Clean RestructuringDesign Elements for Low-Carbon Wholesale

Markets and Beyond

Monisha Shah, NREL

José María Valenzuela, WWF Mexico

Héctor Alejandro Beltrán, CRE

Webinar Overview

Clean Restructuring:Design Elements for Low-Carbon Wholesale Markets and Beyond

• Overview of 21 CPP

• Overview of Clean Restructuring Report

• Procurement and Planning

• Market Rules and Operations

• Grid Expansion, Interconnection and Codes

• Mexico Case Study

• Q&A

Speakers

Monisha Shah

National Renewable

Energy LaboratoryJosé María

Valenzuela

World Wildlife Fund –

Mexico

Héctor Alejandro

Beltrán

Energy Regulatory

Commission of Mexico

Other Authors include:

• Danish Case Study: Kim Møller Porst, Anders Hasselager, Sandra Friis-Jensen, Mette

Vingaard, Danish Energy Agency

• German Case Study: Fabian Wigand, Silvana Tiedemann, Ecofys

• Main Report: Lori Bird, Owen Zinaman, and Jeffrey Logan, National Renewable Energy

Laboratory

India (co-lead)

United States(co-lead)

Denmark Finland Mexico South Africa Spain

21ST CENTURY POWER PARTNERSHIP

A MULTILATERAL CEM EFFORT

Report Overview

Clean Restructuring:

Design Elements for Low-Carbon

Wholesale Markets and Beyond

• Builds on Power

Systems of the Future

• An end vision for the

design of competitive

wholesale markets that

rely increasingly on VRE,

DR, and other flexible,

clean energy options

• Three case studies: Mexico, Denmark and Germany

Restructuring and Clean Energy

Increasing levels of clean energy can introduce new phenomenon

into the electricity system

Flexibility Options

Range of options for increasing the flexibility of a power system

Planning and Procurement

How might planning and procurement become more complex in clean

restructured markets?

• A more dispersed and

diverse set of clean and

variable energy resources

and market actors.

• Different interests between

system planners and

individual investors in

generation

• Revenue sufficiency

concerns can occur

• Allocating cost and risk while retiring fully or partially amortized

conventional generators in a market—in order to “make room” for new

clean energy capacity- can be tricky

Source: Energinet.dk, 2011

Danish power generation

Planning and Procurement

Strategies to Improve Planning and Procurement Processes with High Levels of Clean Energy

Enhancing Foundational Planning Data

• Conduct system flexibility assessments and potential studies, e.g.

EE and DR

• Utilization of high-fidelity wind and solar data

Enhancing System Planning Practices

• More integrative generation and transmission planning

• Utilization of advanced flexibility metrics and constraints in planning

exercises

Enhancing Market Structures and Procurement Practices

• Perform scenario analyses that explore transitions in market

structure

• Provide clear guidance on grid expansion plans for renewable

developers

• Include reasonable “right-to-curtail” provisions for new VRE

contracts;

• Formulate clear guidance on cost/risk allocation strategies for

retiring existing

Design of Market Rules and Operations

• Design and implementation of dispatch rules, e.g. shorter dispatch increments and

ability to revise bids based on forecasts

• By enlarging balancing areas, the relative variability and uncertainty in both the load

and system-wide renewable energy generation can be lowered.

• Rules and procedures for implementing curtailments, particularly for system

balancing

Wholesale market rules and operations can be designed for VRE and

flexibility

Design of Market Rules and Operations

Forecasting, Ancillary Services and New Market Products:

• Integration of forecasting into

market operations

• System operators need

adequate data from

generators to ensure accuracy

of system level forecasts.

• Imbalance penalties for

deviations from scheduled

generation can be effective

tools

• Market can be designed to change

the way ancillary services are

provided to the system including

Source: Greening the Grid: FORECASTING WIND AND SOLAR

GENERATION: IMPROVING SYSTEM OPERATIONS

load following, frequency responsive, inertial response, and reactive power support.

• New market products, such as ramping products, e.g. CAISO’s Flexiramp, may be

helpful for increasing system flexibility.

• Demand response can also be a cost-effective component of system flexibility for

energy, ancillary services, and capacity markets if certain barriers are addressed

Grid Expansion, Interconnection and Codes

For network expansion and

investment:

• Expand infrastructure investment to

accommodate clean energy

resources and appropriately

allocate costs and risks among

developers and ratepayers.

• Integrated generation and

transmission planning, e.g. CREZ

Interconnection:

• Streamline the interconnection

process to allow for new entrants

Grid Codes:

• Updated grid codes to better

accommodate VRE and other

resources

• And better connect to surrounding

grids and enable larger balancing

areas

Country Case Studies: Clean Restructuring in Action

• Mexico – rapid restructuring designed

specifically for the integration of clean

energy

• Germany – electricity market 2.0

debate on how to update their

restructured market to better

accommodate clean energy and

enable flexibility

• Denmark – regional cooperation

enabling a larger balancing area with

Nordic neighborsBidding areas in the Nordic

regionSource: NordREG

Mexico Case Study

Mexico’s Clean Restructuring

Mexico’s power market reform evolves in parallel to

an opening of all energy makers. Key drivers:

- Reduce cost of supply through market efficiencies.

- Reduce cost of supply through change in the

structure of energy production away from heavy-

fuel oil.

- Comply with climate and energy transition

mandates and policies: 35% clean energy by 2024

from 18-20%.

Additional key elements

- Population without access to electricity: 2%

- Geothermal capacity: 0.9 GW

- Technical and non-technical losses in 2013: 16%

Key desired outcomes

Mexico Case Study

Mexico’s Clean Restructuring

- Ministry of Energy (SENER)

- Energy Regulatory Commission (CRE)

- Mexican Independent System Operator (CENACE)

- Federal Commission of Electricity (CFE)

Moving from a vertically integrated monopoly to a competitive market

Review of How the Roles of Various Actors Evolved

Industry Model (1995-2012)

Private

generation

Generación

Transmission Distribution

Market-based Industry (2013/2014 - present)

Generation Retail

Mexico Case Study

Mexico’s Clean Restructuring

- CRE established the set of minimum technical requirements to operate

and plan the Mexican Power System

- Based on the definition of an Adequate Level of Reliability

- Enforces 10 NERC-like standards

- Includes requirements for the development of the Smart Grid

- Creation of the National Reliability Committee

Economic Dispatch and the Ancillary Services Market

- CENACE (ISO) is responsible to perform the economic dispatch

- Based on merit order of variable costs

- LMP computed for more than 2, 000 nodes

- Creation of an ancillary services market

Reliability regulation: The Mexican Grid Code

Mexico Case Study

Mexico’s Clean Restructuring

- Independent System Operator.

- Robust regulatory and planning system.

- Restructuring and unbundling of the state utility (CFE)

- Clear rules for wholesale competitive market and regulated transmission

and distribution.

Key elements for clean energy deployment

- Clean Energy Certificates system with burden on the consumer side

- Long-term energy auctions

- High Renewable Energy Zones

Key market design instruments

Mexico Case Study

Mexico’s Clean Restructuring

The transformation of interconnection

- Serious administrative bottlenecks

- High regulatory risk

- Economic burden to the authority

- Cumbersome process for grid planning

(bias in favor of CFE projects)

PRODESEN

Programa de Desarrollo del Sector Eléctrico

- 15-years indicative planning for power

generation

- 5-years investment program for grid

infraestructure

Mexico Case Study

Mexico’s Clean Restructuring

First long-term auction call

- 6.3 TWh-year of energy and 6.3 million Certificates, based on the 5%

Certificates requirement for 2018.

- 500 MW of capacity.

- Energy to be delivered starting 2018.

Results

- 227 offers from 69 bidders.

- Projects: 18 winning bids from 11 companies.

- Technologies: 7 solar PV companies and 4 wind companies.

- Energy: 74% is going to solar and 26% to wind.

- Prices: lowest price below 40 USD.

- No offers for capacity.

Mexico Case Study

Mexico’s Clean Restructuring

First long-term auction

Contact Information

Authors

• Monisha Shah, NREL, monisha.shah@nrel.gov

• José María Valenzuela, WWF – Mexico, jvalenzuela@wwfmex.org

• Héctor Alejandro Beltrán, Energy Regulatory Commission of Mexico,

hbeltran@cre.gob.mx

Report Website and Link

21CPP Website:

www.21stcenturypower.org

Report available at:

http://www.nrel.gov/docs/fy16osti/66105.pdf

Report fact sheet:

http://www.nrel.gov/docs/fy16osti/66479.pdf