Energy Imbalance Market Progress and Why It Matters

The news that America’s largest municipal utility, the Los Angeles Department of Water and Power (LADWP), is joining the California Independent System Operator (CAISO) Energy Imbalance Market (EIM) promises to bring even more economic and environmental success to emerging regional electricity markets.

LADWP, which serves about 4 million people in Los Angeles and the surrounding area, this week joins an impressive array of utilities lining up to capture some of the tens of millions of dollars in monthly benefits that the EIM is yielding to its participants in eight western states—and their customers.

The EIM is a “real time” market involving eight western states that trades the difference between the day-ahead forecast of power and the actual amount of energy needed to meet demand in each hour. If we need more energy than predicted, the real-time market—the EIM—makes up the difference.

By any measure the EIM has been a success, with economic and environmental benefits growing as each additional member contributes both generation and transmission resources to the market. With more (and cheaper) renewable power to choose from, and more access to transmission to share it with neighbors, financial rewards add up from using the grid more efficiently, avoiding having to turn off inexpensive renewable energy when it surges above local demand (often referred to as “curtailment” or “overgeneration”) and the ability to share reserve power to maintain system reliability.

These kinds of benefits could be further enhanced by integrating the Western grid, an engineering marvel linking 15 states, two Canadian provinces and parts of Mexico. While the EIM deals only with real time energy needs in eight states, an integrated Western grid with the 15 states and our foreign neighbors would allow utilities to make longer-term decisions about the types of generation to use (or "commit") to meet the system's daily expected energy demand. This in turn helps California more easily sell its low-cost excess utility-scale solar generation rather than throwing it away.

Currently, there are 38 “balancing authorities” asserting control over different parts of the system, each responsible within its geographic footprint for adjusting electricity generation, 24/7, to meet constantly changing local electricity demand. The largest of these authorities, the CAISO, has only about one-fourth of the West’s total electricity generation and one-fourth of the electricity use within its territory. The most comprehensive recent study puts the unnecessary costs to California consumers from that balkanization at more than a billion dollars annually. Western grid integration would solve that problem.

EIM benefits are piling up

The benefits from the growing EIM truly are impressive. According to the most recent CAISO quarterly reporting:

the western Energy Imbalance Market (EIM) cost benefits in the first quarter of 2017 are $31.1 million, with total benefits of $173.72 million since the real-time market launched in November 2014.

Read the full news release here. Prior to LADWP, the most recent entity seeking to join the EIM was the Arizona-based Salt River Project, one of a number of public utilities interested in the market. The list now also includes: the Sacramento Municipal Utilities District, Balancing Area of Northern California (BANC), Utah Association of Municipal Power Systems, and Seattle City Light. Western public utilities were long thought to be inalterably opposed to joining a market run through the ISO, but the benefits being realized by all EIM participants have helped change their minds.

These utilities join current and prospective EIM participants such as the Oregon-based PacifiCorp (launched the EIM with CAISO in 2014), Las Vegas-based NV Energy (joined Dec. 1, 2015), Puget Sound Energy (PSE) of Bellevue, Washington and Arizona Public Service (APS) of Phoenix, Arizona, (both joined on Oct. 1, 2016). EIM is now providing cost savings for consumers in eight western states (OR, WA, CA, NV, AZ, UT, WY and ID).

Cleaner too

Financial benefits are not the only benefits the EIM is providing. Carbon emissions from market participants have declined steadily too. According to ISO estimates carbon dioxide pollution declined by more than 4.3 million metric tons per quarter since the market’s initiation in 2014 and 2017.  

YTD (January-March) Million mTCO2 2014 2015 2016 2017
GHG Emission to serve ISO load 15.93 15.12 13.04 11.62

Source: CAISO Greenhouse Gas Emission Tracking Report April 30, 2017

Tip of the iceberg

These benefits, while impressive, represent a small fraction of what would be possible if the western balancing areas authorities organized into a single regional entity run by an independent system operator coordinating the daily and real time operations of generators and transmission lines across the West.

If utilities could offer their energy and transmission into the market to meet expected system demand on a “day-ahead” basis instead of just the real-time market under the EIM, experience in other organized regional markets in the East (PJM), Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP) has shown that renewable integration challenges are more easily and efficiently addressed in their larger and more coordinated footprints. Cheap renewables are almost always available due to the large geographic area they are drawn from. In a big geographic area, the wind is always blowing somewhere and the sun is often shining in places not obscured by the clouds affecting others. The effect is a blending of the variability (the “on and off” weather impacts on renewable power) of renewable resources that makes operating the grid easier and less costly. The lower integration cost in turn means financial benefits to participants in markets run by independent system operators are greater, and carbon dioxide and other pollution emissions are lower than they would be in a less coordinated grid.

Because the owners of power plants—both renewable and conventional—decide in the day-ahead market which generating facilities will be offered to compete in the market, less efficient power plants are turned on less often because they likely won’t be chosen to operate. The ISO selects resources that run at the lowest costs to meet the expected demand. Less efficient, more polluting resources can’t compete against cleaner and more efficient ones, especially renewable power plants that have the lowest operating cost (fuel, operations and maintenance and regulatory compliance costs) of all generators. Both the environment and energy customers win in this scenario.

The EIM’s success is but a taste of what is possible in a West-wide organized market system operated by a truly independent system operator. As more and more utilities, both public and investor-owned, continue to see the substantial benefits offered by the EIM, the prospect for a regionally focused, independently operated electricity market and grid remains good.

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