Characteristics of Regional Power Markets June 16, 2003 Harrisburg, PA Website: http://www.raponline.org

Market Issues Regional Power Markets – Some Concerns Market power Price spikes Resource adequacy Locational differences Long-range market efficiency System Planning and Expansion, including distribution system issues and challenges for the future (environment, diversity, other public interests.) Security and Reliability

Distributed Energy Resources DER is part of the big picture of electric utility investment DER can solve/prevent system problems State regulation, wholesale regulation, and wholesale markets can be organized to make the most of DER DER happens at the retail level Recognizing value

DER Values Values of distributed energy resources Reduced volatility Reduced costs running cost Reduced investment cost (if credit is allowed) Improved environment Cleaner than average (need to assess local margin) Back out spinning reserve Delay large asset construction (technology may provide better “big system” solutions later) Improved security Wouldn’t it be nice if a system operator could operate the same market, with the same loads and the same generators, year after year. The system would have its random influences of weather and forced outages. But the key forcing function of reliability concerns is sales and demand growth, and the faster the growth, the more difficult the system operator’s task, and the more volatile the market becomes.

Value Disconnect Who will compensate the distributed generator for providing these values? There are free-riders

Considerations Market Power – Needs active demand side Price Spikes – Promoted by demand growth Capacity – Customer resources may cost less and be less intrusive Improve energy – environment connection Efficiency – Regulation can help direct capital to most valuable investments Need a regional perspective to attract customer resources beyond those that emerge from state regulation. Is that the ISO/RTO? Does a Multi-state Entity need to cast public interest influence on the market? And can this influence really direct investment to high value places in the market? Can customer resources be regional resources?

The Market Value of Price-Responsive Load

Source: Optimal Energy

System Security Not too distinct from storms and failures New contingencies Resilient Network Single facilities vulnerable Assure minimal effect on customers in the event a facility is taken out DER serves local loads Lighter system loads than would otherwise exist reduces vulnerability