Self-committing resources dominated by coal power are skewing market prices in the Southwest Power Pool (SPP), according to a report released Monday by the grid operator's independent market monitor.
Over half the total MWs in the regional power market are self-committing units, the report finds. Coal resources made up more than 60% of those practices in 2019 and have historically made up over 80% in SPP, according to the report. Meanwhile, coal makes up just over 20% of commitments driven by market prices, while wind and natural gas dominate market-friendly dispatches.
- Dispatching units economically across the market could increase market clearing prices by about 7%, or $2/MWh, the report concluded. Uneconomic scheduling across SPP's market is consistent with the findings of clean energy research focused on the Midcontinent ISO (MISO) from the Sierra Club and the Union of Concerned Scientists — that self-scheduling coal units cause market suppression.
Regulatory interest in the impacts of self-scheduling on the market is rising, Keith Collins, SPP market monitor's executive director told Utility Dive, which is why the monitor saw a "unique opportunity" to do a "deep dive" on the issue.
The report is the first of its kind produced by a market monitor to take a hard look at the practice, Senior Strategy and Technical Advisor at Sierra Club's Environmental Law Program Jeremy Fisher told Utility Dive.
"I hope that this ... moves its way into the market working group at SPP and also is taken seriously by regulators of those utilities and SPP," said Fisher, who authored the Sierra Club's report on MISO. He hopes MISO and other regions take similar hard looks at scheduling, "because I think they'd probably come to this point."
The report concludes that the practice of self-scheduling causes market distortions that allow less economic units to jump out of merit order — and that coal is the main culprit, though the market monitor and clean energy groups differ on some of the root causes of this distortion.
Coal has become less economic in recent years, especially compared to low natural gas prices, which in part is to blame for the fuel's outweighed role in these practices, according to Collins. SPP saw a dramatic shift in which units were dispatched based on market prices from 2014 to 2015 — coal made up about half the power pool's market-based dispatches in 2014, dropping to below 10% in 2015, during which time natural gas made up 60% of SPP's market-based commitments.
The monitor's recommendation focuses on how changes to the market structure can mitigate these occurrences, recommending a two-day ahead look at resource dispatch, rather than a day-ahead look, and a broad commitment from the grid operator and other stakeholders to seek out opportunities to avoid the practice. But Fisher says the monitor skims over utilities' role in these distortions, and solutions should focus more on changing their practices.
Recommendations from the monitor assume "that if utilities are provided the opportunity to dispatch appropriately, they will," Fisher said. "I think one of the critiques that we would have is that it's not clear that utilities don't have the opportunity to attempt to follow market signals today."
Utilities have some of this information at hand and are choosing not to make these decisions in advance, nor are they submitting realistic bids for those units' power, he added.
SPP's monitor also concluded utilities could present more realistic bid prices, including the cost of shutting down and powering up a unit. Utilities currently defend self-committing practices in part as a way to avoid those costs.
"That's an economic parameter. That's not a limitation that could be environmental or reliability-related," said Collins. "To the extent that those costs are not identified to the market, then [the market] can't evaluate those and evaluate the pool of resources that could more efficiently meet the load."
Those constraints and other economic factors such as fuel contracts or commitment bridging should be included in utilities' market offer, according to the report's recommendations.
"Self committing is not something you would anticipate eliminating completely," said Collins. "But from a market efficiency standpoint, our paper shows that if you can work to minimize that, you've got efficiency gains that you can capture through the production cost."
Overall, the report found self-commitments have dropped consistently since 2015, a trend the market monitor said should continue to maximize the market's efficiency. But though MWhs of coal self-committed have dropped, the total MWhs of coal that exist on the market has also dropped in recent years, as many plants have been forced offline early due to poor economics.
"It's not clear to me that coal units are improving their dispatch behavior per se, so much as we have fewer megawatt hours of coal dispatching into the market in the first place," said Fisher.