A new market for electricity is starting this week aimed at integrating renewables onto the power grid in seven Western states.
The "energy imbalance market" will give Western buyers the option to purchase electricity in five-minute increments, a privilege previously enjoyed only by participants in the California grid.
"It's a way for us to provide our real-time market to other entities across the West," said Don Fuller, director of strategic alliances for the California Independent System Operator, which manages much of California's grid. "The increasing variability of both wind and solar on the system, I think, has added some impetus to the interest in this."
Most of the United States is already connected via energy imbalance markets. The West, with its diffuse, diverse electricity markets, hasn't seen fit to create a regional market until now.
"I always compare it to feudal Germany," said Travis Kavulla, a commissioner with the Montana Public Service Commission who has been working on a regional governance structure for the market. "All these city-states, they've got their bridges up. ... The energy imbalance market is a response to that."
In the works since February 2013, the market will include just three of the West's 38 "balancing authorities" when it begins tomorrow. The original members will be CAISO, which covers about 80 percent of California and a small fraction of Nevada, and the utility PacifiCorp, which has 1.8 million electricity customers in six states: California, Idaho, Oregon, Utah, Washington and Wyoming.
The bidding platform will better enable electricity schedulers to fold in renewable energy by buying electricity in real-time increments that match the natural fluctuations of wind and solar power. Rather than having power plants on reserve, ready to ramp up production to compensate for declines in wind and solar, utilities can draw on resources regionwide that may be cheaper than their neighboring plants.
"We fold in renewables now and always match the fluctuations. So that won't be new," said PacifiCorp spokesman Bob Gravely. "What's new is that it will be done automatically every five minutes with the least-cost resource that's bid in over a wide area, rather than having bilateral transactions done on the hour, often initiated with a telephone call. You can't be as precise and cost-effective when doing it that way."
Participants expect it to lower their operational costs, as the market will allow traders access to a wider range of electricity and reduce the need to have a large power reserve on hand.
"Whether this results in an actual decrease in retail rates is impossible to know because there are so many variables that determine whether the rates customers end up paying go up or down from year to year," Gravely said. A study by CAISO and PacifiCorp pegs the benefits at $21 million to $129 million in 2017.
The Nevada utility NV Energy is due to enroll in October 2015. Some other major players in the West, including the Western Area Power Administration, have considered joining but have so far opted not to.
Widening the market would increase savings, Fuller said. "It looks like the more entities you have playing, the more benefits you get," he said.
"We're anticipating certainly additional participation beyond PacifiCorp and NV Energy," Fuller said. "My crystal ball isn't good enough to tell you who."
CAISO will be collecting data and publishing quarterly reports on the market's benefits, he said.
Capacity market concerns
Representatives of public power utilities have some concerns about the market. They say it could eventually lead to higher costs without necessarily increasing benefits.
"The main problem right now is whether an EIM could eventually turn into an RTO, especially if that entailed a capacity market," said Elise Caplan, manager of the American Public Power Association's Electric Market Reform Initiative. Down the line, she said, APPA worries that the market could become a full-fledged regional transmission organization, with full control over the regional grid and attendant oversight from the Federal Energy Regulatory Commission.
An imbalance market "in and of itself has its benefits -- it can provide more efficiencies, dispatching over a wider area. However, we haven't seen any cases in the country where you have a central dispatch market that hasn't morphed into a full RTO," Caplan said.
Fuller said the market isn't an RTO. "We have 38 balancing areas in the West, and they like to control their resources," Fuller said. "The energy imbalance market allows them to keep that responsibility but also take advantage of this real-time market."
Participants pay an initial fee to join, plus ongoing fees based on their level of use; PacifiCorp's startup fee is $2.1 million. A report by PacifiCorp and CAISO places startup costs at $3 million to $6 million, with annual costs of $2 million to $5 million.
The first month of the market will be a dry run, with participants able but not required to implement bids within their service areas. Automated auctions every five minutes will assign resources to bidders based on their demand.
"If it works as promised, you should see a shuffling of resources and it should advantage everyone," Kavulla said.
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