Post on 03-Jan-2016
The Council’s The Council’s Regional Portfolio Regional Portfolio
ModelModel
Michael Schilmoellerfor the
Northwest Power and Conservation CouncilGeneration Resource Advisory Committee
Thursday, September 25, 2008
2
OverviewOverview
Planning Principles Selection of Resource Plans Key techniques Model operation
3
Different Kind of Risk Different Kind of Risk ModelingModeling
Imperfect foresight and use of decision criteria for capacity additions
Adaptive plans that respond to futures Primarily options to construction power
plants or to take other action May include policies for particular resources
“Scenario analysis on steroids” 750 futures, strategic uncertainty Frequency that corresponds to likelihood
Planning Principles
4
Sources of UncertaintySources of Uncertainty Fifth Power Plan
Load requirements Gas price Hydrogeneration Electricity price Forced outage rates Aluminum price Carbon allowance cost
Production tax credits Renewable Energy
Credit (Green tag value)
Sixth Power Plan All of those to the left,
except, perhaps, aluminum price
Power plant construction costs
Technology availability Conservation costs
Planning Principles
5
Most Elements of the Most Elements of the Resource Plan Are Resource Plan Are OptionsOptions
To ConstructTo Construct
1071
Additions in Megawatts
Beginning of year 2008 2010 2012 2014 2016 2018 2020
CCCT 0.00 0.00 0.00 0.00 0.00 610.00 1,220.00SCCT 0.00 0.00 0.00 0.00 0.00 100.00 800.00Coal 0.00 0.00 0.00 0.00 0.00 0.00 0.00Demand Response 500.00 750.00 1,000.00 1,250.00 1,500.00 1,750.00 2,000.00Wind_Capacity 0.00 100.00 1,500.00 2,400.00 4,400.00 5,000.00 5,000.00IGCC 0.00 0.00 425.00 425.00 425.00 425.00 425.00
Conservation cost-effectiveness premium over market 10.00 5.00avg New Conservation 443 746 1416 1774 2020 2198
Planning Principles
6
Why Use a Schedule of Why Use a Schedule of Construction Options for a Construction Options for a
Resource Plan?Resource Plan?
More realistic! Necessary for capturing
construction risk Consistent with earlier Council
Plans
Planning Principles
7
Cost Distribution AssociatedWith a Plan
Hourly demand
Coal
Buy in Market
Buy in Market
Sell in Market
Gas Fired
Price-driven generation
Hydro
Contracts
HydroTotal
Resources
Year 1Summer Winter
Year 2Summer Winter
Background
Coal
Operating CostsOperating Costs
Model Overview
8
Spinner GraphsSpinner Graphs
Illustrates “scenario analysis on steroids,” one plan, across all futures
Link to Excel Spinner Graph Model
Model Overview
9
OverviewOverview
Planning Principles Selection of Resource Plans Key techniques Model operation
10
Risk and Expected Cost Risk and Expected Cost Associated With A PlanAssociated With A Plan
Like
lihood
(Pro
bab
ility
)
Avg Cost
10000 12500 15000 17500 20000 22500 25000 27500 30000 32500
Power Cost (NPV 2004 $M)->
Risk = average ofcosts> 90% threshold
Selection of Resource Plans
11
Like
lihoo
d (P
roba
bilit
y) Avg Cost
10000 12500 15000 17500 20000 22500 25000 27500 30000 32500
Power Cost (NPV 2004 $M)->
Risk = average ofcosts> 90% threshold
Like
lihoo
d (P
roba
bilit
y) Avg Cost
10000 12500 15000 17500 20000 22500 25000 27500 30000 32500
Power Cost (NPV 2004 $M)->
Risk = average ofcosts> 90% threshold
Like
lihoo
d (P
roba
bilit
y) Avg CostAvg Cost
10000 12500 15000 17500 20000 22500 25000 27500 30000 3250010000 12500 15000 17500 20000 22500 25000 27500 30000 32500
Power Cost (NPV 2004 $M)->
Risk = average ofcosts> 90% threshold
Feasibility SpaceFeasibility Space
Incre
asin
g R
isk
Increasing Cost
Selection of Resource Plans
12
Space of feasible solutions
Feasibility SpaceFeasibility Space
Incre
asin
g R
isk
Increasing Cost
Efficient Frontier
Selection of Resource Plans
13
25400
25600
25800
26000
26200
26400
26600
26800
27000
16000 16200 16400 16600 16800 17000
Expected Cost -- Millions 2004$
Ris
k (T
ailV
ar90
) Mill
ion
s 20
04$
A -- Least Cost
B
C
D -- Least Risk
Efficient Frontier
01000200030004000500060007000
1 8 15 22 29 36 43 50 57 64 71 78Quarters
aMW
01000200030004000500060007000
DR
Conservation
Avg Loads
A
0
1000
2000
3000
4000
5000
6000
7000
1 8 15 22 29 36 43 50 57 64 71 78
Quarters
aMW
0
1000
2000
3000
4000
5000
6000
7000
DR
Wind
Conservation
Avg Inc Load
B
0
1000
2000
3000
4000
5000
6000
7000
1 8 15 22 29 36 43 50 57 64 71 78
Quarters
aMW
0
1000
2000
3000
4000
5000
6000
7000
Wind
Coal
Conservation
Avg Inc Load
CBase Plan -- Representative Buildout
0
1000
2000
3000
4000
5000
6000
7000
1 8
15
22
29
36
43
50
57
64
71
78
Quarters
aM
W
0
1000
2000
3000
4000
5000
6000
7000
SCCT
CCCT
Wind
Coal
Conservation
Avg Inc Load
D
EfficientFrontier
Selection of Resource Plans
14
Risk: Importance of Risk: Importance of Multiple Multiple
PerspectivesPerspectives Standard deviation VaR90 90th decile Loss of load probability (LOLP) Resource - load balance Incremental cost variation Average power cost variation (rate
impact) Maximum incremental cost increase Exposure to wholesale market
prices Imports and exports
Selection of Resource Plans
15
Resource Plan SelectionResource Plan Selection
Trade-off between economic cost and risk
Rate impacts and volatility Exposure to market prices Non-economic costs and risks,
including associated carbon emissions
Meeting reliability standards Difficulties with changing the
resource plan
Selection of Resource Plans
16
How Do We Interpret and How Do We Interpret and Use a Schedule of Use a Schedule of
Construction Options?Construction Options? As a ceiling for
what should be sited and licensed
To develop signposts for re-evaluation
1071
Additions in Megawatts
Beginning of year 2008 2010 2012 2014 2016 2018 2020
CCCT 0.00 0.00 0.00 0.00 0.00 610.00 1,220.00SCCT 0.00 0.00 0.00 0.00 0.00 100.00 800.00Coal 0.00 0.00 0.00 0.00 0.00 0.00 0.00Demand Response 500.00 750.00 1,000.00 1,250.00 1,500.00 1,750.00 2,000.00Wind_Capacity 0.00 100.00 1,500.00 2,400.00 4,400.00 5,000.00 5,000.00IGCC 0.00 0.00 425.00 425.00 425.00 425.00 425.00
Conservation cost-effectiveness premium over market 10.00 5.00avg New Conservation 443 746 1416 1774 2020 21981071
Additions in Megawatts
Beginning of year 2008 2010 2012 2014 2016 2018 2020
CCCT 0.00 0.00 0.00 0.00 0.00 610.00 1,220.00SCCT 0.00 0.00 0.00 0.00 0.00 100.00 800.00Coal 0.00 0.00 0.00 0.00 0.00 0.00 0.00Demand Response 500.00 750.00 1,000.00 1,250.00 1,500.00 1,750.00 2,000.00Wind_Capacity 0.00 100.00 1,500.00 2,400.00 4,400.00 5,000.00 5,000.00IGCC 0.00 0.00 425.00 425.00 425.00 425.00 425.00
Conservation cost-effectiveness premium over market 10.00 5.00avg New Conservation 443 746 1416 1774 2020 2198
Siting and Licensing Early Construction
Committed ConstructionIn Service
Selection of Resource Plans
17
OverviewOverview Planning Principles Selection of Resource Plans Key techniques
Resource construction flexibility Valuation calculation Thermal resource dispatch Decision criteria Supply curves for conservation and price-
responsive hydro Model operation
18
Power Resource RisksPower Resource RisksCosts and ConsiderationsCosts and Considerations
Commercial Availability Risk Construction Risk
Responding fast enough to capture value Sunk siting and permitting costs Construction materials cost Mothball and cancellation costs
Operation Risk Fuel, maintenance, and labor costs
Retirement Risk Carrying the forward-going fixed cost of an
unused plant Undervaluing and retiring a plant that may
have value in the future
Resource construction flexibility
19
The Construction CycleThe Construction Cycle After an initial planning period, there typically large expenditures,
such as for turbines or boilers, that mark decision points.
Cas
h ex
pend
itur
esC
ash
expe
ndit
ures
18 months18 months 9 months9 months 9 months9 months
Resource construction flexibility
20
Construction OptionalityConstruction OptionalityC
apac
ity
Cap
acit
y
Planning
Construction
Committed construction
In service
time
Delay
Resource construction flexibility
21
New Fixed Cost New Fixed Cost CapabilitiesCapabilities
9 (9,9)
8 (8,8) (8,9)
7 (7,7) (7,8) (7,9)
6 (6,6) (6,7) (6,8) (6,9)
5 (5,5) (5,6) (5,7) (5,8) (5,9)
4 (4,4) (4,5) (4,6) (4,7) (4,8) (4,9)
3 (3,3) (3,4) (3,5) (3,6) (3,7) (3,8) (3,9)
2 (2,2) (2,3) (2,4) (2,5) (2,6) (2,7) (2,8) (2,9)
1 (1,1) (1,2) (1,3) (1,4) (1,5) (1,6) (1,7) (1,8) (1,9)
0 (0,0) (0,1) (0,2) (0,3) (0,4) (0,5) (0,6) (0,7) (0,8) (0,9)
0 1 2 3 4 5 6 7 8 9
Period
Resource construction flexibility
22
New Fixed Cost New Fixed Cost CapabilitiesCapabilities
9 (9,9)
8 (8,8) (8,9)
7 (7,7) (7,8) (7,9)
6(6,6)
(6,7) (6,8) (6,9)
5 (5,5)(5,6)
(5,7) (5,8) (5,9)
4 (4,4) (4,5)(4,6)
(4,7) (4,8) (4,9)
3 (3,3) (3,4) (3,5)(3,6)
(3,7) (3,8) (3,9)
2 (2,2) (2,3) (2,4) (2,5)(2,6)
(2,7) (2,8) (2,9)
1 (1,1) (1,2) (1,3) (1,4) (1,5)(1,6)
(1,7) (1,8) (1,9)
0 (0,0) (0,1) (0,2) (0,3) (0,4) (0,5)(0,6)
(0,7) (0,8) (0,9)
0 1 2 3 4 5 6 7 8 9
Period
Resource construction flexibility
23
New Fixed Cost New Fixed Cost CapabilitiesCapabilities
We will work our way through a pdf file that illustrates the logic
Visio-Logic_v080925.pdf
Resource construction flexibility
24
OverviewOverview Planning Principles Selection of Resource Plans Key techniques
Resource construction flexibility Valuation calculation Thermal resource dispatch Decision criteria Supply curves for conservation and price-
responsive hydro Model operation
25
ComputationComputation Cost Distribution AssociatedWith a Plan
Hourly demand
Coal
Buy in Market
Buy in Market
Sell in Market
Gas Fired
Price-driven generation
Hydro
Contracts
HydroTotal
Resources
Year 1Summer Winter
Year 2Summer Winter
Background
Coal
Valuation calculation
26
Traditional CostingTraditional Costing
trequiremen totalis
energy alefor wholes ($/MWh) price theis
resource of ($/MWh) price theis
resourceby provided (MWh)quantity is
($)cost totalis
(2) )(
Q
p
ip
iq
c
qQppqc
m
i
i
iim
iii
Valuation calculation
Hourly variable cost calculation:
27
““Valuation” CostingValuation” Costing
Valuation calculation
Complications arise when we use extended time periods
price
Loads (solid) & resources (grayed)
28
““Valuation” CostingValuation” Costing
Valuation calculation
Average loads and resources are the same, but in the first case, our system has net cost and in the second it has net benefit.
29
““Valuation” CostingValuation” Costing
(1) )()()( pqqpqEpEpqE
Valuation calculation
N*(N+1)/2 correlations (upper triangular matrix)
30
““Valuation” CostingValuation” Costing
trequiremen totalis
energy alefor wholes ($/MWh) price theis
resource of ($/MWh) price theis
resourceby provided (MWh)quantity is
($)cost totalis
(2) )(
Q
p
ip
iq
c
qQppqc
m
i
i
iim
iii
Valuation calculation
31
““Valuation” CostingValuation” Costing
)(
*
)(
imi
im
iii
iimm
iim
iii
ppqQp
pqqpQp
qQppqc
Valuation calculation
Only correlations are now those with the market
32
OverviewOverview Planning Principles Selection of Resource Plans Key techniques
Resource construction flexibility Valuation calculation Thermal resource dispatch Decision criteria Supply curves for conservation and price-
responsive hydro Model operation
33
Dispatchable ResourcesDispatchable Resources
Thermal resource dispatch
34
Gross Value of ResourcesGross Value of Resources
case)our in MW (1 turbine theofcapacity theis
($/MWh) rateheat fixed a assuming
hour, in this gas of price theis )(
($/MWh)hour in thisy electricit of price theis )(
case) in this (672 hours ofset theis
where
)))()((,0max(
C
hp
hp
H
hphpCV
g
e
Hhge
Thermal resource dispatch
35
Gross Value of ResourcesGross Value of Resources
(3) )()(,0max
or
)()(,0max
)()(,0max
hgph
epE
HCNV
HN
Hhh
gph
ep
HCN
Hhh
gph
epCV
Thermal resource dispatch
36
Gross Value of Resources Gross Value of Resources Using Statistical Parameters Using Statistical Parameters
of Distributionsof Distributions
e
ee
ge
ee
g
e
ge
dd
ppd
(h))(p
p
p
NN
dNpdNpc
12
1
21
2/)/ln(
ln ofdeviation standard is
price gas theis
pricey electricit average theis
variablerandom )1,0( afor CDF theis
where
(4) )()(
Thermal resource dispatch
Assumes prices are lognormally distributed
37
Estimating Energy Estimating Energy GenerationGeneration
Thermal resource dispatch
38
Estimating Energy Estimating Energy GenerationGeneration
Thermal resource dispatch
39
Estimating Energy Estimating Energy GenerationGeneration
*
*
1)(CDFcf
)(CDF
Calculus) of Thm (Fund
)(CDF
*
*
gg
gg
g
ppgHg
gH
ppg
e
P
eH
p
V
NCp
pNCp
V
dppNCV
Thermal resource dispatch
Applied to equation (4), this gives us a closed-form evaluation of the capacity factor and energy.
40
OverviewOverview Planning Principles Selection of Resource Plans Key techniques
Resource construction flexibility Valuation calculation Thermal resource dispatch Decision criteria Supply curves for conservation and price-
responsive hydro Model operation
41
Example ofExample of Decision Decision Criterion for Construction: Criterion for Construction:
CCCT and SCCTCCCT and SCCT Projected economic value, from the
construction, fixed, and variable costs and values from simulated forward curves:
the electricity forward price is an average of flat electricity prices over the preceding 18-months
the natural gas forward price is also such an 18-month average
Project the energy adequacy at the end of the construction cycle. If the system would otherwise be inadequate, build this unit if it is the least cost among the options available.
Decision criteria
42
Logic Flow for DecisionsLogic Flow for Decisions
no
Does the resource pay for itself?
yes
Go
Stop
Is the resource least cost of alternatives?
yes
Is forecast requirement on or before the
earliest on-line date?
no
Decision criteria
43
Decision Criteria For Decision Criteria For ConstructionConstruction
time
crite
rion
On-Line!
construction phase
optional cancellation period
evaluation phasetime
crite
rion
On-Line!
Decision criteria
44
Example ofExample of Decision DecisionCriterion for RetirementCriterion for Retirement
Forecast the value of the unit using the forward-going fixed cost only (fixed fuel transportation and salaries)
Mothball (de-staff, sell fixed fuel contracts) after pre-specified number of periods
Permanently decommission (convert the site to other purposes) if the plant remains in mothball status for some period
Decision criteria
45
OverviewOverview Planning Principles Selection of Resource Plans Key techniques
Resource construction flexibility Valuation calculation Thermal resource dispatch Decision criteria Supply curves for conservation and price-
responsive hydro Model operation
46
Supply CurvesSupply Curves
Supply curves
Supply Curve
0.0
20.0
40.0
60.0
80.0
100.0
120.0
0 10 20 30 40 50 60 70 80 90
MWa Available Annually
Lev
eliz
ed C
ost
(200
4$/M
Wh
)
47
Supply CurvesSupply Curves
Supply curves
Cost Assuming No Producers' Surplus
Supply Curve
0.0
20.0
40.0
60.0
80.0
100.0
120.0
0 10 20 30 40 50 60 70 80 90
MWa Available Annually
Lev
eliz
ed C
os
t(2
004$
/MW
h)
48
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MWa)
Mar
ket
Pri
ce
Long-term equilibrium market price
Conservation Supply Conservation Supply CurveCurve
δ
Supply curves
49
Components of Cost Components of Cost ReductionReduction
Additional conservation at $50/MWh
Total System Costs
SCCT deferral
Reduced market prices
Supply curves
50
Price-takers Still See Price-takers Still See BenefitsBenefits
Additional conservation at $50/MWh
Total System Costs
SCCT deferral
Supply curves
51
SCCT DeferralSCCT Deferral
Why does conservation defer single cycle combustion turbines?
Low-capital cost resources are the traditional solution for risk management
SCCT have low capital cost Conservation has high capital cost
Under what conditions does conservation hold an advantage over SCCTs?
Supply curves
52
SCCT DeferralSCCT Deferral$Net Benefit per $Expense
0
2000
4000
6000
8000
10000
12000
14000
16000
18000-1
-0.8
-0.6
-0.4
-0.2 0
0.2
0.4
0.6
0.8 1
1.2
1.4
1.6
1.8 2
2.2
2.4
2.6
2.8
Ratio ($Net Benefit\$Expense)
Fre
qu
ency
SCCT discretionary conservation lost opportunity conservation
Supply curves
53
Price Responsive Price Responsive HydroHydro
Supply curves
Hydro Supply Curve
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MW-mo)
Ma
rke
t P
ric
e (
200
4$
/MW
h)
54
Price Responsive Hydro:Price Responsive Hydro:Gross ValueGross Value
Supply curves
Hydro Supply Curve
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MW-mo)
Mar
ket P
rice
(200
4$/M
Wh)
55
Price Responsive Hydro:Price Responsive Hydro:Net Value or CostNet Value or Cost
Supply curves
Hydro Supply Curve
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MW-mo)
Ma
rke
t P
ric
e (
20
04
$/M
Wh
)
Hydro Supply Curve
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MW-mo)
Ma
rke
t P
ric
e (
20
04
$/M
Wh
)
At right, value associated with use of hydro to meet higher market price.
At left, value to return hydro using purchased market power at lower price.
56
Supply CurvesSupply Curves
Supply curves
Non-reversible Reversible
Cumulative
Incremental
Period curve
Study curve
Supply curve representations also include constraints on utilization rate and on upper and lower prices.
57
ConventionalConventional Hydro Hydro
User-defined lookup function, with a random draw from 50 hydro years each simulation year
Derived from Genesys BPAREGU.OUT file and 2000 Bi-Op and includes independents and the three non-PNCA Idaho hydro units
Estimates of east-side and west-side generation by month, by hydro condition
Estimates of on- and off-peak generation (6x16 definition)
Not! Supply curves
58
OverviewOverview Planning Principles Selection of Resource Plans Key techniques Model operation
Equilibrium search Order of calculations
59
Energy BalanceEnergy Balance
First Law of Thermodynamics: In a closed system, energy may not be created or destroyed.
generation = loads – imports (+exports)
We assure balance by controlling generation through electricity price. The model finds a suitable price by iteration.
Model operation
60
Equilibrium searchEquilibrium search
Model operation
61
ComputationComputation
Model operation
62
EndEnd
63
PredictorsPredictors
Demand Response and Wind: identical logic for fixed and variable costs for the unit, except
the size of the plant is 1MW, the electricity price is an period
average of flat electricity prices
Decision criteria
64
PredictorsPredictors
Coal: identical logic for fixed and variable costs for the unit, except
the size of the plant is 1MW, the electricity price is an period
average of flat electricity prices There was no variation or
uncertainty in coal prices
Decision criteria
65
PredictorsPredictors Conservation
Discretionary Annual, energy-weighted average of year
before last’s flat electricity price (lagged for budgeting)
Optional premium over market Lost Opportunity
Energy-weighted average of last five year’s electricity prices
Ratchets upward to reflect represents such things as market transformation and the implementation of codes and standards
Optional premium over marketDecision criteria