11.E 7 4 TIPOS DE MOLINOS.

The outcomes of each of the markets discussed above may be impacted by the introduction of high penetrations of VG. Possible impacts are briefly discussed in the list below.

• Energy markets

o VG can reduce average LMPs because of its low variable costs.

o VG can cause more occurrences of zero or negative LMP periods because of its variable cost and zero or negative bid-in costs.

o VG’s increased variability can cause LMPs to be more volatile from one time period to another.

o VG’s increased uncertainty can cause greater differences between DAM and RTM LMPs (although on average they are likely to remain converged as a result of virtual trading).

o VG can cause a greater need for flexible resources in the energy market, and the energy market may or may not provide sufficient incentive for this flexibility.

• Ancillary service markets

o VG can increase the requirements for normal balancing reserve, such as regulating reserve, which can increase the ASCP for those services.

o With higher balancing reserve demands and increased variability and uncertainty, administratively-set scarcity ASCP may be triggered more often, resulting in more frequent extreme price spikes.

o VG can displace synchronous, frequency-responsive resources, and when not equipped with technology to provide a comparable response, it can cause the need for supplemental actions or market designs to ensure that sufficient frequency response and/or system inertia is available.

o VG can cause the ancillary service requirements to change from one day to another and from DAM to RTM, if the requirements are based on correcting the variability and uncertainty of VG, which can cause uncertainty in ancillary service demands and changing demands for the same time periods between DAM and RTM, similar to load.

o VG can cause a need for greater flexibility from the resources that correct for its variability and uncertainty. Certain forms of flexibility may or may not be built into the current ancillary service markets.

• FTR markets

o VG’s increased variability and uncertainty can cause greater variation on power flow, which causes FTR holders to be uncertain about expected

congestion patterns.

o VG’s increased uncertainty can cause greater deviations of power flows between DAM and RTM. Because FTR revenues are typically based on the DAM, there could be greater divergence between FTR revenues and actual

congestion patterns.

• Capacity markets

o The reduction in LMP and energy schedules from conventional resources will result in reduced revenues in the energy market. If these resources are still required to be available for short periods of time, more resources become capacity-based rather than energy-based.

o VG’s variability and uncertainty can cause the need for different types of resources to be built and available. In other words, it might require the need to

plan and build more flexible resources to prepare for future needs and not to focus on the need for MW capacity alone.

o VG’s variability and uncertainty can cause the need for existing resources to modify their flexible capability potential. Market designs may need to incentivize the existing resources to spend the capital on retrofits to increase the flexible capability that it can provide.

o Must-offer price rules, designed to limit the ability of buyers to suppress capacity prices by subsidizing relatively higher-cost new capacity to replace lower-cost existing capacity, may increase risk that a resource built to satisfy a state

renewable portfolio standard will not clear the capacity market at the applicable minimum offer floor.

These topics are not necessarily concerns about the current market design, but rather theories on how increased penetrations of VG may impact the market outcomes when compared to today’s outcomes. From this exploratory list, we focus on two specific topics. First, we explore if the current market design ensures that resources required for long-term adequacy earn sufficient revenue to cover both variable and capital costs. Second, we discuss if there are sufficient

structures in place in the current market designs to ensure that the resources necessary to balance the variability and uncertainty of the system in real-time are available and used efficiently. These two topics are the focus of the rest of this report.

3 Long-Term Resource Adequacy, Long-Term

Flexibility Requirements, and Revenue Sufficiency

In this section, we focus on two related topics: (1) resource adequacy, including newer methods of determining adequacy metrics, and (2) revenue sufficiency and how existing and evolving market designs may enable resources to retrieve sufficient revenue to ensure long-term resource adequacy. The focus here is on the investment time horizon and the installation of sufficient generation capability. Operational issues, which are closely related, are addressed in Section 4. The topics of resource adequacy and revenue sufficiency—the process of determining the quantity and acquiring that quantity of capacity that will be needed at some future date and ensuring that those resources that offer the capacity receive sufficient revenue to recover their costs—are the focus here. Resource adequacy is generally based on one or more metrics that quantify the long-term reliability of the generation supply (and possibly demand-response resources) and its ability to meet load. When sufficient capacity is acquired—whether through a market, payment, or other incentive, or through a direct regulatory process—resources must have an opportunity to earn sufficient revenue to remain in the market. Without revenue sufficiency to recover both variable and fixed costs, it is likely that resources would retire from the market, potentially compromising long-term reliability. Also, as more VG is brought online, there is a need for greater flexibility attributes from new and existing market participants and technologies. This brings a new dimension to the traditional resource adequacy question of whether there is enough capacity and adds the question of whether there is sufficient flexibility within

that capacity.

Several alternative approaches are available to solve the problems that we identify in this section. Rather than recommending any single approach, we present an overview of these alternatives. First, we discuss the issues that make ensuring long-term resource adequacy and revenue sufficiency in electricity markets challenging. Then we discuss the current mechanisms for ensuring resource adequacy and the importance of revenue sufficiency. Next, we discuss how the increased penetrations of VG, with its diurnal and seasonal availability patterns, high capital costs and low variable costs, and its increased variability and uncertainty can change the methods and needs of resource adequacy and revenue sufficiency. We present the historical designs that U.S. wholesale electricity markets have used to address these issues. Finally, we present a review of the most recent market design changes to address resource adequacy and revenue sufficiency with a focus on how they are evolving to meet the needs due to increased VG.

3.1 Challenges to Ensuring Long-Term Reliability in