California's grid operator issued its latest proposal for a series of major changes to its day-ahead wholesale electricity market, an initiative aimed at helping to integrate growing levels of solar and wind generation.

The California ISO on June 8 released its revised straw proposal for the day-ahead market enhancements initiative, and has conference calls scheduled for June 15 and June 17 to review it with market participants and others.

CAISO made several changes to the initial straw proposal, which was issued in February and was the topic of a March conference call with more than 100 attendees that indicated there were still a lot of open questions and cloudiness about the proposal.

"In this iteration, the ISO is proposing revised market formulation to address stakeholder concerns with the earlier proposal," CAISO said in a June 8 bulletin. "The revised formulation seeks to remove the interaction between energy schedules and reliability energy schedules, but maintain the new market products of reliability capacity up/down and imbalance reserves up/down."

The initial straw proposal had included a new market product, called "reliability energy," that would have replaced the current process, known as "residual unit commitment."

This would change the integrated forward market and residual unit commitment from a sequential process to a co-optimized process.

"Reliability energy" was defined as the energy schedule plus "reliability capacity up," less "reliability capacity down."

Unlike the residual unit commitment process, reliability energy would also allow resources scheduled in the day-ahead market to provide downward dispatch capability and commit resources if the load forecast is less than the demand that clears the day-ahead market.

Stakeholders were divided on the reliability energy proposal and various energy schedules settling at different prices due to the reliability energy constraints. CAISO eliminated the reliability energy proposal and has now proposed decoupling energy and reliability capacity in the market formulation by using multiple passes to determine a fixed requirement for reliability capacity and imbalance reserves, it said in the document.

A facet of the initial straw proposal that is being retained is the introduction of an imbalance reserve product, which would be co-optimized in the day-ahead market with energy and ancillary services. Imbalance reserves would schedule additional dispatch capability to be available in the real-time market, and the imbalance reserve requirement would be based on historical differences between the hourly day-ahead forecast net load and the real-time 15-minute new load forecast.

"There is broad stakeholder support for the development of an imbalance reserve product to meet uncertainty and ramping needs between the day-ahead and real-time markets," CAISO said in the revised straw proposal.

CAISO said a redesign of its day-ahead market is necessary because of changes to the way it historically operated with a predictable generation fleet. Resources were scheduled hourly in the day-ahead market and imbalances were addressed in the real-time market.

Over the past 10 years, a large influx of variable wind and solar resources have caused operational issues and energy imbalances. CAISO is ultimately responsible for meeting load reliably when variable resources change output and change forecasts as the market approaches real time, it said.

Large imbalances between the day-ahead and real-time markets can result in challenging conditions for its grid operators.