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ISO PUBLIC – © 2016 CAISO ISO PUBLIC – © 2016 CAISO

WSPP – Optimizing Carbon Market Mechanisms in the

Western Interconnect

Warren Katzenstein

Lead Engineering Specialist

California ISO

March 3, 2016

ISO PUBLIC – © 2016 CAISO

Overview

• How CAISO electricity markets consider GHG costs

– Within California

– Energy Imbalance Market (EIM)

– Regional integration into day-ahead market

– Clean Power Plan (CPP) implications

• Regional integration benefits

– Benefits to renewable generation

– Impacts on coal generation

– Benefits of PacifiCorp’s full participation in day-ahead market as

participating transmission owner


GHG costs in the CAISO market within California

• Generation & imports must submit GHG allowances

• Generators & importers integrate costs into energy bids

• Locational marginal prices reflect GHG allowance costs


GHG costs in the EIM

• EIM optimizes real-

time energy dispatch

throughout the West

based on energy bids

• Generation outside

CA incurs obligation

for CA GHG

allowances when

serving CA load,

otherwise it does not


EIM recognizes electricity generated and consumed

outside of California does not have obligation for

California GHG allowances

• Generators submit GHG cost separate from energy bid

– MW quantity and price

– Independent of energy bid MW range

• Generator can opt not to deliver to CA by bidding 0 MW

– Accommodates resources that:

• Want to avoid a GHG obligation to CA for business reasons

• Have regulatory obligations to serve their state’s native load


How EIM accounts for California’s GHG costs

CAISO:

Energy = $35

GHG cost = N/A

LMP = $35

PacifiCorp:

Energy = $35

GHG cost = - $5

LMP = $30

• Both generators Fuel cost = $30/MWh

GHG cost = $5/MWh

• CA generator $35/MWh energy bid

Sets $35/MWh ISO LMP

Covers $5/MWh GHG cost

• PacifiCorp generator Imported to CA

Sets $30/MWh PAC LMP

Sets $5/MWh GHG price

ISO collects “extra” $5/MWh for

transfer to ISO from ISO load

Pays $5/MWh to generator for

its GHG costs


Similar approach will be developed for full integration

of PacifiCorp into day-ahead market

• Leverage EIM approach that determines which energy

supports flows into or within CA

– Create CA and non-CA zones within merged balancing areas to

track transfers for GHG compliance purposes

– Generation inside CA include GHG cost in energy bid

– Generation outside of CA has separate energy bid and GHG bid

– Load outside of CA zone does not pay the separate GHG cost

component

• Will apply to much more energy

– 95 percent of transactions are in day-ahead market


Regional solutions to CPP would maximize market

efficiency

• Different GHG prices have to be grouped separately:

– State implements economy wide, mass based program

• Include in GHG zone with CA

– State implements a CPP mass based program

• Include in GHG zone of mass states

– State implement a CPP rate based program

• Include in GHG zone of rate states

• Each of these GHG zones would have a separate GHG

component of the energy LMP

– Could be complex and result in inefficiencies or anomalies


Regional expansion will

lower GHG emissions by

better integrating

renewables

• Increased renewable output

lowers GHG emissions

• Regional expansion

increases liquidity among

transmission network

reducing renewable

curtailment


Regional expansion

provides geographical

diversity that reduces

renewable production

variability

• Renewable output

over wide area not

correlated

• Reduces need for

fossil-fuel generation

for balancing


Regional expansion

reduces renewable

curtailments

because of over-

generation

• High mid-day solar

production in CA

may result in over-

generation

• Exporting to serve

load outside CA

avoids curtailment

Source: Energy and

Environmental Economics, Inc,

2015


Coal generation not likely to increase under regional

integration

• Base load coal generation is determined through long-

term contracting

– Coal is stable, predictable energy source

– Coal already runs at high capacity

– Renewable energy sales more greatly benefit from optimized

organized market

• Coal is not the economically-marginal generation

– Natural gas production is marginal

– Increase in renewable output means fossil-fuel production

decreases

• CPP emission limits, flat load, increasing renewable

production will pressure coal generation

• SB 350 modeling


Increased benefits from full participation as a

participating transmission owner in the day-ahead

market

• Day-ahead is 95 percent of market

• Allows time to not commit or to position coal generation

to accommodate renewable production

• Integrated transmission planning process better

integrates renewable development


Contact Information

Warren Katzenstein

Lead Engineering Specialist, Market Quality & Renewable

Integration

California ISO

[email protected]

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