LMP Fundamentals across Wholesale Electricity Markets

Live Streaming Online July 17-18, 2023

An EUCI Program

If you are unable to attend at the scheduled date and time, we make recordings available to all registrants for three business days after the event

This course examines the value of understanding, analyzing and forecasting electricity prices in the North American wholesale markets (ISOs and RTOs). It forms a comprehensive introduction and overview of the locational pricing market (LMP) pricing structures, their evolution and possible extrapolations to the future of each independent system operator (ISO/RTO) organization. Data sources that influence and shape LMP pricing will be identified, the mathematics of price formation discussed, and some analytical approaches described.

The information presented will benefit generation, transmission, financial, and other market participant staff who deal with current and future LMPs in wholesale electric markets by providing a deeper understanding of:

what drives them
the complexity of supplying electrical energy around the clock
across an imperfect transmission grid
from a variety of suppliers
and without benefit of significant large-scale storage or rationing

Learning Outcomes

This course will:

Explain the motivation and history behind the LMP markets
Explain LMP price formation and illustrate with examples
Examine characteristics of the individual LMP markets
Describe challenges in analyzing and predicting LMP in various time frames
Review various commercial applications (resource siting, market risk analysis)
Examine the fundamental drivers of electricity prices (supply, demand and transmission network)
Review the value and use of price forecasts for multiple market conditions and products
Assess the LMP dynamics of unit commitment – how the market chooses which suppliers to buy from
Explain the LMP dynamics of economic dispatch – how the market decides how much to buy from each supplier
Identify how different resources are offered into the markets
Review input data for fundamentals-based forecasting (market mimicking)
Explain the LMP distinctions between modeling “day ahead” (DA) and “real time” (RT) markets

Agenda

MONDAY, JULY 17, 2023

9:00 a.m. – 5:00 p.m. Central Time

9:00 – 9:20 a.m. :: Overview and Introductions

9:20 – 10:30 a.m. :: Setting the Stage

Scoping the “DNA” of wholesale electricity markets
- From vertical integration to deregulated competition
- Maximizing consumer and supplier surplus, continuously
- Premise > price = value
- Day ahead (DA) reservation and real-time (RT) balancing
Who participates, why and how?
- Physical
  - Generators
  - Bulk consumers
  - LSEs
- Financial market participant
  - Virtual
  - Traders
- Congestion hedge (FTR)
Characteristics of LMP-style Markets
- Architecture
- Offers
- Settlements

LMP Price Formation Overview

Price formation principles
- Constrained optimization
- Components
  - energy + loss + congestion
The role of transmission in separating prices
- Congestion
- Losses
Charting the effects of increasing renewables supply
- Depressed values and more volatility
- Load often geographically distant
- Not demand responsive or self-balancing
- Variable, not firm
Resource adequacy and reliability issues
- The “cannibalization” problem
  - Curtailment
  - Declining “capture ratio”

10:30 – 10:45 a.m. :: Morning Break

10:45 a.m. – 12:45 p.m. :: LMP Analysis and Forecasting Overview

LMP in context of modern government policy
- Market design – select “cheap” vs. “clean”
- Discuss relationship to federal tax credits (PTC, ITC)
- States “clean” procurement preferences and mandates
- C&I contract for “clean” to meet ESG goals
- Carbon price (e.g., RGGI)
- Emission allowances (EAs) and renewable energy credits (RECs)
- Out-of-market contracts and subsidies distort market outcomes
LMP Analysis
- Challenges and approaches
- Data availability
- Trends and correlations
- Investigating congestion
- Volatility
LMP Forecasting
- Challenges and approaches
  - Long-term forecasting (5-25 years)
  - Mid-term forecasting (1-5 years)
  - Intra-day forecasting
  - Uncertainty
  - Statistical vs. fundamental approaches
- Identifying the drivers of future prices
  - Fuel price
  - Renewable penetration rate
  - Electrification of the economy
  - Transmission grid expansion (slow or fast?)
  - Distributed resources and storage

12:45 – 1:30 p.m. :: Lunch Break

1:30 – 3:00 p.m. :: Survey of the LMP Markets

Supply mix, market volume, load patterns
Market reports, market websites, congestion patterns
Issues and future directions

3:00 – 3:15 p.m. :: Afternoon Break

3:15 – 5:00 p.m. :: Survey of the LMP Markets (continued)

CAISO
ERCOT
ISO-NE
MISO
NYISO
PJM
SPP
AESO and IESO (Alberta and Ontario)

5:00 p.m. :: Course Adjourns for Day

TUESDAY, JULY 18, 2023

9:00 a.m. – 12:15 p.m. Central Time

9:00 – 10:30 a.m. :: Applying LMP to Commercial Operation Decisions

Siting new generating resources
- LMP basis risk and curtailment risk
Siting Energy Storage
- LMP volatility intra-day presents arbitrage opportunity
  - Forecasting LMPs via machine learning
- Creating flexibility (near renewables, hydro and nuclear)
- Profiting from transmission congestion, renewable curtailment
- Storage as a transmission asset for congestion management
- Long duration storage (8 hours or more)
FTR valuation
Contracting with generating resources
Ratemaking
- Time of use rates
- Transactive energy exchange (direct consumers-to-consumers)

10:30 – 10:45 a.m. :: Morning Break

10:45 a.m. – 12:15 p.m. :: Future Trends and Their Prospective Impact on Market LMPs

Electrification of the economy
- Energy efficiency to reduce electric demand
- Transport and heating to increase electric demand
Renewables in the supply mix
- Tax incentives, investor appetite, off-take, returns
Transmission expansion
- Bulky, intermittent, large impact
- Before and after comparison
Distributed resources and storage
- Aggregation and virtual power plants (VPPs)
Flexibility, not energy, sets LMP in the future?
- Ramping capability as a service
  - Controllable consumption?
  - Scarcity Pricing
- Trends in other countries
- Past, present and future

12:15 p.m. :: Course Adjourns

Instructor

Nicholas Pratley has worked in electrical power systems analysis and design for more than three decades. Trained in Electrical Engineering at McGill University and the Universite de Montreal polytechnical school, he began his career as a consulting engineer designing power distribution for heavy industrial projects and moved on to become a subject matter expert in power systems analysis for software vendors and consulting firms. He has experience with generation interconnection studies and transmission planning, including more than 15 years in electricity market simulation and price forecasting.

Mr. Pratley has received training on Plexos, GE MAPS and PROMOD IV production cost models, and provided training and consulting services using PROMOD for many years. Clients have included transmission owners and developers, municipal utilities deciding whether to join an ISO market or where to construct a new generating plant, competitive generation (IPP) developers forecasting transmission congestion risk for wind/solar/storage project siting and contract negotiation, and pension funds investing in renewable generation projects.

His work has influenced decisions to acquire, divest, build or invest in dozens of projects worth multiple billions of dollars. In his current professional capacity, Mr. Pratley focuses on the U.S. northeast wholesale electricity markets, federal and state policy, and transmission plans with respect to large-scale renewable energy development. He also prepares and presents training courses using his expertise in LMP wholesale electricity markets.