Improving Price Formation and Incentives in Southwest Power Pool

Slide Note

During a winter weather event in 2021, Southwest Power Pool (SPP) faced challenges of load shedding and lower Locational Marginal Prices (LMPs) that distorted market signals. Modifying pricing structures and incentivizing price-responsive loads can enhance price formation, transparency, and market efficiency. While this initiative presents potential benefits, it also carries risks such as changes to existing models and increased complexity. Alignment with other related initiatives is crucial for success.

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Uploaded on Aug 26, 2024 | 0 Views

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SIR271 WWE MKT1.1 SPP 10/26/2021 Helping our members work together to keep the lights on... today and in the future. SPPorg southwest-power-pool SouthwestPowerPool

SIR271 WWE MKT1.1 SPP Purpose: During the 2021 winter weather event SPP was forced to direct members to shed load in order to maintain reliability and prevent uncontrolled outages. These load shed events occurred on February 15 and February 16, 2021. During these load shed events SPP observed a few intervals where LMPs dropped well below $100. These lower LMPs may have sent the wrong signal to the market during a time when energy was needed so the load could be restored. The price formation and incentives for continued energy delivery may be improved during these times by modifying the pricing structure during load shed events to continue to reflect prices associated with serving the desired amount of load and not the reduced amount of load due to the load shed. Incentives for price responsive load in SPP s market may also improve the price formation during these times by allow the market to determine load reduction based on offers and congestion. Potential Benefit: Additional price responsive load in the SPP footprint could help to alleviate supply issues during extreme events where the footprint is supply constrained; More flexible load not only allows for alleviation of supply issues but also allows for the flexible load to determine a price at which it no longer desires to be served due to economics; More accurate price formation during load shed events will allow for more transparency and potentially increase participation of flexible load Known Risks Known Risks SPP has an existing demand response model and this could mean significant changes to that model; A dynamic pricing model introduces additional complexity and potential increases in solution time; Alignment with existing SIR 267, 269, 270, 271, 323, 326, 327, 328, 329, 340 2

SIR271 WWE MKT1.1 SPP Potential System / Process Impacts API/MUI, MCE, MDB, DA, RTBM Potential MCE Performance Impact High Potential Complexity Design: High Implementation: High Market Philosophy Impacts: Market Efficiency, Market Reliability, Price Formation, Price Convergence, Market Market Efficiency, Market Reliability, Price Formation, Price Convergence, Market Transparency Transparency 3