by Ben Kellison
July 06, 2016

The GTM Research Roundtable gives Squared members insight into our analyst team's thoughts in an off-the-cuff internal discussion and debate on news from solar, grid and energy storage markets.

Ben Kellison Director, Grid Edge Research: Analysts, we talk a lot about how the intermittancy of renewables impacts the grid, and we saw a good example of this last week when news came out of CAISO increasing regulation procurement requirements to compensate for the penetration of renewables in the state. I'm interested to get a take from our wholesale market experts, Elta Kolo and Ravi Manghani.

Elta Kolo Analyst, Grid Edge: In late February, CAISO increased regulation requirements in the day-ahead and real-time markets to a minimum of 600 megawatts, nearly doubling the previous targets. CAISO is seeing increasing need to maintain reliability at times of variability resulting from renewable generation. As a result of the new regulation requirements, prices rose, yielding an overall 300 percent increase in the cost of procurement from about $100,000 per day to $400,000 per day.

Ben Kellison Director, Grid Edge Research: Ravi, do you know how that $400,000 per day compares to PJM?

Ravi Manghani Director, Energy Storage Research: PJM clearing prices have declined significantly in recent months. This is due to storage and other Regulation D resources participating at $0 or on a self-scheduled basis, but definitely also because of natural-gas prices trending downward. The Q1 2015 regulation cost was $66.7 million, versus $21.4 million in Q1 2016. And by the way, if ~$17 per megawatt-hour is in-the-money for storage in PJM, I don't see why ~$14 per megawatt-hour won't see storage projects in CAISO soon.

Also, I'd read carefully into the rise of regulation pricing in CAISO. It's more likely due to changed requirements than the actual impact of renewables right away. Secondly, we ought to understand what the total system impacts are; on one hand, regulation prices may have increased due to a higher requirement, but it also may have reduced requirements for other services.

Elta Kolo Analyst, Grid Edge: One of the key developments in CAISO market performance for Q1 2016 is solar generation setting a peak record of 7,500 megawatts (last quarter, this number was 4,400 megawatts). In this quarter, higher wind generation was also observed in addition to hydro. This mix resulted in "an increase in the percentage of real-time intervals with negative prices," according to CAISO. As California moves toward a 50 percent penetration of renewable generation, real-time price volatility is inevitable.

Renewable generation poses a significant challenge for price formation in addition to valuation of ancillary service’s needs. This quarter’s results are just the start of California’s trials in market performance.

Ben Kellison Director, Grid Edge Research: That is a massive change in solar generation. Can we expect ISOs/RTOs with lower penetration to begin procuring additional resources in the coming months?

Ravi Manghani Director, Energy Storage Research: California, due to its higher share of variable renewable resources, is the first operator in the U.S. to explicitly increase regulation procurement. However, other ISOs/RTOs won't be immune from the need to raise their regulation procurement either. PJM and ERCOT both have explicitly modeled higher ancillary services procurement in the future owing to projected growth in wind and solar. As with everything related to renewables, CAISO happens to be at the leading edge of actually having to procure additional regulation megawatts.

On the flip side, it also creates opportunity for grid-edge technologies such as energy storage. Since PJM incorporated the fast moving Regulation D signal back in December 2012, its overall regulation requirements have in fact gone down from 1,000 megawatts to effectively 700 megawatts today.

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