Commercial, merchant compressed-air energy storage plant under development?

Michael Giberson

Wind power RFP processes* are common enough these days, typically driven by renewable energy mandates placed on utilities. A recent wind power RFP announcement out of Santa Fe, New Mexico, is different. A new company, Chamisa Energy, has initiated an RFP seeking wind power to pair up with a planned compressed-air energy storage (CAES) plant to be developed in Swisher County, Texas. Chamisa has partnered with Dresser-Rand and intends to use their SMARTCAES technology, which it claims can “provide a wide array of electrical services: peaking, intermediate, base load, tolling and ancillary services.”

The RFP says that the CAES project may connect to the ERCOT CREZ lines that will be crossing Swisher County, or it may connect to Xcel’s system in the Southwest Power Pool (SPP), or it may connect to both ERCOT and SPP! This last option would put Chamisa in the interesting position of being able to arbitrage some price differences between the two power markets. (It may raise some of the same jurisdictional barriers that Tres Amigas is facing with its proposed three-way power system interconnection, planned for Clovis, New Mexico. ADDED: But a few existing power plants in Texas are dually connected between ERCOT and utilities in the Eastern Interconnection, so the issue appears manageable.)

The relationship between Chamisa’s CAES project and the Tres Amigas interconnection is interesting. Both companies are headquartered in Santa Fe, New Mexico. The proposed projects are about 90 miles apart, one at the eastern edge of New Mexico and the other directly east, in the middle of the Texas panhandle. Chamisa proposes an energy storage project that may link the two regional power systems; Tres Amigas proposes to build a link for three regional power systems but would have an energy storage component, too. Both aim to facilitate the accommodation of intermittent power resources to the grid by providing storage and other grid reliability services.

Not clear that the business of accommodating intermittent power is big enough for both of them, but maybe that is just “not yet big enough.” Many wind projects are under development in the region, and just waiting for a little more clarity on when and where transmission enhancements will be showing up.

* RFP = “request for proposals”, a common process by which one company invites others to offer to become suppliers.

Transmitting power from Mexico to Texas

Michael Giberson

During part of the electric power emergency in the ERCOT region of Texas last week, the ERCOT system imported power from Mexico to reduce the extent of the blackouts needed to keep the ERCOT grid operating.

The interconnections between ERCOT/Texas and Mexico are relatively recent. The summary of the March 2009 meeting of the ERCOT board reported the following information:

MEXICO GRID CONNECTIONS BEGIN COMMERCIAL OPERATIONS

The direct current (DC) ties with the Comisión Federal de Electricidad (CFE) are open to commercial transactions, effective March 12.  These ties include:

* Eagle Pass (DC-S), 30 MW
* Sharyland Railroad (DC-R), 150 MW
* Laredo Variable Frequency Transformer (DC-L), 100 MW.

    The import and export limits of the connections with CFE are calculated daily and published at this link. [Link seems not to be working. -MG]

    The ERCOT grid is not synchronously connected with any other grids.   Connections to other grids are limited to direct current ties which allow the controlled transfer of power between the ERCOT system and another electrical system without the two systems being synchronized.

    The ERCOT grid also has DC ties with the Southwest Power Pool region at Oklaunion (220 MW) and at Monticello (600 MW), both in the north Texas area.

    The CFE ties have been used for mutual emergency assistance between ERCOT and CFE but were not previously available for commercial transactions. Mexico has assisted ERCOT through the ties and the Laredo connection during capacity-shortfall events, and ERCOT has also assisted CFE on emergency occasions.

    Information about the Sharyland DC tie is here, with technical detail available for the electrically inclined.

    Another discussion of the rolling blackout, this from Platts Energy Trader.

    Tres Amigas in the news

    Michael Giberson

    Tres Amigas, as seen by their hometown newspaper The Santa Fe New Mexican,Supersized power hub in southeastern N.M. to link 3 major U.S. grids“:

    Phil Harris is masterminding an electricity superhighway — a facility near Clovis that will connect the nation’s three main power grids for the first time.

    The Tres Amigas Superstation will link the Western Interconnection, Eastern Interconnection and Texas Interconnection at a point in southeastern New Mexico. It also will provide the transmission capacity that power managers say is needed to handle the renewable energy expected from new solar and wind sources.

    The hub will allow energy to flow between the grids via superconductor cables in underground pipelines and AC/DC converters….

    One of the problems is the current system for delivering power across the country is complex and separated by region. The lack of connection limits competition in power markets, Harris said. “In the U.S., no one is in charge. We have over 4,000 entities involved with power.”

    Those entities include investor-owned utilities such as Public Service Company of New Mexico, 800 municipal power companies, 900 electric cooperatives, renewable energy generators and power traders such as Goldman Sachs. Regulations vary by group. So do power interconnections.

    “There’s no way you can get a single decision about what is best for America,” Harris said.

    “People are paying more (for electricity) than they should because it is a constrained market,” he added.

    Tres Amigas will make the power market more competitive. Harris is banking on it, to the tune of investing $1 million of his own money in the project, he said.

    More on efficient trade between power markets

    Michael Giberson

    A paper by Giorgia Oggioni and Yves Smeers, “Degree of coordination in market-coupling and counter-trading,” examines the value of improving coordination between separate-but-interconnected power markets. (A post here last week cited a recent Windpower Monthly article that provides a good non-technical discussion of the issue. If you are not familiar with market coupling, I recommend you first read the Windpower Monthly article linked to in the earlier post. The Oggioni and Smeers paper provides a more technical discussion.)

    In brief, Oggioni and Smeers compare market coupling regimes to both an ideal market* on the one hand and separate market-to-market coordination agreements** on the other hand. Not surprisingly, they find the ideal market design is most efficient and independent market-to-market coordination is least efficient in their numerical analysis. An encompassing market coupling system (a single market coupling system able to redispatch all available energy supply resources) also achieves a high degree of efficiency. Somewhat surprising to me was that multiple independent but overlapping market coupling systems achieved similarly high degrees of efficiency so long as each supply resource is available to at least one market coupling system and each supply resource is available on the same terms (i.e. at the same price) to each market coupling system that can access it.

    The paper is written to address circumstances in the European market, but has implications for trade between power systems in the United States and elsewhere as well. To put this in a U.S. context, the article suggests that if trade between the New York ISO and ISO-New England was well integrated, and if trade between the New York ISO and PJM was well integrated, then the three systems would attain a high degree of efficiency even without resorting to a single integrated dispatch across the three regional power markets.

    In principle, adding efficient trade between PJM and MISO, and efficient trade between MISO and SPP, and suddenly one can obtain efficient power system arbitrage subject to the limits of the transmission system stretching from the tip of Maine down to the eastern edge of New Mexico.

    In practice a few issues intrude.  Market coupling in Europe is, I think, still limited to day-ahead coordination between power systems, leaving the transmission system operators to address independently the changes in local supply and demand that arise after the day-ahead result is published.  Moving toward real-time market coupling would create additional economic value, but at the cost of a significant increase in data sharing requirements and a higher computational burden on the system operators. In considering priorities for further power market development, then, the issue is whether the benefits of moving closer to real-time market coupling are worth the costs, and this ratio then compared to the benefit-cost ratio of other identified potential market improvements.

    *Ideal market = a single security-constrained economic dispatch covering the entire region, using a fully developed transmission model and accurate depictions of generation characteristics.

    **Market-to-market coordination agreements = bilateral agreements between markets that govern access to the transmission capacity between the systems and setting rules to resolve congestion on the interconnecting transmission lines.

    The right market design for trade between power markets

    Michael Giberson

    Windpower Monthly has a great article describing changes in the market for transmission capacity between power systems in Europe and the benefits of the changes.  Here is a summary by way of selected quotes, but the full story is worth reading:

    Most of the electricity cables connecting Europe were built when electricity systems in each country were monopolised by a single or, at most, a few companies, each operating within their individual monopoly supply areas. Each utility ran its own system and had its own generation backup for emergencies. There was no competitive pressure on the higher costs of such “island” systems since these could easily be passed on to customers who, in those days, had no alternative suppliers that they could switch to.

    These interconnectors were built between neighbouring countries’ electricity grids not to enable trading and competition across borders but rather for the utilities to help each other out….  [As the Eurpopean power industry was liberalized] insufficient connection capacity between some of the national electricity networks [emerged as] one of the key problems.  [An] efficient allocation for the scarce interconnector capacity that is available is crucial to make improvements towards an integrated European electricity market.

    Before the new [market coupling] system started, transmission capacity available on the two interconnectors was sold to electricity traders in tranches in annual, monthly and daily auctions, called explicit auctions. This happened completely separate from auctioning of electricity with the result that, due to the time lag in buying the transport capacity and the actual time of use, as well as other reasons, inefficiencies occurred.

    Transport capacity could be bought ahead of time and hoarded, a form of market abuse. Or transmission capacity was bought for one direction, say from Germany to Denmark, which then turned out to be inappropriate because the price difference between the two was such that the electricity ought to flow in the other direction – from the low- to the high-price zone. In such instances, the electricity did then flow in the wrong direction, contradicting market forces, or not allowing extra capacity to be used – and traders and end users lost out.

    Explicit auctions were implemented for interconnectors at most European borders, recounts [EMCC managing director Enno] Bšttcher. “Even though this can be considered as progress compared to the formerly applied first-come, first-served or pro-rata regimes, explicit auctions still have many disadvantages,” he says.

    Today, explicit auction methods have become more sophisticated. The fundamental flaw, however, remains: that actual trade of electricity at energy exchanges in the different market areas is separate from transmission capacity, trading leading to market inefficiency. This can be reduced by combining cross-border transmission capacity allocation and electricity trade from one country or market area to another in a so-called market-coupling regime.

    Market coupling uses implicit auctioning and focuses on the short term (day ahead), rather than months or a year ahead. The transmission capacity available on an interconnector the next day, as reported by the transmission system operators (TSOs), is matched with electricity bought or sold on the energy exchanges in the two countries involved for delivery the next day, creating a price for the transmission capacity and making it clear in which direction the market requires use of the transmission capacity of the cables.

    In effect, market coupling is a charge placed on the power exported or imported between countries when the network interconnector capacity is optimised to reduce congestion.

    The result of market coupling is that the interconnected power systems operate more efficiently, benefiting consumers and low-cost producers of power.

    As Tres Amigas works out its design for the sale of transmission capacity across the proposed three-way transmission interconnection, market coupling should be among the designs contemplated.

    Note that while day-ahead market coupling seems to work well between systems with relatively few interconnecting links, more complex transmission links between systems – say as exists between PJM and the Midwest ISO – may well call for still more extensive coordination. The market coupling principle seems sound, so probably forms an adequate foundation to build upon, but simple day-ahead coordination is likely insufficient. Real-time market coupling, anyone?

    Texas and the Tres Amigas interconnection

    Michael Giberson

    Over the holiday NYTimes.com posted a story by ClimateWire reporter Peter Behr that does a pretty good job of describing the proposed Tres Amigas project (proposing to link the three main electric regions in the U.S. – Eastern, Western, and Texas) and surrounding issues.  Among other things, the story provides a good short summary of the Federal/Texas jurisdictional relationship, which stands as one challenge to success:

    The developers have also asked FERC for a second ruling disclaiming jurisdiction over transmission providers that tie into the Tres Amigas lines and in effect, to maintain Texas’ jurisdictional independence. “Clearly, if we don’t the jurisdiction disclaimer, I can’t imagine how we get support for this in Texas,” [Tres Amigas attorney David] Raskin says.

    Echoing the state’s Alamo heritage and a tenacious attachment to its independence, Texas’ largest utilities cut their power line connections with other states in 1935, after passage of the Federal Power Act in the New Deal, to keep Washington from asserting jurisdiction over their operations. (Texas had no state regulation of utilities before the 1970s, notes Judge Richard Cudahy of the 7th U.S. Circuit Court of Appeals).

    In one famous showdown, a Texas utility — Central and Southwest Corp. — did create a transmission link between its divisions in Texas and Oklahoma to preserve its status as an interstate electric power holding company. At night on May 4, 1976, a technician opened a switch at a CSW substation sending power surreptitiously from Vernon, Texas to Altus, Okla., according to Cudahy’s account of the “midnight connection.”

    Since Texas’ other major utilities were linked to CSW, their power was also flowing in interstate commerce. Several hours later, Texas utilities were informed of these events, and two of the largest responded in outrage by severing their transmission ties to CSW, at some risk to the state’s entire grid.

    The Tres Amigas petition to FERC says that because energy is converted from an AC wave to a DC electronic pulse and then back into an AC wave synchronized with the receiving grid, the electrons in Texas are not “free flowing” into New Mexico or Oklahoma, preserving Texas’ separation.

    The Tres Amigas jurisdictional request submitted to FERC offers more detail (FERC docket number EL10-22-000) and for further background I’d recommend the chapter on the subject by Darren Bush and David Spence in Electric Restructuring: The Texas Story (the book recently published by AEI Press edited by Lynne and Andy Kleit).

    The Benefits of the proposed Tres Amigas interconnection

    Michael Giberson

    Both of the Tres Amigas filings at FERC (see background) provide summaries of the anticipated benefits of the proposed interconnection between the Eastern, Western, and ERCOT interconnections.  Each of the five kinds of benefits listed below seem plausible to me.  While estimating the size of the benefits would require a lot of hard work, given the scale of the project and other generation and transmission projects under consideration for the surrounding area, it seems likely that the benefits will be substantial.

    To a degree, of course, the investors in Tres Amigas hope that the project will capture some of the value created in the form of profits.  But to a degree such a project should inherently produce spillover benefits in the form of more efficient energy generation and lower cost provision of reliability services.  (A recent working paper discussing the economic effects of the NorNed interconnection suggests that in the NorNed case the interconnection produced mostly private benefits to the investors. I think there is reason to believe that the Tres Amigas case is different, but the point is worth further examination.)

    Here is the version of “The Benefits of Tres Amigas” section appearing in the jurisdictional filing (the version in the transmission rate filing is essentially the same; emphasis added):

    Tres Amigas will advance the public interest in several important ways. First, a new power marketing hub will be created in proximity to large amounts of existing and potential renewable generation, providing the developers of renewable (and other) generation expanded markets in which to sell their power. Tres Amigas will permit renewable generation being developed in each of the Eastern Interconnection, ERCOT and WECC to be delivered to markets that are currently only minimally accessible. This will enhance the value of new generation, creating additional incentives for its development. This benefit is particularly important because Tres Amigas will be located adjacent to areas of the country that have been identified as among the most promising from the standpoint of developing renewable wind, solar and geothermal power.

    Second, marginal prices for energy in the three interconnections, which typically diverge because the markets are electrically separated, will move closer together, allowing electricity to be produced more efficiently and saving electric consumers large amounts of money. For example, the Petitioner’s studies show that marginal energy prices vary significantly between the Southwest Power Pool (in the Eastern Interconnection), ERCOT and the WECC at this time. Our studies show that energy prices vary by more than $50 per MwH in over 2,000 hours per year between the CAISO and ERCOT, over 1,600 hours per year between ERCOT and the Palo Verde hub, over approximately 1,500 hours per year between SPP and the CAISO, and over approximately 800 hours per year between ERCOT and the SPP. Accordingly, significant opportunities exist to produce power more efficiently.

    Third, opportunities will exist to “firm up” intermittent and variable renewable energy by taking advantage of geographical diversity and onsite battery technology at Tres Amigas. Studies have shown that the quality of intermittent and variable renewable energy can be enhanced by aggregating sources from geographic locations that may experience high winds or sunshine at different times. In addition, Tres Amigas will expand the geographic reach of markets generally, offering additional opportunities to take advantage of load and resource diversity.

    Fourth, the value of transmission investments made in the regions around Tres Amigas will be enhanced by allowing power to move more freely between the interconnections. Tres Amigas will permit power to move to and from different markets, expanding the potential use of the existing transmission grid and expansions thereto. Tres Amigas should provide system planners new opportunities to improve the efficiency and reliability of the electric system at a lower overall cost.

    Fifth, electric system reliability in the area around Tres Amigas will be improved because Tres Amigas will connect the three asynchronous grids at a robust station with back-up power and voltage source converter technology that will provide substantial reactive power to the transmission system in each of the interconnections. This is particularly important because Tres Amigas will be located in a remote area, where a strong source of reactive power is necessary to support both new transmission and new renewable generation. Tres Amigas will allow more renewable generation to be interconnected in this important region and reduce the investment cost associated with transmission development in the area.

    More Tres Amigas interconnection details revealed in FERC filings

    Michael Giberson

    Today Tres Amigas LLC submitted two filings to the Federal Energy Regulatory Commission, one seeking assurance from FERC that linking the ERCOT system to the proposed interconnection project would not subject ERCOT to FERC jurisdiction, and the other seeking authority to sell transmission services at negotiated rates. According to the filings, affirmative answers to both requests are necessary for the project to proceed.

    In the jurisdictional request, Tres Amigas said:

    The relief requested in this Petition is essential for the Tres Amigas project to move forward. The ERCOT parties with whom the Petitioner has discussed interconnecting with Tres Amigas have made clear that they will not likely obtain approvals in Texas to construct transmission lines to Tres Amigas without this jurisdictional disclaimer, and without an ERCOT interconnection the unique benefits of Tres Amigas will be lost.

    In the request for authority to sell transmission services, Tres Amigas said:

    Although this filing is styled as a request for negotiated rates, it is in reality a request for authorization to proceed with the Tres Amigas Superstation (“Tres Amigas”). The Applicant cannot realistically use traditional, cost-based transmission service pricing. Cost-based pricing normally applies to transmission providers that have captive customers who bear responsibility for the cost of transmission under an individual or regional open access transmission tariff (“OATT”) or other transmission arrangement.

    The Applicant has no captive customers and there is no regional transmission organization (“RTO”) OATT under which the costs of Tres Amigas can be recovered. The beneficiaries of the Tres Amigas project will be in all three interconnections and therefore will be spread over a geographical area that far exceeds the scope of any existing or proposed OATT with cost-based rates. The very purpose of Tres Amigas is to eliminate the barrier created by the current separation of the U.S. transmission system into three asynchronous grids, providing new transaction opportunities across much of the United States.

    The risks associated with Tres Amigas also exceed those associated with a typical cost-based transmission project. As discussed in Section VI.A below, the Applicant is taking on the full market risk associated with this project. This risk is unique in that no one has constructed a facility like Tres Amigas before. The economic success of this project will depend on the market’s response to the availability of service through this facility and on the willingness and ability of third parties to construct transmission lines to Tres Amigas, factors over which the Applicant will have virtually no control.

    The Applicant has invested two years of effort and considerable expense to develop an engineering solution to a long-recognized transmission system need. Thus far, Tres Amigas has received a positive response from throughout the industry and from public officials. However, if this application is not approved, the Applicant will have no means to recover the $1 billion or more projected initial investment required to design and build Tres Amigas, and the project cannot proceed.

    The request for authority to sell transmission service contains extensive discussions concerning the company’s proposed business model.  I anticipate finding time later in the week for a careful review.

    [Various other Tres Amigas-related posts here at Knowledge Problem can be found using this search link.]

    UPDATE: The Tres Amigas jurisdicational filing is assigned FERC docket number EL10-22; the transmission rate filing is ER10-396.  Comments on both filings are due at FERC on December 29, 2009.

    Tres Amigas transmission link overview at Alt Energy Stocks

    Michael Giberson

    I put together an overview of the Tres Amigas LLC proposal for Alt Energy Stocks, published today: “Tres Amigas Proposes Three-way Transmission Link.”  (Tres Amigas proposes to build a three-way transmission link between the Eastern Interconnection, the Western Interconnection, and the Texas Interconnection.)

    The only company mentioned in the summary with a stock trading somewhere is AMSC.  The Tres Amigas project has been promoted as aiding the development of renewable power sources.  The combination apparently qualifies the discussion for posting at Alt Energy Stocks.  (Thanks Tom.)

    The project should facilitate trade (of all kinds of power) among the three areas, reducing price volatility and lowering average wholesale prices overall.  Since it is proposed as a merchant transmission facility, without electric ratepayer money at risk, there is almost no downside to consumers from the project.

    NOTE: Link to related Tres Amigas posts at Knowledge Problem.

    Market designs for Tres Amigas: How about trilateral market coupling?

    Michael Giberson

    More thoughts on economic issues related to the Tres Amigas project, an ambitious proposal to connect the Western, Eastern, and Texas electric grids via a three-way high tech transmission link located in eastern New Mexico. (Earlier: Tres Amigas intro and Economics for …).

    Europeans have had several years of experience connecting separate national power markets via transmission links, and years of experience with inefficient use of those links.  Problems in inefficient use arise in part due to the difficulty in coordinating power transactions with matching transmission transactions.  The current best solution to the problem has been to employ a concept of “market coupling.”

    The APX Group, Belpex, and Powernext jointly operate a trilateral market coupling process for France, Belgium, and Netherlands.  APX explains the market coupling process on its website:

    Market coupling is a mechanism used to integrate electricity markets in different physical areas while requiring minimal changes to the local arrangements. Market coupling replaces a two-step process: a daily explicit auction of transmission capacity followed by the day-ahead energy markets. Market coupling integrates transmission allocations and energy trading, removing many of the inefficiencies at the day-ahead stage.

    Market coupling allows exchanges to remain separate legal entities with individual trading platforms, contracts and clearing; a single regional market is created by optimising the use of the already existing transmission capacity.

    There’s more (including a 28-page Trilateral Market Coupling Algorithm Appendix for the interested reader), but in short the neighboring power exchanges share information about the bids and offers submitted to each during the day-ahead market and then adjust their individual clearing of bids and offers such that power flows from low-cost to high-cost areas and the price of power tends to be equalized among the areas.  The result is a much more efficient use of the interconnecting links, reduced price volatility, and a reduced cost of producing power over the three-region area.

    For a deeper look at market coupling issues: Leonardo Meeus and co-authors have noted that pricing outcomes may not be unique in the market coupling process (i.e. an efficient set of power flows may be consistent with more than one set of possible prices).  In “Market coupling and the importance of price coordination between power exchanges,” Energy, 34:3 (March 2009), Meeus et al. explain market coupling, the possible pricing problem, and how to choose among multiple possible price solutions.

    Want more? Searching “market coupling” at Google Scholar yields several hundred results.

    I also wanted to look at Derek Bunn and Georg Zachmann, “Inefficient arbitrage in inter-regional electricity transmission,” Journal of Regulatory Economics, forthcoming.  The pre-print is available online for JRE subscribers, but my institution is not a subscriber so I don’t have access yet. Here is the abstract:

    This paper analyzes the efficiency of an explicit ex ante auction for network access to facilitating trade between two separate, but linked, electricity wholesale markets. It is generally assumed that greater regional interconnection will mitigate the exercise of local market power by dominant generators, but we show analytically that when a dominant player has access to a more competitive neighboring market, and is also the lowest cost producer, the exercise of market power becomes attractive and can have negative consumer welfare implications. For an empirical analysis, we use a unique data set of daily company-level flow nominations on the Anglo-French Interconnector (IFA). …We are able to identify evident inefficiencies in the market behavior, for which several explanations, including market power, may contribute.