NYISO market monitor recommends dynamic reserve procurement

New York — New York Independent System Operator stakeholders June 8 discussed market design improvements that could be focused on in 2021, like increasing energy and ancillary services net revenues for flexible units that would reduce reliance on capacity prices and shift incentives toward retiring older units.

The stakeholders discussed the 2019 State of the Market that recommended various market design improvements including outstanding or continuing recommendations from prior years' reports as well as new recommendations, Potomac Economics, the independent market monitor, said in a presentation posted to the grid operator's website.

Stakeholders will complete a scoring survey by June 26 for NYISO's 2021 "market project candidates," or market issues to be studied and potentially implemented through rule changes, Potomac said.

As New York State seeks to implement the Climate Leadership and Community Protection Act signed into law in 2019, which includes an emissions-free power system by 2040, considerable volumes of incremental renewable energy resources are expected to be built.

With greater renewable energy penetration, the power markets must reflect the "value of critical resource attributes," which include flexibility, local congestion and reliability impacts, winter fuel security, and summer resource adequacy, according to Potomac.

"The value of these attributes will rise in the future," the market monitor said.

Investment signals can be used to enhance incentives for these key attributes. For example, increasing E&AS net revenues for flexible units would reduce reliance on capacity market prices while shifting incentives toward retiring older units or repowering them with newer more flexible and fuel-efficient generation and/or battery storage.

Recommendations for improving New York's shortage pricing and other aspects of its E&AS markets include recommending the NYISO modify market models to dynamically determine optimal reserves, Potomac said.

The NYISO is also exploring the potential implementation of more granular reserve requirements within certain New York City load pockets that would "better represent the value of short‐notice resources in desirable locations," according to a draft document explaining the 2021 Market Project Candidates.

As the potential implementation of load pocket reserve requirements is considered, a dynamic reserve procurement methodology that does not exist today could be useful to "improve market efficiency, better aligning market outcomes with how the power system is operated, and avoid the potential for unnecessary price volatility," according to the 2021 project candidate document.

For example, consider eastern New York is 100 MW short of meeting its 1,000-MW reserve requirement and Central-East New York has 400 MW of headroom. Inefficient actions that can occur under current market rules and conditions include allowing a gas-fired turbine to shut down in Eastern New York, scheduling imports, and thus creating reserves by ramping down a low-cost Eastern New York unit, Potomac said.

LONG ISLAND CONSTRAINTS

The market monitor also recommends modeling Long Island transmission constraints in the day-ahead and real-time markets that are currently managed by NYISO with out-of-market actions.

The current approach can make transmission bottlenecks "less transparent to investors" and suppress energy and ancillary services prices, Potomac said.

Modeling low-voltage constraints in the market software would facilitate more efficient power flow operations and reduce inefficient dispatch of oil-fired generation, according to Potomac.

Congestion pricing would increase location-based marginal prices 12% in the East of Northport load pocket and 53% in the East End load pocket, Potomac said.

This recommendation would "provide better pricing signals, better investment signals, and reduced emissions," according to the market monitor.