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How California Hopes to Manage the Intermittency of Wind Power
How California Hopes to Manage the Intermittency of Wind Power Its Participating Intermittent Resources Program hinges on the notion that there can be a way to schedule wind energy in future markets without imposing large penalties upon wind projects when they do not deliver energy as forecasted. Peter Asmus
I. Introduction
Peter Asmus is author of Reaping The Wind: How Mechanical Wizards, Visionaries and Profiteers Helped Shape Our Energy Future and Reinventing Electric Utilities: Competition, Citizen Action and Clean Power, both published by Island Press. His consulting clients include the California Energy Commission, The Energy Foundation, and the AHC Group of Saratoga, New York.
48
Wind power has been the fastest growing power source globally for several years in a row. Though the U.S. market only grew by 10 percent last year 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 in just one year.1 Total wind power capacity has quadrupled over the past five years and now exceeds 31,000 MW. Approximately
4,500 MW of wind power is currently operating in the U.S. nationwide. California, the state that jump-started the world’s wind power industry in the early 1980s with a menu of lavish subsidies, still leads the nation when it comes to current on-line wind power capacity with roughly 1,800 MW. believe it is fitting, then, that the California would address a major obstacle that has plagued the wind industry in the U.S. despite its remarkable growth over the last several years: how to schedule an intermittent power source in a competitive
I
# 2003, Elsevier Science Inc., 1040-6190/03/$ – see front matter doi:10.1016/S1040-6190(03)00079-4
The Electricity Journal
wholesale market designed primarily for base load thermal power plants that can ramp up and down with a simple flip of a switch. s manager of the state’s transmission grid, the California Independent System Operator (Cal-ISO) is the first regulatory institution in the country to come up with a new scheduling and forecasting system that mitigates the penalties imposed on wind-generated electricity that normally results from standard business practices. The inability to accurately forecast when a wind project will actually deliver energy has many grid operators pulling their hair out and throwing up their hands. Wind project owners are subject to substantial imbalance energy price risk that only makes it more difficult for them to compete with traditional fossil fuel generators. The approach developed at the Cal-ISO is particularly noteworthy in that it does not require any new systematic subsidies. It takes also advantage of new forecasting and telecommunications technologies and is tailored to today’s evolving competitive wholesale markets. In fact, the Cal-ISO’s new approach to accommodating the needs of the wind industry and transmission grid operators is so attractive that the Federal Energy Regulatory Commission (FERC) has incorporated the Cal-ISO principles of scheduling and forecasting wind generation
A
July 2003
into its Standard Market Design (SMD), a blueprint for reforming the nation’s transmission policies. Though FERC has raised the ire of state regulators with its cookie-cutter approach to developing a national highway of electrons, wind power advocates such as I applaud the federal agency’s vision when it comes to creating a level playing field for wind power.
One challenge: the purchase of back-up power from other generators to fill unscheduled gaps when the wind is not blowing.
II. Is Special Treatment for Wind Power Warranted? Why should state and federal regulators and policymakers be concerned about the fate of this particular renewable energy technology? ind power is the lowestcost renewable energy source, and therefore is today’s chief competition to natural gasfired combined cycle power plants. Stanford University researchers claim that wind power is already cheaper than coal-fired power plants2 and can be cost-competitive with a new
W
natural gas plant if wind speeds are measured at the hub heights typical of today’s large utilityscale wind turbines.3 This research demonstrates that it is now possible for a 1.5 MW wind turbine operating in winds that average 6.9 meters per second to be cost-competitive with new coal-fired and natural gas-fired power plants. However, the transmission expense involved with bringing wind-generated electricity to load centers, and the present procedures for scheduling wind energy, add layers of cost that often prevent wind power from truly competing with fossil fuels on a broad basis. The Cal-ISO has identified several challenges linked to scheduling transmission resources for wind power: The unpredictability of power output; The purchase of back-up power from other generators to fill unscheduled gaps when the wind is not blowing; The production of electricity by many projects during off-peak hours, which can add to overgeneration problems in California, especially at night, when energy demand is lowest; Wind power’s nature as a non-dispatchable ‘‘must take’’ resource that therefore can add to transmission line overloads; and Shifts in power generation among fleets of wind turbines, which can cause voltage collapse within a wind project, thereby reducing available energy sales.
# 2003, Elsevier Science Inc., 1040-6190/03/$–see front matter doi:10.1016/S1040-6190(03)00079-4
49
Because of growing concerns over global climate change and the need to diversify the nation’s power supply portfolio in light of the volatility of natural gas prices, wind power is an important hedge. Even the terrorist threat is a rationale for increasing reliance upon renewable resources such as wind power. A wind farm is comprised of several individual generators instead of one large target, such as a centralized nuclear reactor. Distributing power plants that are not dependent upon natural gas pipelines, and which can be located in remote areas, help reduce security threats to the national power grid.4 Still, the great promise of wind power can only be realized if a number of nitty–gritty details are worked out. At the most fundamental level, the crux of the problem is that today’s public policies governing today’s transmission grid were not really designed to address intermittent resources such as wind power. Instead, they reflect an infrastructure and corresponding set of protocols designed to respond to the operating characteristics of base-load thermal power plants. But as wind power technology has begun making inroads in power markets in the Pacific Northwest, Texas, the Midwest, New England, and Mid-Atlantic, issues surrounding the integration of wind into increasingly competitive markets has become a major concern among grid operators and market participants alike. 50
I
n California, the passage of the Renewable Portfolio Standard (RPS) last year, which mandates that the state’s reliance upon renewable energy sources double from 10 to 20 percent by 2017, could spur on the development of as much 2,000 to 3,000 MW of new wind capacity. Without a better system to forecast and schedule wind power, the Cal-ISO’s grid managers problems with
The ancillary service costs linked to wind power have been greatly exaggerated.
managing the state’s wind power project portfolio would only grow more intense over time. ‘‘Our Participating Intermittent Resources Program (PIRP) hinges on the fundamental concept that there can be a way to schedule wind energy in future markets without imposing large penalties upon wind projects when they do not deliver energy as forecasted,’’ says Randy Abernathy, vice president of market services for Cal-ISO. ‘‘We hope this new program will support financing of planned wind projects, as well as help
our grid operators anticipate the hourly energy delivered from such intermittent resources, and more easily achieve a balance in real-time between demand loads and supply resources.’’ Abernathy noted that Cal-ISO hopes to launch the PIRP this summer. The program will open with about 300 MW of new wind capacity at beginning of summer, with a possibility of adding significantly more wind capacity to the Cal-ISO’s markets by the fall. ‘‘Its hard to overstate the importance of the Cal-ISO’s PIRP to the wind energy industry,’’ said Jim Caldwell, policy director for the American Wind Energy Association (AWEA). ‘‘We were subject to unfair penalties of up to 100 percent of the cost of our product under the traditional system, which was a terrible economic burden and a potential show-stopper for future development in California.’’ Caldwell highlighted the fact 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.’’ The ancillary service costs linked to wind power have been greatly exaggerated. ‘‘Industry experience with intermittent resources such as wind on real utility systems has been relatively trouble free and predictions of large ancillary service costs to compensate for short-term variability in resource output have, in general,
# 2003, Elsevier Science Inc., 1040-6190/03/$ – see front matter doi:10.1016/S1040-6190(03)00079-4
The Electricity Journal
not proven to be true. For example, Pacific Gas & Electric for years operated an integrated utility system with as much as 10 percent of its generation resources being provided by wind without any increase in ancillary service costs,’’ claimed Caldwell. study conducted by Oak Ridge National Laboratory seems to buttress Caldwell’s contentions. It concluded that ancillary service costs should not be computed on a stand-alone basis, but should be calculated as a function of the size of the grid system relative to the nameplate wind facility capacity. Looking at a 100 MW wind plant integrated into a 2,300 MW utility grid, the authors concluded that the wind plant represented a regulation burden of less than $1/kW of nameplate capacity or a 0.22 percent increase in system regulation requirements.5 The California restructuring law, which divided up former utility monopolies into distinct entities, inadvertently created additional risk for wind power. A new centralized transmission dispatch system managed by the Cal-ISO was among the new regulatory institutions shaping markets for wind power. The Cal-ISO assumed control of the transmission grids from the state’s investorowned utilities. Since the Cal-ISO is required to forecast energy needs in 10-minute intervals and then send dispatch notices to generators, trying to
A
July 2003
address the intermittency of wind energy was a larger challenge in a competitive market than in a monopolyregulated system run by individual utilities. ark Smith, director of market affairs for FPL Energy, which owns the largest fleet of wind projects in the country, believes the Cal-ISO is on the right track. ‘‘A vast majority of wind energy is very
M
A study concluded that ancillary service costs should not be computed on a stand-alone basis, but as a function of grid system size relative to nameplate wind facility capacity. 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. The California ISO’s PIRP offers wind generation owners and energy consumers a rational and reasonable wholesale market structure. The previous Cal-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. Even though most admit that the penalties are misplaced, at least as they apply to wind, they detract from the market value of wind output and significantly increase the cost of capital.’’ Smith elaborated further: ‘‘The new Cal-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.’’ Steven Kelly, policy director for the Independent Energy Producers Association, which represents wind and other private generators, agreed that the California PIRP is a critical advance for the wind industry but warned that it is not a panacea. ‘‘Until we get some real operating experience under our belts, we will not know how great of an impact the PIRP will have on the wind power market. Theoretically, we should now be able to better forecast wind generation and at least get the output of wind projects within the bandwidth of forecasts. But the key issue from a business point of view is still signed power purchase contracts. Can the PIRP help wind generators signed power purchase contracts? That is the key question,’’ said Kelly.
# 2003, Elsevier Science Inc., 1040-6190/03/$–see front matter doi:10.1016/S1040-6190(03)00079-4
51
K
elly described the current wind power market in California as the classic chickenand-egg situation. Despite the passage of the RPS, new contracts with utilities have yet to be signed and he doesn’t expect any new contracts to be finalized until 2004. ‘‘That gives the Cal-ISO some time to iron out the new scheduling and forecasting protocols in the PIRP,’’ said Kelly. He added, ‘‘The market can tolerate a certain amount of imbalance, but huge blocks of wind can create reliability issues. Huge drops in energy production can create the need for back-up generation. I still think the wind guys need to firm up their product better so that wind can be a load-following resource. Perhaps mixing and matching with other renewables or relying upon pumped storage is the ultimate answer.’’ However, Kelly believes both the RPS and the PIRP are critical to the future of wind development in California. Smith of FPL Energy added that the federal production tax credit is also a critical piece of the puzzle. ‘‘All three of these policies are critically important in different ways. The RPS creates a market. The Cal-ISO’s PIRP exposes the underlying value of wind and allows for reasonable development risk and cost of capital. The production tax credit encourages penetration and research. The continuation of the federal production tax credit and Cal-ISO 52
program are critical to wind generation participation in achieving the state targets included in the RPS.’’
III. All Parties Come to the Table The urgency of the so-called ‘‘energy crisis’’ in 2000 and
2001 prompted the Cal-ISO to host a working group of market participants and regulators in order to see whether frank and open discussions could shed some light on the how to get more wind into California’s energy mix as soon as possible. Members of IEP, AWEA, California Wind Energy Association, and wind energy marketers were all brought into the same room with representatives of the California ISO, Governor’s Office, California Public Utilities Commission, and the California Energy Commission. Convening during the summer of 2001, members of the Intermittent Resources Working Group began investigating
solutions that would work for everybody in several give-andtake sessions. ‘‘One of our top goals was to be able to forecast wind energy production far enough in advance to avoid starting expensive and dirty peaking fossil units,’’ said Abernathy of the Cal-ISO. It was determined by way of a consensus process that a more sophisticated thirdparty forecasting service was needed to accurately forecast wind energy production two hours ahead. This two-hour ahead forecast would then serve as the schedule for grid operators. ‘‘Our basic premise was to be able to predict wind generation in real time to keep our 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-theart predictions of energy production,’’ he said. It is hoped that as data for each wind project is collected over time, the precision of forecasts of energy production will gradually improve. ‘‘The ability of our grid operators to balance load with generation will only get better and better as the forecasts improve for all projects serving the California power market,’’ Abernathy added. When it comes to finances, those participating in the PIRP program are exempt from previous penalties. Instead, imbalance costs are treated like
# 2003, Elsevier Science Inc., 1040-6190/03/$ – see front matter doi:10.1016/S1040-6190(03)00079-4
The Electricity Journal
changes in loads instead of generation. Wind production forecasts will be provided by unbiased third parties, which will help minimize any potential financial consequences to other Cal-ISO market participants and give the program the credibility it needs to get off the ground and be sustained over the long term. he Cal-ISO’s standard procedure has been to net scheduled energy deliveries on a 10-minute basis. Instead, PIRP 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. A wind project’s electricity generation follows fairly consistent seasonal patterns. Hourly and daily deviations could largely fade into the background noise when power production is netted over the course of an entire month. It should be pointed out that while exempt from imbalance penalties, wind projects remain responsible for transmission line congestion charges. In return for these changes in financial settlements, each participant in the PIRP is required to provide real-time meteorological and energy production data. This data will then be used in the future forecasts of energy production for each individual wind project. This database will allow the wind industry, as well as the
T
July 2003
Cal-ISO, to better understand each wind project’s power production profile. ‘‘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,’’ said the FERC on March 27, 2002, when the federal agency endorsed the PIRP. The PIRP was then incorporated into FERC’s Standard Market Design. Though it is far from clear if and when the SMD will be implemented, it is noteworthy that the Cal-ISO’s work on addressing a major obstacle to widespread reliance upon intermittent resources such as wind power is testimony to consensus-based solutions. The PIRP also recognizes that our transmission grid can be modernized through modern technologies that can better understand the science of weather. In the process, better management
of transmission services for wind has large implications nationally as FERC’s vision of the future slowly inches its way toward approval and implementation. ince the RPS law could ultimately add 2,000 to 3,000 MW to California’s existing 1,800 MW of wind power capacity in California, I believe the California ISO should also take a closer look at how the transmission infrastructure itself can be upgraded in order to foster the development of new wind capacity. The California ISO’s work on addressing the intermittency of wind power indicates that despite the disaster of California’s restructuring experience, the Golden State is still blazing trails on policies promoting the renewable energy sources of the future.&
S
Endnotes: 1. Record Growth for Global Wind Power in 2002, Press Release, American Wind Energy Association, Washington, DC, March 3, 2003. 2. Mark Jacobson and Gilbert Masters, Exploiting Wind Versus Coal, SCIENCE, Aug. 24, 2001, 293. 3. Cristina Archer and Mark Jacobson, The Spatial and Temporal Distribution of U.S. Winds and Windpower at 80 m Derived from Measurements, J. GEOPHYSICAL RES., July 17, 2002. 4. Peter Asmus, The War against Terrorism Helps Build the Case for Distributed Renewables, ELEC. J., Dec. 2001. 5. Randy Hudson, Brendan Kirby, et al., The Impact of Wind Generation on System Regulation Requirements, American Wind Energy Association, Washington, DC, June 2001.
# 2003, Elsevier Science Inc., 1040-6190/03/$–see front matter doi:10.1016/S1040-6190(03)00079-4
53
I. Introduction
Peter Asmus is author of Reaping The Wind: How Mechanical Wizards, Visionaries and Profiteers Helped Shape Our Energy Future and Reinventing Electric Utilities: Competition, Citizen Action and Clean Power, both published by Island Press. His consulting clients include the California Energy Commission, The Energy Foundation, and the AHC Group of Saratoga, New York.
48
Wind power has been the fastest growing power source globally for several years in a row. Though the U.S. market only grew by 10 percent last year due to the uncertain status of the federal wind energy production tax credit, a record 6,868 MW was installed worldwide. That figure represents a 28 percent increase in global wind power capacity in just one year.1 Total wind power capacity has quadrupled over the past five years and now exceeds 31,000 MW. Approximately
4,500 MW of wind power is currently operating in the U.S. nationwide. California, the state that jump-started the world’s wind power industry in the early 1980s with a menu of lavish subsidies, still leads the nation when it comes to current on-line wind power capacity with roughly 1,800 MW. believe it is fitting, then, that the California would address a major obstacle that has plagued the wind industry in the U.S. despite its remarkable growth over the last several years: how to schedule an intermittent power source in a competitive
I
# 2003, Elsevier Science Inc., 1040-6190/03/$ – see front matter doi:10.1016/S1040-6190(03)00079-4
The Electricity Journal
wholesale market designed primarily for base load thermal power plants that can ramp up and down with a simple flip of a switch. s manager of the state’s transmission grid, the California Independent System Operator (Cal-ISO) is the first regulatory institution in the country to come up with a new scheduling and forecasting system that mitigates the penalties imposed on wind-generated electricity that normally results from standard business practices. The inability to accurately forecast when a wind project will actually deliver energy has many grid operators pulling their hair out and throwing up their hands. Wind project owners are subject to substantial imbalance energy price risk that only makes it more difficult for them to compete with traditional fossil fuel generators. The approach developed at the Cal-ISO is particularly noteworthy in that it does not require any new systematic subsidies. It takes also advantage of new forecasting and telecommunications technologies and is tailored to today’s evolving competitive wholesale markets. In fact, the Cal-ISO’s new approach to accommodating the needs of the wind industry and transmission grid operators is so attractive that the Federal Energy Regulatory Commission (FERC) has incorporated the Cal-ISO principles of scheduling and forecasting wind generation
A
July 2003
into its Standard Market Design (SMD), a blueprint for reforming the nation’s transmission policies. Though FERC has raised the ire of state regulators with its cookie-cutter approach to developing a national highway of electrons, wind power advocates such as I applaud the federal agency’s vision when it comes to creating a level playing field for wind power.
One challenge: the purchase of back-up power from other generators to fill unscheduled gaps when the wind is not blowing.
II. Is Special Treatment for Wind Power Warranted? Why should state and federal regulators and policymakers be concerned about the fate of this particular renewable energy technology? ind power is the lowestcost renewable energy source, and therefore is today’s chief competition to natural gasfired combined cycle power plants. Stanford University researchers claim that wind power is already cheaper than coal-fired power plants2 and can be cost-competitive with a new
W
natural gas plant if wind speeds are measured at the hub heights typical of today’s large utilityscale wind turbines.3 This research demonstrates that it is now possible for a 1.5 MW wind turbine operating in winds that average 6.9 meters per second to be cost-competitive with new coal-fired and natural gas-fired power plants. However, the transmission expense involved with bringing wind-generated electricity to load centers, and the present procedures for scheduling wind energy, add layers of cost that often prevent wind power from truly competing with fossil fuels on a broad basis. The Cal-ISO has identified several challenges linked to scheduling transmission resources for wind power: The unpredictability of power output; The purchase of back-up power from other generators to fill unscheduled gaps when the wind is not blowing; The production of electricity by many projects during off-peak hours, which can add to overgeneration problems in California, especially at night, when energy demand is lowest; Wind power’s nature as a non-dispatchable ‘‘must take’’ resource that therefore can add to transmission line overloads; and Shifts in power generation among fleets of wind turbines, which can cause voltage collapse within a wind project, thereby reducing available energy sales.
# 2003, Elsevier Science Inc., 1040-6190/03/$–see front matter doi:10.1016/S1040-6190(03)00079-4
49
Because of growing concerns over global climate change and the need to diversify the nation’s power supply portfolio in light of the volatility of natural gas prices, wind power is an important hedge. Even the terrorist threat is a rationale for increasing reliance upon renewable resources such as wind power. A wind farm is comprised of several individual generators instead of one large target, such as a centralized nuclear reactor. Distributing power plants that are not dependent upon natural gas pipelines, and which can be located in remote areas, help reduce security threats to the national power grid.4 Still, the great promise of wind power can only be realized if a number of nitty–gritty details are worked out. At the most fundamental level, the crux of the problem is that today’s public policies governing today’s transmission grid were not really designed to address intermittent resources such as wind power. Instead, they reflect an infrastructure and corresponding set of protocols designed to respond to the operating characteristics of base-load thermal power plants. But as wind power technology has begun making inroads in power markets in the Pacific Northwest, Texas, the Midwest, New England, and Mid-Atlantic, issues surrounding the integration of wind into increasingly competitive markets has become a major concern among grid operators and market participants alike. 50
I
n California, the passage of the Renewable Portfolio Standard (RPS) last year, which mandates that the state’s reliance upon renewable energy sources double from 10 to 20 percent by 2017, could spur on the development of as much 2,000 to 3,000 MW of new wind capacity. Without a better system to forecast and schedule wind power, the Cal-ISO’s grid managers problems with
The ancillary service costs linked to wind power have been greatly exaggerated.
managing the state’s wind power project portfolio would only grow more intense over time. ‘‘Our Participating Intermittent Resources Program (PIRP) hinges on the fundamental concept that there can be a way to schedule wind energy in future markets without imposing large penalties upon wind projects when they do not deliver energy as forecasted,’’ says Randy Abernathy, vice president of market services for Cal-ISO. ‘‘We hope this new program will support financing of planned wind projects, as well as help
our grid operators anticipate the hourly energy delivered from such intermittent resources, and more easily achieve a balance in real-time between demand loads and supply resources.’’ Abernathy noted that Cal-ISO hopes to launch the PIRP this summer. The program will open with about 300 MW of new wind capacity at beginning of summer, with a possibility of adding significantly more wind capacity to the Cal-ISO’s markets by the fall. ‘‘Its hard to overstate the importance of the Cal-ISO’s PIRP to the wind energy industry,’’ said Jim Caldwell, policy director for the American Wind Energy Association (AWEA). ‘‘We were subject to unfair penalties of up to 100 percent of the cost of our product under the traditional system, which was a terrible economic burden and a potential show-stopper for future development in California.’’ Caldwell highlighted the fact 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.’’ The ancillary service costs linked to wind power have been greatly exaggerated. ‘‘Industry experience with intermittent resources such as wind on real utility systems has been relatively trouble free and predictions of large ancillary service costs to compensate for short-term variability in resource output have, in general,
# 2003, Elsevier Science Inc., 1040-6190/03/$ – see front matter doi:10.1016/S1040-6190(03)00079-4
The Electricity Journal
not proven to be true. For example, Pacific Gas & Electric for years operated an integrated utility system with as much as 10 percent of its generation resources being provided by wind without any increase in ancillary service costs,’’ claimed Caldwell. study conducted by Oak Ridge National Laboratory seems to buttress Caldwell’s contentions. It concluded that ancillary service costs should not be computed on a stand-alone basis, but should be calculated as a function of the size of the grid system relative to the nameplate wind facility capacity. Looking at a 100 MW wind plant integrated into a 2,300 MW utility grid, the authors concluded that the wind plant represented a regulation burden of less than $1/kW of nameplate capacity or a 0.22 percent increase in system regulation requirements.5 The California restructuring law, which divided up former utility monopolies into distinct entities, inadvertently created additional risk for wind power. A new centralized transmission dispatch system managed by the Cal-ISO was among the new regulatory institutions shaping markets for wind power. The Cal-ISO assumed control of the transmission grids from the state’s investorowned utilities. Since the Cal-ISO is required to forecast energy needs in 10-minute intervals and then send dispatch notices to generators, trying to
A
July 2003
address the intermittency of wind energy was a larger challenge in a competitive market than in a monopolyregulated system run by individual utilities. ark Smith, director of market affairs for FPL Energy, which owns the largest fleet of wind projects in the country, believes the Cal-ISO is on the right track. ‘‘A vast majority of wind energy is very
M
A study concluded that ancillary service costs should not be computed on a stand-alone basis, but as a function of grid system size relative to nameplate wind facility capacity. 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. The California ISO’s PIRP offers wind generation owners and energy consumers a rational and reasonable wholesale market structure. The previous Cal-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. Even though most admit that the penalties are misplaced, at least as they apply to wind, they detract from the market value of wind output and significantly increase the cost of capital.’’ Smith elaborated further: ‘‘The new Cal-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.’’ Steven Kelly, policy director for the Independent Energy Producers Association, which represents wind and other private generators, agreed that the California PIRP is a critical advance for the wind industry but warned that it is not a panacea. ‘‘Until we get some real operating experience under our belts, we will not know how great of an impact the PIRP will have on the wind power market. Theoretically, we should now be able to better forecast wind generation and at least get the output of wind projects within the bandwidth of forecasts. But the key issue from a business point of view is still signed power purchase contracts. Can the PIRP help wind generators signed power purchase contracts? That is the key question,’’ said Kelly.
# 2003, Elsevier Science Inc., 1040-6190/03/$–see front matter doi:10.1016/S1040-6190(03)00079-4
51
K
elly described the current wind power market in California as the classic chickenand-egg situation. Despite the passage of the RPS, new contracts with utilities have yet to be signed and he doesn’t expect any new contracts to be finalized until 2004. ‘‘That gives the Cal-ISO some time to iron out the new scheduling and forecasting protocols in the PIRP,’’ said Kelly. He added, ‘‘The market can tolerate a certain amount of imbalance, but huge blocks of wind can create reliability issues. Huge drops in energy production can create the need for back-up generation. I still think the wind guys need to firm up their product better so that wind can be a load-following resource. Perhaps mixing and matching with other renewables or relying upon pumped storage is the ultimate answer.’’ However, Kelly believes both the RPS and the PIRP are critical to the future of wind development in California. Smith of FPL Energy added that the federal production tax credit is also a critical piece of the puzzle. ‘‘All three of these policies are critically important in different ways. The RPS creates a market. The Cal-ISO’s PIRP exposes the underlying value of wind and allows for reasonable development risk and cost of capital. The production tax credit encourages penetration and research. The continuation of the federal production tax credit and Cal-ISO 52
program are critical to wind generation participation in achieving the state targets included in the RPS.’’
III. All Parties Come to the Table The urgency of the so-called ‘‘energy crisis’’ in 2000 and
2001 prompted the Cal-ISO to host a working group of market participants and regulators in order to see whether frank and open discussions could shed some light on the how to get more wind into California’s energy mix as soon as possible. Members of IEP, AWEA, California Wind Energy Association, and wind energy marketers were all brought into the same room with representatives of the California ISO, Governor’s Office, California Public Utilities Commission, and the California Energy Commission. Convening during the summer of 2001, members of the Intermittent Resources Working Group began investigating
solutions that would work for everybody in several give-andtake sessions. ‘‘One of our top goals was to be able to forecast wind energy production far enough in advance to avoid starting expensive and dirty peaking fossil units,’’ said Abernathy of the Cal-ISO. It was determined by way of a consensus process that a more sophisticated thirdparty forecasting service was needed to accurately forecast wind energy production two hours ahead. This two-hour ahead forecast would then serve as the schedule for grid operators. ‘‘Our basic premise was to be able to predict wind generation in real time to keep our 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-theart predictions of energy production,’’ he said. It is hoped that as data for each wind project is collected over time, the precision of forecasts of energy production will gradually improve. ‘‘The ability of our grid operators to balance load with generation will only get better and better as the forecasts improve for all projects serving the California power market,’’ Abernathy added. When it comes to finances, those participating in the PIRP program are exempt from previous penalties. Instead, imbalance costs are treated like
# 2003, Elsevier Science Inc., 1040-6190/03/$ – see front matter doi:10.1016/S1040-6190(03)00079-4
The Electricity Journal
changes in loads instead of generation. Wind production forecasts will be provided by unbiased third parties, which will help minimize any potential financial consequences to other Cal-ISO market participants and give the program the credibility it needs to get off the ground and be sustained over the long term. he Cal-ISO’s standard procedure has been to net scheduled energy deliveries on a 10-minute basis. Instead, PIRP 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. A wind project’s electricity generation follows fairly consistent seasonal patterns. Hourly and daily deviations could largely fade into the background noise when power production is netted over the course of an entire month. It should be pointed out that while exempt from imbalance penalties, wind projects remain responsible for transmission line congestion charges. In return for these changes in financial settlements, each participant in the PIRP is required to provide real-time meteorological and energy production data. This data will then be used in the future forecasts of energy production for each individual wind project. This database will allow the wind industry, as well as the
T
July 2003
Cal-ISO, to better understand each wind project’s power production profile. ‘‘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,’’ said the FERC on March 27, 2002, when the federal agency endorsed the PIRP. The PIRP was then incorporated into FERC’s Standard Market Design. Though it is far from clear if and when the SMD will be implemented, it is noteworthy that the Cal-ISO’s work on addressing a major obstacle to widespread reliance upon intermittent resources such as wind power is testimony to consensus-based solutions. The PIRP also recognizes that our transmission grid can be modernized through modern technologies that can better understand the science of weather. In the process, better management
of transmission services for wind has large implications nationally as FERC’s vision of the future slowly inches its way toward approval and implementation. ince the RPS law could ultimately add 2,000 to 3,000 MW to California’s existing 1,800 MW of wind power capacity in California, I believe the California ISO should also take a closer look at how the transmission infrastructure itself can be upgraded in order to foster the development of new wind capacity. The California ISO’s work on addressing the intermittency of wind power indicates that despite the disaster of California’s restructuring experience, the Golden State is still blazing trails on policies promoting the renewable energy sources of the future.&
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Endnotes: 1. Record Growth for Global Wind Power in 2002, Press Release, American Wind Energy Association, Washington, DC, March 3, 2003. 2. Mark Jacobson and Gilbert Masters, Exploiting Wind Versus Coal, SCIENCE, Aug. 24, 2001, 293. 3. Cristina Archer and Mark Jacobson, The Spatial and Temporal Distribution of U.S. Winds and Windpower at 80 m Derived from Measurements, J. GEOPHYSICAL RES., July 17, 2002. 4. Peter Asmus, The War against Terrorism Helps Build the Case for Distributed Renewables, ELEC. J., Dec. 2001. 5. Randy Hudson, Brendan Kirby, et al., The Impact of Wind Generation on System Regulation Requirements, American Wind Energy Association, Washington, DC, June 2001.
# 2003, Elsevier Science Inc., 1040-6190/03/$–see front matter doi:10.1016/S1040-6190(03)00079-4
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