CAPACITY VALUATION

Summary

A primary component in the Net Market Value (NMV) calculation used to rank competing resources

Reflects the value associated with a resource’s ability to avoid conventional capacity

Version 6.0 now utilizes ELCC values versus fixed NQC values in Version 2.0-5.0

RPS Calculator Valuation Framework

Levelized Cost of Energy

Transmission Cost

Capacity Value

Energy Value

Net Resource Cost

Integration Cost*

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*Not currently quantified in RPS Calculator

Methodology used to value output of renewable generation captures declining returns to scale, allowing for better analysis of high penetrations

Version 6.0

Capacity value evaluated endogenously in each year based on other renewable resources in portfolio

Avoided cost of capacity calculated based on load-resource balance

Value streams calculated based on lifecycle impact to ratepayers

Version 2.0 - 5.0

Capacity value attributed to renewable resources based on static assumptions

Avoided cost of capacity valued at cost of new entry

Value based only on snapshot in 2020

Major Updates to RPS Calculator

Goals for New Methodology

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Model Functionality Versions 2-5 Version 6

Differentiate capacity value between renewable resources Dynamic methodology that captures renewable portfolio effects and declining capacity value with resource saturation

Avoided cost of capacity accounts for CAISO reserve margin relative to load-resource balance

Capacity Value

• Capacity value reflects the value associated with a renewable resource’s ability to avoid conventional generation capacity, and it is calculated as:

• RPS Calculator measures capacity value at various renewable penetrations and mixes by:– Quantifying each renewable resource’s capacity credit using the Effective Load

Carrying Capability (ELCC) method– Varying the avoided cost of capacity depending on system-wide reserve margin

Capacity Value ($/kW-yr)

Capacity Credit(% of nameplate

capacity)

Avoided Cost of Capacity ($/kW-yr)

Old Methodology Based on NQC

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Capacity value reflects avoided conventional generation investments afforded by renewable build

Common practice is to measure the contribution of variable renewables towards reliability based on output during peak load conditions

Original method: Net Qualifying Capacity (NQC) calculated using 70% excedence methodology

Calculated as 70th percentile of generation between HE14 and HE18 (Apr-Oct)

Differentiated between technologies

Did not account for changes to the net peak that occur with continued renewable build

Guiding Principle:Resources that are more peak-coincident have more capacity

value

New Methodology Based on ELCC While the first increment of solar PV has a relatively large impact on peak, it also

shifts the “net peak” to a later hour in the in day

This shift reduces the coincidence of the solar profile and the net peak such that additional solar resources have a smaller impact on the net peak

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Changing Value of Capacity

• The marginal ELCC of one renewable resource technology declines as its penetration increases

• This is most apparent for solar PV, which has a high capacity credit at low penetrations, but this rapidly decreases as additional capacity is added

• A renewable portfolio that contains a diverse set of technologies can mitigate the decline in ELCC

Solar PV

Wind

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Marginal ELCC (% of Nameplate)

Effective Load Carrying Capability (ELCC)

Pursuant to legislation, Resource Adequacy has adopted “Effective Load Carrying Capability” to determine the contribution of variable renewables towards the system’s reserve margin

By definition, ELCC depends on the composition of the system (both conventional and renewable resources)

ELCC is now incorporated in Version 6.0 as a lookup function in an ELCC “surface” or matrix

ELCC of incremental resources updates each year as the composition of the system changes

In the RPS Calculator, the surface contains nearly 10,000 ELCC values—each associated with a different portfolio of renewable resources

Interpolation between points on the surface is used to determine marginal ELCC values for resource screening

ELCC is the additional firm load that can be met by an incremental generator while maintaining the same level of system reliability

Development of the ELCC Function

E3 used a stochastic LOLP methodology to calculate the ELCC of a wide range of possible renewable portfolios

Example portfolios:

RPS Calculator can access up to 9,750 of these portfolios to best characterize the ELCC of a portfolio and the marginal ELCC of potential additions

Portfolio CSP(No Storage)

CSP(w/ Storage)

Solar PV(Distributed)

Solar PV(Utility-scale)

Wind(Coastal)

Wind(Inland)

ELCC of Portfolio(% of Peak)

1 1.50% 1.50% 12.00% 9.00% 2.50% 0.00% 16.11%

2 3.00% 1.50% 12.00% 3.00% 7.50% 0.00% 18.29%

3 1.50% 1.50% 9.00% 10.50% 10.00% 7.50% 22.52%

4 3.00% 1.50% 6.00% 3.00% 10.00% 7.50% 21.08%

ELCC Calculation Approach

• ELCC values used in RPS Calculator were developed by E3 using the Renewable Energy Capacity Planning (RECAP) model– Uses industry-standard approach to evaluate loss of load probability:

1. Calculate hourly net load distributions (based on load, wind, solar shapes)

2. Calculate capacity outage probability table (based on generator forced outage assumptions)

3. Calculate probability that supply < net load in each time period

– Method is expected to yield similar results to methodology under development in the RA proceeding

– Values will be benchmarked against calculations used in the RA proceeding when available

RECAP Model: https://ethree.com/public_projects/recap.php

ELCC Function Interpolation To approximate the ELCC of points not sampled by the LOLP simulations,

the RPS Calculator uses linear interpolation

Example: Utility-scale solar in absence of other renewable resources

ELCC function represents ELCC of whole renewable portfolio

Marginal ELCC (ELCC of incremental resources in year of build) is approximated by the slope of the curve

ELCC Function Interpolation

To approximate the ELCC of points not sampled by the LOLP simulations, the RPS Calculator uses linear interpolation

Example: Utility-scale solar in absence of other renewable resources

Marginal ELCC of solar

In year of interest:

ELCC from LOLP model

1MWh of additional solar

Renewable portfolio online

Existing renewable portfolio in year of interest

ELCC Surface

Because the ELCC of each incremental resource depends on the whole portfolio of renewable resources, the ELCC function is actually a multidimensional surface

One dimension for each renewable resource type

Marginal ELCC for each resource is approximated by slope of surface in each direction

Linear interpolation in multiple dimensions involves placing each portfolio on to a facet of this surface

Solar Penetration

Wind Penetration

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Wind/solar slice of surface:

ELCC Surface Because the ELCC of each incremental resource depends on the whole

portfolio of renewable resources, the ELCC function is actually a multidimensional surface

Solar Penetration

Wind Penetration

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1MWh of additional wind

1MWh of additional solar

Marginal ELCC of wind

Marginal ELCCof solar

For any portfolio on this facet:

Wind/solar slice of surface:

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Short-RunAvoided Cost

Long-Run AvoidedCost

Avoided Capacity Cost ($/kW-yr)

Capacity Value Calculation

The other component of a resource’s capacity value is the avoided cost of capacity from an alternative source

Avoided capacity cost is driven by the need for capacity When the system is short, capacity avoided

cost approaches the all-in net cost of a new CT

When the system is long, capacity avoided cost is represented by today’s average RA contract price

RPS Calculator includes Load-Resource Balance for CAISO to determine the timing of this transition Assumptions from LTPP used where possible

Based on recent average

RA contract prices

New CT net cost

Determining Avoided Capacity Costs Year-by-year avoided cost evaluated based load-resource balance using

assumptions provided by LTPP Load forecast, demand-side resources, conventional generator additions & retirements

Avoided cost transitions from short-run to long-run avoided cost when load-resource balance is reached

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Reserve Margin Requirement

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Available Capacity

Transition from short-run to long-run avoided cost

RPS Calculator Guide

• The parameters that affect Capacity Value can be found on the following tabs:– Generators: list of non-renewable generators in the CAISO

and/or contracted to CAISO loads• Includes NQC assumptions for each conventional plant• Aligned with LTPP

– ELCC_Table: ELCC lookup table for a range of RPS portfolios– ELCC_Interp: calculation of marginal ELCCs for each

technology based on current portfolio of renewable resources– System_Capacity: evaluation of CAISO system load-resource

balance (and the corresponding value of capacity)– Valuation: calculation of capacity value ($/MWh) used in

resource screening and selection process