On July 3, 2024, Mr. Nathan Neudorf, the Minister of Affordability and Utilities, issued a direction letter to the Alberta Electric System Operator (AESO) regarding the government's policy decisions for advancing the design of the Restructured Energy Market (REM). Specifically, the AESO was directed to proceed with:
- the introduction of a mandatory day-ahead market;
- allowing the price of energy to be determined by the strategic offers of market participants, while using market mitigation to limit the potential for excessive exercise of market power;
- maintaining a Province-wide uniform price for electricity; and
- maintaining the following components of REM as outlined in the
AESO's Advice to the Minister on January
31, 2024:
- "Security Constrained Economic Dispatch"
- shorter settlement intervals,
- a review of the price floor and ceiling as well as the cooptimization of energy and ancillary services.
The confirmation from the Minister of Affordability and Utilities regarding the policy direction for the design enables the AESO to concentrate on the detailed aspects of the design, ensuring the development of a workable market. To review the progress made since the initial REM announcement in March 2024, you can access our prior updates here, here and here.
On July 18, 2024, the AESO held an information session detailing the REM update and provided an overview of upcoming engagement opportunities and associated timelines. The AESO has strategically divided the REM into six focused workstreams to facilitate the development process. For each workstream, the AESO has released a detailed options paper. Each papers provides in-depth insights and invites feedback from stakeholders.
The period for providing feedback on the initial two options papers, concerning, Shorter Settlement and Intertie Participation, closed in early August. Feedback on the four remaining opinion papers discussing Market Clearing, Pricing and Reserve Market, Market Power Mitigation, and the Day-Ahead Market are currently open. Responses to these options are due on or before September 6, 2024.
This blog post provides an initial overview of the announcements from the AESO's session that took place on July 18, 2024, and the workstream option papers. We will provide further updates as the REM design process progresses.
For reference, a detailed estimated timeline for consultation is below.
REM Workstreams
The AESO has broken down components of REM into individual workstreams, each dedicated to exploring design options for the following components:
1. Day-Ahead Market: The Day-Ahead Market enables participants to place strategic bids and complete transactions in advance, securing the participants anticipated load for the upcoming day. Three key characteristics have been proposed for the Day-Ahead Market:
- Financially Binding: Energy contracts awarded in the Day-Ahead Market are financially binding and are reconciled against the actual prices and quantities in the real-time energy market on the day after the Day-Ahead Market concludes.
- Physically Binding: Resources are committed in advance through the Day-Ahead Market and are required to adhere to their assigned dispatch schedule when the real-time market occurs. Once offers or bids are submitted for the day-ahead, they are fixed and cannot be altered for the real-time market.
- Targeted Day-Ahead Commitment: Leverage the existing Supply Cushion Regulation structure to create a more targeted and flexible mechanism for unit commitment and reliability. As noted in our previous post, the Supply Cushion Regulation requires the AESO to direct long lead time assets come online when the AESO's supply cushion is forecasted to be below the specified threshold.
2. Energy and Reserve Pricing: This workstream is dedicated to developing the AESO's strategy for incorporating new reserve products that are critical for ensuring reliability, as well as determining their impact on energy market pricing mechanisms. Specific areas of consideration include:
- Options for price cap level: $2,000/MWh or $3,000/MWh;
- Options for mechanism to reach price cap: running short of reserves could trigger price to jump to the cap, or price adders could incrementally increase price above the offer cap, up to the price cap, as reserves become scarce;
- Options for energy offer cap: $500/MWh or $800/MWh (interdependency with Market Power Mitigation workstream).
A key consideration under this workstream is defining under what circumstances the AESO will move from the lower offer cap to the high price cap.
3. Market Power Mitigation (MPM): The AESO has acknowledged stakeholder concerns regarding the challenge of attracting investment to Alberta's energy market and aims to address these concerns while also safeguarding consumer interest. Although the AESO did not delve into detailed options, the AESO outlined three considerations for refining the existing interim market power requirements. As discussed in detail in our previous post, in general, the MPM Regulation implements a secondary offer cap on thermal offers of market participants with a 5% or greater market share once a certain net revenue threshold has been reached in a month. The areas for potential modification include:
- Lower offer cap of $500/MWh instead of $800/MWh;
- Secondary offer cap;
- Secondary price cap.
4. Dispatch Optimization: This workstream focuses on establishing the appropriate methodology for setting a uniform price, analyzing the various incentives that emerge from this pricing structure, and consideration as to how these incentives may influence efficient dispatch. It also aims to ensure that these incentives are aligned with comprehensive congestion management strategies.
5. Shorter Settlement: Settlement intervals are currently based on one-hour periods. The rationale for transitioning to shorter settlement intervals is to enhance the responsiveness and flexibility of both generation and load. Four alternatives have been suggested for consideration, as well as the approximate implementation timelines for each:
- Option A: 15-Minute Interval (Transmission and
Distribution)
- Implementation Target: 2027, subject to scope Alberta Utilities Commission (AUC) Rule changes.
- Applicability: Transmission and distribution connected generators and intertie transactions, with hourly settlement for loads.
- Option B: 5-Minute Interval (Transmission and
Distribution)
- Implementation Target: 2029
- Applicability: Transmission and distribution connected generators and intertie transactions, with hourly settlement for loads.
- Requirements: Meter re-sealing, AUC and ISO Rule changes, and IT system upgrades.
- Option C: 15-Minute Interval (Comprehensive)
- Implementation Target: 2030
- Applicability: All generators, intertie transactions, and loads.
- Requirements: Installation of interval meters for loads, AUC and ISO Rule changes, and IT system upgrades.
- Option D: 5-Minute Interval (Comprehensive)
- Implementation Target: 2030
- Applicability: All generators, intertie transactions, and loads.
- Requirements: Meter re-sealing, installation of interval meters for loads, AUC and ISO Rule changes, and IT system upgrades.
A critical point raised by stakeholders is that, in addition to the capital investment required for system upgrades, the transition to the new system could take two to five years for generators, and an even longer period may be needed for both generation and load to fully adapt to shorter intervals. In response, the AESO is considering a phased approach to the above options to keep costs at a reasonable level. The chosen settlement interval is aimed to be implemented by 2030. Further details on the shorter settlement options can be found in the Shorter Settlement option paper.
6. Intertie Participation: An intertie is a connection that allows the transfer of electrical power between two or more separate electric grids or networks. There are four proposed options for intertie participation:
- Continue with the Status-Quo (Self-Scheduled Offers/Bids are Price Takers): If the current intertie transaction processes are maintained, participants would continue to enroll in adjacent markets as needed and arrange intertie transactions by leveraging available transfer capacity and forecasting price trends in both markets.
- Priced Interties (Economic offers/bids): This option would enable parties involved in intertie transactions to place offers and bids with specific prices, granting them equal status with other market participants.
- Intertie Optimization Scheduling between Jurisdictions: This approach involves the exchange of information between Independent System Operators (ISOs) to create a schedule for electricity transfers across regions that maximizes efficiency, takes into account the cost of production and the capacity available for such transfers. This process would be managed by market operators rather than by individual traders. With this system in place, power producers in Alberta would experience a rise in demand whenever the local electricity price is lower than that in the neighboring market, and conversely, demand would decrease when Alberta's price is higher.
- The AESO to join another market (Extended Day-Ahead Market (EDAM) or Markets+): There are established interconnection markets that the AESO could participate in as a full member. This option would require new rules and procedures. Within the Western Electricity Coordinating Council (WECC) region, two advanced day-ahead markets are emerging: one overseen by the California ISO (CAISO) known as the EDAM, and another managed by the Southwest Power Pool (SPP) called Markets+. Both are designed to facilitate the coordination of day-ahead trading of wholesale electricity across various areas in the western United States and parts of Canada.
In the Intertie Participation option paper, the AESO conducts a thorough analysis of various intertie options, assessing their alignment with the REM'S goals, which include ensuring affordability, reliability, advancing decarbonization, and maintaining feasibility in implementation.
Consultation
The AESO has established a consultation schedule, detailed in the table below. In addition to written feedback, the AESO is introducing "Design Sprints." These Design Sprints aim to offer stakeholders a dynamic platform, accessible both online and in person, to contribute insights regarding the various design workstreams and how they interrelate.
Each Design Sprint will focus on one of two groups: Group A, including (1) Dispatch Optimization, (2) Energy and Reserve Pricing, and (3) Market Power Mitigation; and Group B, covering (1) Mandatory Day-Ahead Market, (2) Intertie Participation, and (3) Shorter Settlement. Group A and Group B will run on alternating weeks, ensuring there is no overlap in the sessions.
If you missed the registration for in-person participation in the REM design sprints, you can email stakeholderrelations@aeso.ca for an opportunity to register for the virtual sessions.
Requests for Proposals (RFPs)
During the information session on July 18, 2024, the AESO noted its intention to release two separate RFPs, one pertaining to the market settlement system and the other to the energy settlement system. These RFPs are part of the IT system implementation process for the new market designs. As of the date of publishing, the AESO has not provided further specifics about these RFPs.
Next Steps
The AESO has post a Question Board on AESO Engage, designed to facilitate a public exchange of clarification questions regarding the options papers. Interested parties can use this forum to seek additional information before the deadline for feedback submissions, which is September 6, 2024. In addition, the AESO is hosting a virtual information session on September 5, 2024. The registration link can be found on AESO Engage.
To view the original article click here
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.