1. Economic Adequacy Standard
Resource Adequacy Forum Steering Committee January 29, 2010

2. Outline Arguments For an Economic Standard
Arguments Against an Economic Standard
Options for an Economic Standard
An example using the Power Plan
January 29, 2010

3. Arguments For an Economic Standard
Adequacy thresholds are a minimum requirement only
They do not give any indication of the optimum amount of resource
Could be linked to the Council’s power plan for consistency
January 29, 2010

4. Arguments Against an Economic Standard
Economic target would only provide the desired magnitude of resource not the mix
Council’s power plan already provides regional guidance on the optimum magnitude and mix of resource
Could be misused as a surrogate for an IRP process
January 29, 2010

5. Options for an Economic Standard
Use the Council’s power plan
Use a modified NRF/White Book calculation
Develop a new method
January 29, 2010

6. Options: Pros and Cons Option Pros Cons 1 2 3
Matches the Council’s plan. Utilizes completed work. Less work for the Forum.
Council’s method may not be universally accepted. 2
Familiar and easily understood. Less work for the Forum.
Not based on an economic model. No guarantee to reduce risk. 3
Chance to revisit economic risk methodology. Would give more ownership to participants.
Will take lots of time and effort. May not be any better. May get politically bogged down.
January 29, 2010

7. Technical Committee Recommendations (2007) (if an economic standard is to be developed)
Use the Council’s power plan
Adopt the Council’s measure for economic risk (TVar90)
Convert selected “plan” on the efficient frontier into economic target
(Example follows)
January 29, 2010

8. Efficient Frontier Minimizes Cost Alternative Risk Levels
Space of feasible solutions
Alternative Risk Levels
Increasing Risk
Efficient Frontier
Minimizes Economic Risk
January 29, 2010
Increasing Cost

9. Example: Using the Power Plan to define an Economic Standard
Efficient Frontier Illustrative Only
Physical Target LOLP ~ 5% Firm Bal ~ - 1,500 MWa
Physical Adequacy Limit LOLP = 5%
Example: Using the Power Plan to define an Economic Standard
Council Draft Plan LOLP ~ 0%
Tie Economic Target to Council’s resource plan
January 29, 2010

10. Using the Council’s Power Plan to develop an Economic Target
Select the desired point along the efficient frontier
Derive the implied LOLP from the corresponding resource plan
Use that LOLP to set the energy and capacity economic targets (same method that is used to set the physical targets)
January 29, 2010