Distributed Energy Resources (DERs) and Variable Energy Resources (VERs) at MISO 14 November 2017

DERs & VERs: MISO market philosophy Why markets? Why MISO-administered markets? framework for robust and competitive markets markets work better when there are many buyers and sellers competition results in lower prices sellers will build if there’s an opportunity to earn a return commensurate with the risks Competitive markets are efficient! maximizing consumer welfare economic allocation of scarce resources production at lowest cost

DERs & VERs: MISO market philosophy open wholesale energy market where Market Participants can buy or sell energy in fair, efficient and non-discriminatory markets, while providing reliable grid operation markets work best when there is vigorous and voluntary participation by both buyers and sellers distributed energy resources can reduce the need for new generating capacity distributed energy resources can address real-time reliability issues distributed energy resources can mitigate peak prices and price volatility distributed energy resources can limit supplier market power

DERs & VERs: MISO market philosophy MISO market philosophy continued MISO market structures seek to provide opportunities for demand to participate on a comparable basis as supply side resources. ability to make consumption decisions based on the value of energy consumed compared to the prevailing market price Demand-side ability to offer and monetize the value of flexibility that can be offered to dynamically balance market supply and demand Supply-side

DERs & VERs: MISO market philosophy MISO currently has no demand-side “programs” “program” as used in some jurisdictions typically refers to temporary initiatives to promote a certain activity or action “program” also may provide side-payments for participation funded by charges socialised across some/all MPs MISO approach is to provide market mechanisms that provide opportunities and incentives for full participation states, utilities and retail providers in the MISO footprint do have demand “programs”

DER & VER participation Economic energy resources (Energy) Reduce loads whose values to end use customers are less than the costs of serving those loads. Operating Reserves Provide regulating, contingency or ramping reserves. Planning Resources Substitute for other generating capacity. Emergency energy resources Reduce net demand during system emergencies.

DER & VER participation energy and ancillary services markets price sensitive demand bids in the day-ahead market DERs and VERs in both day-ahead and real-time markets reliability response offers – response required only under power system contingencies or for provision of regulation service resource adequacy construct DERs and VERs can qualify as ‘capacity credits’ load modifying resources energy efficiency resources can qualify longer-term planning process (MTEP) Integrate DERs and VERs into resource planning emergency procedures emergency protocols to support reliability by utilizing emergency energy resources in EEA2: steps 1, 2, 3 Economic energy resources (Energy) Reduce loads whose values to end use customers are less than the costs of serving those loads. Operating Reserves Provide regulating, contingency or ramping reserves. Planning Resources Substitute for other generating capacity. Emergency energy resources Reduce demand during system emergencies.

Planning: Futures Key Assumptions MTEP18 Future Limited Fleet Change Continued Fleet Change Accelerated Fleet Change Distributed & Emerging Technology Demand and Energy Low (10/90) High LRZ9 Industrial Base (50/50) High (90/10) Low LRZ9 Industrial Base + EV Energy: 1.1% Demand: 0.6% Fuel Prices Gas: Base -30% Coal: Base -3% Base Gas: Base +30% Coal: Base Demand Side Additions By Year 2032 EE: - GW DR: 2 GW DR: 3 GW EE: 2 GW EE: 5 GW DR: 4 GW Storage: 2 GW Renewable Additions By Year 2032 (% Wind and Solar Energy) 10% 15% 30% 20% Generation Retirements1 Coal: 9 GW Gas/Oil: 17 GW Coal: 17 GW Coal: 17 GW+ Nuclear: 2 GW CO2 Reduction Constraint From Current Levels by 2032 None Siting Methodology2 MTEP Standard “Localized” . EV: Electric Vehicles EE: Energy Efficiency DR: Demand Response In Accelerated Fleet Change Scenario 16 GW of coal retired. In addition, 8 GW of coal dispatched seasonally and must-run removed on all units. “Localized” renewable siting assumes that at least 50% of incremental wind and solar energy will be sourced within each Local Resource Zone. Two thirds of solar sited as distributed. . Planning Advisory Committee – MTEP18 Resource Expansion & Siting - September 27, 2017

Assessment goal: To better understand the impacts of renewable energy growth in MISO over the long term Study Focus Areas: Integration Inflection Points (significant change in the structure and/or operation of the system) Inflection Point Focus Areas: Resource Adequacy Operational Steady State System Stability Illustrative Example RIIA - 10/29/2017 Renewable Roadmap - 7/19/2017

DER key issues MISO’s role is to enhance coordination across the region by integrating distributed energy resources (DER) tools and assets effectively and efficiently. MISO is studying key issues, including: Roles: Define roles and responsibilities related to DER integration and coordination between ISOs/RTOs and Distribution Service Providers (DSPs) in all time frames (planning to operations) Visibility: Improved ISO/RTO visibility of DERs as well as distribution system topology, capabilities and constraints in order to reliably integrate DER activity into the Bulk Electric System (BES) Markets: Integration of DER participation into ISO/RTO wholesale markets Operations: Simulation and forecasting of DER commitment and dispatch under a variety of market and non-market value drivers Planning: Effective resource modeling of DERs in planning studies, operational tools and market tools, to better understand the interaction between DERs and the BES IT: Increased computing capability, larger data storage, and new applications to manage and obtain value from the expected increase in data communications and integration of DER data into planning, operations and markets tools Regulatory: Clarity in regulatory authority over DER activity in both the BES and the distribution system Standards: Standards that guide DER technology to ensure that non-market participating (passive) DERs will predictably react to economic signals from the markets in ways that avoid negative impacts on reliability Next step is to develop a framework on how to prioritize and understand these issues.

Market Activities: wind integration Dispatchable Intermittent Resources ‘DIRs’ Similar to standard generator Difference: max limit is forecast in real-time Included in day-ahead and real-time co-optimisation Eligible to set price Submit offers for energy Clear based on economics between min and max limits Not eligible for operating reserves Except ramp down Congestion management before and after DIRs Before: Intermittent resources not dispatchable, manual curtailment After: DIRs dispatched, based on economics with all other dispatchable resources

Market Activities: Increasing net load variations and uncertainties impose challenges to power system operations System ramping needs arising from more renewables Variations: Forecasted changes in Load, Wind and NSI Uncertainties: Unexpected changes such as Load and Wind forecast errors, and generator set-point deviations Price signals needed to incentivize resource flexibility Effective renewable integration includes not only the appropriate utilization of existing resource flexibility The integration also needs market incentives for resources to provide their flexibility and develop more flexible resources

Ramp capacity product introduced to MISO co-optimised Energy and Operating Reserve markets on May 01, 2015 Market Clearing through Co-optimisation Prices Reflective of Marginal Cost or Value of reserves Priority Energy Market Clearing Prices Marginal costs to serve zonal/market-wide reserve requirements; deliverability cost is being captured as the model advances to account for transmission capability Operating Reserve Demand Curves The value demand side placed on the reserve base on its reliability impact, e.g., value of expected loss of load; value increases as shortage worsens to reflect the higher reliability risk Reserve Substitution A higher quality reserve an serve the requirement of a lower quality reserve; the price of the higher quality reserve is thus higher or at lease equal to the lower quality reserve Regulating Reserve Capacity held in reserve by a frequency responsive resource for the purpose of providing Regulating Reserve Deployment in both the up/down direction Spinning reserve A specified percentage of Contingency Reserve that must be synchronized to the System and converted to Energy within Deployment Period per instruction High Low Supplemental reserve Contingency Reserve that is not considered Spinning Ramp Capability Product

Market-based approach to manage variations and uncertainties and to incentivize resource flexibility Systematically pre-positions resources with ramp capability by leveraging current ramp management experiences Provides transparent price signals to incent resource flexibility and investment Incorporation in each stage of the market (prior to AGC), including both Day-Ahead and Real-Time markets

Closest to Market-Clearing Reduce Price Volatility Market Activities: ELMP more fully and accurately reflects the true costs to meet demand Operating Situation ELMP/LMP Compare When peaking resources, e.g., gas turbines, are committed to meet requirements ELMP > LMP When dispatch encounters transient shortages but a unit could be or is being committed to address the shortages ELMP < LMP Most Conditions ELMP = LMP Electricity markets will function most efficiently when structured to provide prices that are consistent with the underlying cost structure Closest to Market-Clearing Sufficient incentives to follow schedules Effective optimization of commitment and dispatch Minimize Uplift Improved ability to hedge through forward contracts Incentives to build new capacity as needed Reduce Price Volatility Reduce risks faced by market participants from price volatility

Production Experiences  ELMP Phase I results validate design objectives; a conservative initial implementation produces modest benefits Expected results Actual Results More fully reflect in prices the cost of online Fast Start Resources used to meet demand ~$1/MWh average increase over relevant RT intervals Reduce uplift costs ~1% RSG (uplift) reduction during expected periods More accurately price shortage or transmission violation when MISO has offline Fast Start Resources available ~$15/MWh average decrease during relevant RT intervals Reduce price volatility and improve DA/RT price convergence DA/RT price deviation reduced by 2.25% Qualitative benefits from efficient price formation and market behavior Reliable Grid Operations  Informs market participants the true state of grid conditions Efficient Market Outcomes  More competitive supply and rational market behavior

Market Issues: pricing during emergencies Failure to obtain efficient pricing under emergency conditions When MISO calls upon emergency capacity including Load Modifying Resources (LMR), market prices can be depressed ELMP will partly address this issue by allowing block loaded emergency capacity resources to set price, but will not help when the emergency capacity resources are offered free or cheaper than the marginal resource dispatched prior to invoking emergency Such price depression could be inappropriate due to conflict with the objectives of emergency actions in real time, and participant actions have the potential to endanger reliable operation Per IMM: “Prices in these hours play a crucial role in sending efficient long-term economic signals to maintain adequate supply resources and to develop additional demand-response capability”

Market Issues: pricing during emergencies Conceptual design Use Proxy Offer for resources that are scheduled during emergency operating procedures Two-folded Proxy reflecting both the Cost and Availability Max of emergency resources’ offer and Emergency Offer Floor Establish two Emergency Offer Floors using the ELMP logic Tier I: Highest available economic offer in the affected emergency area1 at the initiation of the max gen procedure Tier II: Highest available offer including Tier I in the affected area upon call-on LMRs as the system falls deep into emergency

Market Issues: other efforts ELMP Phase III AGC Enhancement for fast ramping resources Reserve deliverability improvements Short-term capacity requirements and pricing Seasonal resource availability and need .

Questions? Contact Mike Robinson (mrobinson@misoenergy.org )