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Broker eXcelerate Series: The Western Grid’s Energy Imbalance Market

The Western Grid’s Energy Imbalance Market and Its Impacts to the Duck Curve, FRAC-MOO, and the Rest of the Utility Farm


The energy grid in Western states, particularly California, has come under increased scrutiny in recent years as rolling blackouts and outages from extreme weather or wildfires has become more common. If you were to poll ratepayers about the most important aspect of their energy services, they may like to have clean energy and they would certainly want affordable rates, but nothing would take precedence over reliability. They want to know that without fail, they flip on a light switch or plug in a machine at any given moment and rely on the power to be flowing instantaneously. That priority transcends customer type and timing, people needed reliability years ago and they require it now.

But the grid of today has undergone some large-scale transformations in recent years that have impacted every aspect of power generation and delivery. From clean generation to smart grid technology to customers starting to generate their own power at times and more, the grid today does not look like it once did and so ensuring that reliability necessitates different tools than previously.

In this latest entry to the Broker eXcelerate Series, we’ll cover the tool that was put in place in the past decade in the Western United States: the Energy Imbalance Market. And with natural implications for the duck curve and for FRAC-MOO, you’d be forgiven for thinking this had something to do with Old McDonald and his farm, but in actuality it’s all about load flexibility, resource adequacy, and the future of the grid.

Defining the Western Grid’s Energy Imbalance Market

Ever since late 2014, the California Independent System Operator (CAISO) has operated in conjunction with an Energy Imbalance Market (EIM). At its beginning, the Western EIM only applied to CAISO and Pacificorp, but it has since expanded to include utilities and markets that include Salt River Project, Seattle City Light, Idaho Power Company, Portland General Electric, NV Energy, Balancing Authority of Northern California (Phase 1), Powerex, Puget Sound, and Arizona Public Service, with continued plans to expand even further. Source: Western EIM

But what does this participation mean for these power producing entities and ISOs? The EIM is a real-time energy market, unique to the U.S. power sector, that seeks to identify and make available the lowest-cost energy options as central entities continuously seek to ensure supply meets demand. While all ISOs/RTOs have day-ahead and real-time markets of some type, EIM provides the special sauce in how it expands beyond the footprint of any single ISO. That is, thanks to the Western EIM, CAISO can look for resources to meet its demand beyond just the CAISO-located producers. Similarly, those CAISO-located power generators may be able to sell their low-cost energy beyond the borders of the CAISO service area. The implications of this arrangement are that wider service areas can be reached in a way that enhances resource availability and optimization. Wider area means more energy resources can be pulled, so an outage or severe weather storm in one area won’t immediately result in supply crunches because EIM can be leveraged to see what other participants have spare capacity at that moment to share. So, not only does such an EIM more effectively find the lowest cost power source, but it also enhances grid reliability.

A key difference between a traditional ISO/RTO and this aggregated EIM is that participation of local producers in the relevant ISO market is typically a requirement, but the EIM is completely voluntary. Those organizations that participate, whether to gain energy or to send excess supply, do so because they recognize the EIM’s inherent value and want to take advantage themselves. And it’s not hard to see why, as just since it started in 2014 the Western EIM has resulted in hundreds of millions of dollars in total savings.

As the utility sector and wider leaders seek to usher in the clean energy transition, the EIM setup also helps by making renewable energy resources more impactful and ultimately profitable. When constrained to smaller footprints of service areas, renewable generation is more likely to experience unprofitable road blocks like curtailment (when the generation needs to be stopped because there is too much generation and not enough customers to take it at that moment) or even the need to pay other entities to take the excess power. However, with more potential customers to which to send renewable generation, that means renewable projects are morel likely to find someone who’s eager to pay for those valuable resources. In that way, the EIM can also be seen as a key grid decarbonization tool by bumping up the level of renewable generation being consumed and making profitable the building of new renewable resources.

As the Director of CAISO, Don Fuller, describes it: “One of the things we have found with the energy imbalance market is it’s helping us and it’s helping our neighbors better accommodate large penetrations of new renewable energy resources, whether it’s solar or wind.” For states that are increasingly ramping up their clean energy commitments and goals, this added option in their transition toolbox can and will become critical. “As we continue to ramp up with increased renewables, we’ll be looking at all kinds of tools to help us manage that, and the energy imbalance market will be an important part of that,” confirms Fuller. In just one quarter alone, the EIM was able to reduce emissions by over 55,000 metric tons thanks to reduced curtailment events, representing enough emission reductions to equal taking 12,000 passenger vehicles off for an entire year!

Important to note, though, that the EIM is not just about clean energy goals. Rather the economic and bottom line benefits have spoken for themselves, offering anywhere from $2 million to 50 million in financial benefits per participant each year. So, as it relates to common trends, patterns, and issues on the western power grids, the availability of the Energy Imbalance Market means a lot of positive results.

California’s Duck Curve

The Western EIM is particularly important thanks to the prevalence of the duck curve in California. The duck curve is a concept that sounds affable and cute, like a duck, but is actually an ever-present threat to grids that have a high penetration of renewable solar energy. Named for the shape of the electricity demand curve over the course of a day, which a whimsical utility professional decided resembled the outline of a duck, the duck curve describes the impact of solar energy being available in accordance to the sun in a way that does not necessarily align with the times of the day that average customers want to be using the greatest amount of energy.

As described by the U.S. Department of Energy, “When the sun is shining, solar floods the market and then drops off as electricity demand peaks in the evening. The duck curve is a snapshot of a 24-hour period in California during springtime—when this effect is most extreme because it’s sunny but temperatures remain cool, so demand for electricity is low since people aren’t using electricity for air conditioning or heating.” Pictured in the image above, the lines represent the difference between the power being demanded by grid users and the power being generated at a given moment by regional solar facilities—the ‘net load’. With each year over the past decade, CAISO has added more and more solar resources, making it so during peak sunshine the amount of net load needed by non-solar resources has decreased. However, as the sun moves across the sky and people return home from work or school to start using greater amounts of electricity, that creates a situation where less solar PV resources are available but more overall generation is needed. To meet this demand, non-solar generators (namely fossil fuel plants, like gas and oil, for example) must ramp up more rapidly. This switch from high solar to low solar creates operational challenges for those baseline fossil fuel plants, while the tendency for solar installations to increase is leading to concerns of greater overgeneration (represented by the deeper bottom line on the graph). The result is one which causes system operators to curtail solar and cut off from the grid additional environmental and economic benefits and harming the growth of renewable investment.

So, how does the Western Energy Imbalance Market help to calm down the aggressive duck curve that’s been growing in recent years? CAISO has identified the increased participation in the EIM as one of the key steps to mitigating oversupply risk that results from the duck curve, specifically with the goal to “increase participation in the western Energy Imbalance Market in which real-time energy is made available in western states.” By covering a wider geography from which resources can be drawn, with inherent variation in solar availability (both in terms of longitude and local weather patterns), the available solar generation can be better sent to where it’s needed at a given moment—outside of the sole ISO/RTO in question—while there’s less of a chance that said generation will find no eager customer, keeping solar generation profitable and appealing.

While the total volumes imported / exported via the imbalance market is relatively small, on the scale of 2-5% of total demand in total transactions, these duck curve challenges inherently take place on the edges of the curves and having additional resources available has an outweighed benefit to them.

FRAC-MOO

From the pond that the duck curve swims in, we’ll head next to the pastures where you’ll hear FRAC-MOOing across the farm. FRAC-MOO stands for the flexible resource adequacy criteria must-offer obligation. CAISO implemented requirements for FRAC-MOO, which were accepted by FERC in 2014, that intended to ensure that sufficient resource adequacy was available at any given moment. This resources flexibility could provide aid to address the added variability and net load volatility inherent in the evolving CAISO grid.

In response to the duck curve, FRAC-MOO became a way of measuring that the grid was ready at a moment’s notice to address the ramp up and ramp down that was being experienced in a system that saw greater penetration of intermittent resources, distributed resources, and the like in the past decade. FRAC-MOO can be considered a measure of how ready and hardenedv the grid is to responding to these changes that are coming because of the modern grid that doesn’t just rely on central utility-scale fossil fuel plants but are made up of greater, differently ready assets.

Using FRAC-MOO opportunities, those resources that aren’t dependent on the time of day or the availability of the sun, like solar generation is, can be more readily compensated for them being on ‘stand by’ should the duck curve announce itself too hard on any given day. Further, the use of FRAC-MOO proposals allows those operators who participate in the imbalance market to continue moving in the direction of renewable resources without concern that they’ll be left high and dry. The EIM ensures the flexible resources in according with FRAC-MOO can reach a wider footprint of customers and the whole system operates more efficiently, effectively, and affordably.

Community Choice Aggregators

Community choice aggregators, or CCAs, don’t have a fun farm animal to evoke. But to start with the basics, a CCA is the process of allowing local governments to purchase power from alternative power providers on behalf of the customers in their jurisdiction without actually changing up the transmission and distribution systems that deliver the necessary electricity. The motivation for CCAs, which are only legally available in California, Illinois, Ohio, New York, New Jersey, Rhode Island, and Massachusetts, is to allow cities and towns to have greater control over the terms of their power generation. The negotiating jurisdictions may want to secure better prices, or maybe they want to purchase from generators who have a greater amount of clean energy. Either way, CCAs allow for the community to negotiate for a group rate rather than on a customer-to-customer basis, giving them more purchase power and making the endeavor more worthwhile for the power generator.

While the process of getting the legislation passed to allow for CCAs in a state can be a challenge, and even once that is established there’s still a lot of work left to do for the specific communities to coordinate, the practice is swiftly gaining favor (though in the Western United States, only California allows CCAs).

As it relates to the Western EIM, CCAs simply provide another opportunity for renewable energy to be readily bought and sold within this market. Because so many CCAs are established with a goal towards renewable energy sources, they will interplay with the renewable aspects of the EIM and contribute to both the challenges and opportunities outlined by the duck curve and FRAC-MOO with an established presence. The availability of the EIM allows the CCAs operating in California to operate more efficiently and effectively, providing greater reach for solar resources that meet the desired end goals of those communities.

As the grid continues to evolve, as we build towards more interconnected grids, and as fallout from lack of interconnectivity remains in the spotlight, the Western Energy Imbalance Market will be one to watch—lessons will likely be learned both in what works well and where hurdles remain or new challenges pop up.



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