The Bonneville Power Administration has taken the next step in deciding whether to join the Western Energy Imbalance Market, issuing a letter to the region on June 20 describing the business case and legal authority for doing so.
An EIM is a voluntary market whose participants can choose whether to bid in resources in order to dispatch power to balance supply and demand across a broad geographic region every 5 minutes, in a market that clears every 15 minutes.
In the case of the Western EIM, the region is likely to include much of the West Coast and portions of Canada, Idaho, Montana, Wyoming, Nevada, Utah, Arizona and New Mexico, by the time BPA would potentially participate in 2022.
An updated independent third-party analysis of Bonneville’s proposed participation in the Western EIM by Energy and Environmental Economics forecasts a $29 million to $34 million annual net dispatch benefit for Federal Columbia River Power System participating resources, against ongoing annual expenses of $6.9 million.
This benefit level would allow for quick recovery of an estimated $30 million to $35 million in startup costs.
Based on 2017 data, the 17 current and pending EIM members represent 71 percent of Western Electricity Coordinating Council total load—57 percent from the nine current members, including the California Independent System Operator, and 14 percent from the eight pending members. Adding in BPA’s 5.9 percent load would bring that total up to about 77 percent.
For modeling purposes, E3 assumed only residual incremental and decremental spin capacity at Bonneville’s “Big 10” hydro projects can be dispatched in EIM. These projects include the “Big 6”—Bonneville, Grand Coulee, The Dalles, John Day, Chief Joseph and McNary; and four of the largest federal projects—Lower Monumental, Lower Granite, Little Goose and Ice Harbor. These represent 16,190 MW and 3,483 MW, respectively.
In addition to providing a revenue source for BPA and enhancing the value of its hydro resource, EIM membership has the potential for significant transmission benefits.
For example, using the EIM to address flow relief in BPA’s South of Allston path requires much less resource obligation than the usual approach of curtailment, according to E3 modeling results.
For flow relief requirements of 100 MW, 300 MW and 500 MW on the path, simulated schedules of 455 MW, 1,085 MW and 1,711 MW respectively would be curtailed. By contrast, the EIM area relief obligation would be 70.7 MW, 208 MW and 344.9 MW, respectively. Further, curtailment cannot resupply balancing energy to balancing authority areas or control for the dispatch of resources that could reload the path, unlike the capability that the imbalance market provides.
The EIM can also serve as a nonwires solution, providing congestion and capacity alternatives at an ongoing cost of about $43 million per year, compared with transmission line builds with costs discounted over 40 years of $80 million/year for the canceled Interstate 5 reinforcement line, and $120 million/year for the Boardman to Hemingway line, which is still in its planning and permitting phase.
The EIM is also a cost-competitive alternative to demand response, which falls in the range of
$29-$167/kW-year for direct load control options, versus pricing mechanisms through the EIM in the
$10-$35/kW-year range, Bonneville said.
In another illustrative example, the annual cost of a 50-50 mix of battery storage and redispatch to address 100 MW of intra-hour flow relief worked out to $27.6 million, based on results from the South of Allston redispatch pilot, whereas using the EIM to address it would be $10 million.
BPA emphasized that transmission projects would still be necessary to, for example, replace wooden poles, provide generation interconnection for customer projects such as data centers, and load-service-area reinforcement projects that mitigate reliability criteria violations, such as the Hooper Springs project in southeast Idaho.
Bonneville says selling its surplus energy in Western markets is “essential” to keeping its rates low, and the exploration of joining the EIM is part of the agency’s 2018-2023 strategic plan as a means to further strengthen financial health and maintain a competitive edge.
“The new tools and capabilities that come with participation in an energy imbalance market will help BPA and the region to more fully realize the value of the flexible, carbon-free power of the Federal Columbia River Power System across an expanding footprint,” Steve Kerns, grid modernization director for BPA’s Business Transformation Office, said in a statement.
“The technology and business processes behind the EIM are also foundational to participate in new energy and capacity markets like the Day-Ahead Market Enhancements currently being explored by CAISO and its stakeholders, including BPA,” Kerns added.
BPA’s work to undertake to join the EIM will also give regional customers greater access to emerging markets and may reduce long-term transmission costs by decreasing or delaying the need for transmission system expansion, Bonneville said.
The letter also proposes that Bonneville sign an EIM implementation agreement with market operator CAISO. Signing this agreement would obligate BPA to spend funds specific to EIM participation and require development of a detailed project plan to ensure the necessary systems, processes and training are in place prior to market participation.
The letter’s release initiates a 30-day public comment period that will help inform Bonneville’s record of decision, anticipated in September 2019, on whether to sign the implementation agreement.
If BPA signs the implementation agreement, analysis on whether to join the EIM will involve discussions and final decisions from October 2019 to August 2020 on all remaining policy issues, followed by the 2022 rate-case process from October 2020 to July 2021. The process leading up to a final close-out letter on whether to join the EIM will take place from October to December 2021.
Among the remaining policy issues is BPA’s determination that its concerns regarding CAISO’s Local Market Power Mitigation procedures are addressed by proposed enhancements to be filed this summer with FERC for approval.
The procedures are used to achieve efficient load service by raising market prices above otherwise competitive market outcomes in order to prevent participants from exercising market power.
Problems with the current procedures that the enhancements are intended to remedy include mitigating for the entire operating hour rather than for only the 15-minute interval when market power is found; unintended flows or incremental transfers that have the potential to discourage additional EIM participation; and not capturing the opportunity cost of hydro generation—that is, the cost of forgone future generation, when prices would have been higher, due to market dispatches in the present or near-term.
Another policy issue is BPA’s belief that it can participate in the EIM even though it currently can’t sell directly into California via the market because the state requires the purchase of allowances to offset the carbon content of the power. That requirement is essentially a carbon tax on the transaction; under the U.S. Constitution, a state tax can’t be levied on a federal agency unless Congress authorizes it.
If Bonneville can gain authorization to buy the allowances, the extremely low carbon content of its fuel mix would add value to its sales into the state, with a tax currently amounting to around 30 cents/MWh, considerably lower than other typical transactions, the letter noted.
Tom Davis, BPA’s negotiating lead for the EIM effort, told Clearing Up that Bonneville has been pursuing Congressional authorization to pay the tax for some time now. In fact, a provision approving the purchase of carbon allowances is part of H.R. 2960, an energy and water development appropriations bill the House passed June 19.
Absent such authorization, Bonneville intends to simply not sell into California. While the agency recognizes this could impact the value of participating in the EIM, its expectation is that this impact would be small.