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2009 State of the Market Report

Market Performance

Figure 35 plots similar price-quantity results for each spinning reserve shortage in 2009. There were 1,501 spinning reserve shortages deficits in 2009, or 1.4 percent of all intervals. In general, shortages occur when the demands on the system cause the real-time market to have insufficient ability to ramp up online resources to satisfy both the energy requirements and the spinning reserve requirements. In these cases, the price for spinning reserves should theoretically reflect the reliability cost of being short of the required reserves. In 2009, this value was set at approximately $100 per MWh, preventing the real-time market from taking actions more costly than $100 to maintain its spinning reserves. Although it would be most efficient for prices to be set at the penalty price when the system is short of spinning reserves, this is not always the case because the Midwest ISO “relaxes” its spinning reserve requirement when it is short.

Figure 35: Spinning Reserve Deficits vs. Spinning Reserve Prices 2009

$120

Spinning Reserve Price ($/MWh)

$100

$80

$60

$40

$20

$0

0

100

200 300 400 Spinning Reserve Deficit (MW)

500

600

700

The average spinning reserve price during shortage intervals was $77 per MWh. The figure shows that spinning reserve prices are widely dispersed and many of the largest deficits are often priced the lowest. For example, the second largest shortage (of over 600 MW) was priced at less than $10 per MWh. This suggests that the relaxation methodology is distorting spinning reserve

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