ORIGINAL REPORTING: The Big Grid Goes West

CAISO’s Energy Imbalance Market Has Taken Big Steps but Faces Competition

Herman K. Trabish, Dec. 2, 2020 (California Current)

Editor’s note: The Midwest’s grid operator continues to challenge California’s effort to develop a regional system with widening offers to prospective members.

California’s energy imbalance market (EIM) had a good 2020. It passed $1 billion in total benefits, added two powerhouse participants, and filed its first plan for expanding into day-ahead trading. But the question of how California can share decision-making with other states continues to block that expansion and potential participants are looking at alternatives.

The voluntary EIM was launched by PacifiCorp, a subsidiary of Warren Buffett’s Berkshire Hathaway Energy, and the California Independent System Operator in November 2014 to optimize real time dispatch. At the end of the third quarter of this year, the real-time market had generated $1.1 billion in energy savings and other benefits. The EIM operated by CAISO has 11 active participants. Xcel Enery subsidiary Public Service Co. of Colorado and Avangrid applied for entry this year, making for 11 applicants and an expected 22 participants by the end of 2022.

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After the 2018 California legislature’s third rejection of proposed CAISO governance changes to allow it to work with other states in a regional market, CAISO and stakeholders began developing a voluntary Extended Day-Ahead Market that would expand the EIM’s 5% of energy trading in the West’s 38 balancing areas to almost 100%. Multiple solutions to the two key challenges: 1) transmission planning and charges across jurisdictions and 2) guarantees among participants that they will meet their obligations have been proposed.

But expansion will only be possible if the conundrum of market governance is resolved. The difficulty is that California leaders want to protect the state from federal regulation and other states’ control while other Western leaders require a more open CAISO governance structure that allows them to participate in decision-making. Reconciling this contradiction will require new market rules agreed to by the EIM Governing Body and the CAISO board, an October 2019 CAISO paper reported. Advocates have found no consensus on those rules but a second phase of the process is underway.

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A 2019 Brattle Group study showing greater production cost savings with CAISO’s EIM than with a proposed Southwest Power Pool Western Energy Imbalance Service was decisive, Xcel Colorado President Alice Jackson said. The CAISO’s greater resource diversity, lower administrative costs, and planned EIM expansion to “day-ahead market services” were also factors, Jackson added.

The estimated production cost benefit for Xcel from joining the EIM are $1.98 million a year. The estimated benefits of joining SPP’s proposed energy imbalance service would be about $1.62 million a year. The difference, confirmed by newer Energy Strategies work, is due to the EIM’s size and resource diversity and the better “transfer capability” between the Colorado and California, Brattle said. But production cost benefits “are only one element of evaluating participation,” Brattle also reported. Congestion-related factors, load uncertainties, implementation, administrative, and transaction costs, and governance are also important, it added… click here for more

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