This paper considers several alternative forms of an energy imbalance market (EIM) proposed in the nonmarket areas of the Western Interconnection. The proposed EIM includes two changes in operating practices that independently reduce variability and increase access to responsive resources: balancing authority cooperation and sub-hourly dispatch. As the penetration of variable generation increases on the power system, additional interest in coordination would likely occur. Several alternative approaches could be used, but consideration of any form of coordinated unit commitment is beyond the scope of this analysis. This report examines the benefits of several possible EIM implementations--both separately and in concert.

The anticipated increase in variable generation in the Western Interconnection (WI) over the next several years has raised concerns about how to maintain system balance, especially in smaller Balancing Areas (BAs). Given renewable portfolio standards in the West, it is possible that more than 50 gigawatts (GW) of wind capacity will be installed by 2020. Significant quantities of solar generation are likely to be added as well. The consequent increase in variability and uncertainty that must be managed by the conventional generation fleet and responsive load make it attractive to consider ways in which Balancing Area Authorities (BAAs) can pool their variability and response resources, thus taking advantage of geographic and temporal diversity to increase overall operational efficiency. Our analysis considers several alternative forms of an Energy Imbalance Market (EIM) that have been proposed in the non-market areas of the WI. The proposed EIM includes two changes in operating practices that independently reduce variability and increase access to responsive resources: BAA cooperation and sub-hourly dispatch. As proposed, the EIM does not consider any form of coordinated unit commitment; however, over time it is possible that BAAs would develop formal or informal coordination plans. This report examines the benefits of several possible EIM implementations, both separately and in concert.

During the past few years, there has been significant interest in alternative ways to manage power systems over a larger effective electrical footprint. Large regional transmission organizations in the Eastern Interconnection have effectively consolidated balancing areas, achieving significant economies of scale that result in a reduction in required reserves. Conversely, in the Western Interconnection there are many balancing areas, which will result in challenges if there is significant wind and solar energy development in the region. A recent proposal to the Western Electricity Coordinating Council suggests a regional energy imbalance service (EIS). To evaluate this EIS, a number of analyses are in process or are planned. This paper describes one part of an analysis of the EIS's implication on operating reserves under several alternative scenarios of the market footprint and participation. We improve on the operating reserves method utilized in the Eastern Wind Integration and Transmission Study and apply this modified approach to data from the Western Wind and Solar Integration Study.

This book describes the common ground between electricity markets (EMs) and software agents (or artificial intelligence generally). It presents an up-to-date introduction to EMs and intelligent agents, and offers a comprehensive description of the research advances and key achievements related to existing and emerging market designs to reliably and efficiently manage the potential challenges of variable generation (VG). Most EMs are unique in their complex relationships between economics and the physics of energy, but were created without the notion that large penetrations of variable generation (VG) would be part of the supply mix. An advanced multi-agent approach simulates the behavior of power markets over time, particularly markets with large-scale penetrations of renewable resources. It is intended as a reference book for researchers, academics and industry practitioners, but given the scope of the chapters and the highly accessible style, the book also provides a coherent foundation for several different graduate courses.

The anticipated increase in variable generation in the Western Interconnection over the next several years has raised concerns about how to maintain system balance, especially in smaller Balancing Authority Areas (BAAs). Given renewable portfolio standards in the West, it is possible that more than 50 gigawatts of wind capacity will be installed by 2020. Significant quantities of solar generation are likely to be added as well. The consequent increase in variability and uncertainty that must be managed by the conventional generation fleet and responsive loads has resulted in a proposal for an Energy Imbalance Market (EIM). This paper extends prior work to estimate the reserve requirements for regulation, spinning, and non-spinning reserves with and without the EIM. We also discuss alternative approaches to allocating reserve requirements and show that some apparently attractive allocation methods have undesired consequences.

A region-wide Energy Imbalance Market (EIM) was recently proposed by the Western Electricity Coordinating Council (WECC). In order for the Western Area Power Administration (Western) to make more informed decisions regarding its involvement in the EIM, Western asked Argonne National Laboratory (Argonne) to review the EIM benefits study (the October 2011 revision) performed by Energy and Environmental Economics, Inc. (E3). Key components of the E3 analysis made use of results from a study conducted by the National Renewable Energy Laboratory (NREL); therefore, we also reviewed the NREL work. This report examines E3 and NREL methods and models used in the EIM study. Estimating EIM benefits is very challenging because of the complex nature of the Western Interconnection (WI), the variability and uncertainty of renewable energy resources, and the complex decisions and potentially strategic bidding of market participants. Furthermore, methodologies used for some of the more challenging aspects of the EIM have not yet matured. This review is complimentary of several components of the EIM study. Analysts and modelers clearly took great care when conducting detailed simulations of the WI using well-established industry tools under stringent time and budget constraints. However, it is our opinion that the following aspects of the study and the interpretation of model results could be improved upon in future analyses. The hurdle rate methodology used to estimate current market inefficiencies does not directly model the underlying causes of sub-optimal dispatch and power flows. It assumes that differences between historical flows and modeled flows can be attributed solely to market inefficiencies. However, flow differences between model results and historical data can be attributed to numerous simplifying assumptions used in the model and in the input data. We suggest that alternative approaches be explored in order to better estimate the benefits of introducing market structures like the EIM. In addition to more efficient energy transactions in the WI, the EIM would reduce the amount of flexibility reserves needed to accommodate forecast errors associated with variable production from wind and solar energy resources. The modeling approach takes full advantage of variable resource diversity over the entire market footprint, but the projected reduction in flexibility reserves may be overly optimistic. While some reduction would undoubtedly occur, the EIM is only an energy market and would therefore not realize the same reduction in reserves as an ancillary services market. In our opinion the methodology does not adequately capture the impact of transmission constraints on the deployment of flexibility reserves. Estimates of flexibility reserves assume that forecast errors follow a normal distribution. Improved estimates could be obtained by using other probability distributions to estimate up and down reserves to capture the underlying uncertainty of these resources under specific operating conditions. Also, the use of a persistence forecast method for solar is questionable, because solar insolation follows a deterministic pattern dictated by the sun's path through the sky. We suggest a more rigorous method for forecasting solar insolation using the sun's relatively predictable daily pattern at specific locations. The EIM study considered only one scenario for hydropower resources. While this scenario is within the normal range over the WI footprint, it represents a severe drought condition in the Colorado River Basin from which Western schedules power. Given hydropower's prominent role in the WI, we recommend simulating a range of hydropower conditions since the relationship between water availability and WI dispatch costs is nonlinear. Also, the representation of specific operational constraints faced by hydropower operators in the WI needs improvements. The model used in the study cannot fully capture all of the EIM impacts and complexities of power system operations. In particular, a primary benefit of the EIM is a shorter dispatch interval; namely, 5 minutes. However, the model simulates the dispatch hourly. Therefore it cannot adequately measure the benefits of a more frequent dispatch. A tool with a finer time resolution would significantly improve simulation accuracy. When the study was conducted, the rules for the EIM were not clearly defined and it was appropriate to estimate societal benefits of the EIM assuming a perfect market without a detailed specification of the market design. However, incorporating a more complete description of market rules will allow for better estimates of EIM benefits. Furthermore, performing analyses using specific market rules can identify potential design flaws that may be difficult and expensive to correct after the market is established. Estimated cost savings from a more efficient dispatch are less than one percent of the total cost of electricity production.