
• Information Disclosure
– CT, ME, MA, NH, RI
• Emissions Performance Standards (EPS)
– CT, MA
© 2001 Lexecon Inc. All rights reserved.
Recommendations
• How to avoid negative implications of LMP for
Renewables
• Market rules/mechanisms
– E.g., allocate FCRs to renewables
• State policies
– E.g., SBC (more $?)
– RPS (and maybe EPS) rules?
– Other?
© 2001 Lexecon Inc. All rights reserved.
Conclusion
• Implementation of LMP is necessary and timely
• LMP likely to lead to reduction in renewables with
negative environmental consequences
• SMD should include mechanisms to avoid this
• States may also want to re-visit renewables
policies as part of solution
© 2001 Lexecon Inc. All rights reserved.