JUNE 4, 2018 | BOSTON, MA

Qualification and Participation of Net-Metering Facilities and Energy Storage Systems in the Forward Capacity Market

Massachusetts Department of Public Utilities Docket No. 17-146

Chris Parent DIRECTOR, MARKET DEVELOPMENT

Henry Yoshimura Carissa Sedlacek DIRECTOR, DEMAND RESOURCE STRATEGY DIRECTOR, RESOURCE ADEQUACY

ISO-NE PUBLIC Outline of Presentation

• Comments on Exhibit NG-A – Forward Capacity Market (FCM) Qualification Decision Tree • Expanding on wholesale market participation options • Qualifying and participating in the wholesale markets with energy storage systems

– Examples • Risk profiles associated with market participation options

ISO-NE PUBLIC 2 ISO New England Performs Three Critical Roles to Ensure Reliable Electricity at Competitive Prices Grid Market Power System Operation Administration Planning

Coordinate and direct Design, run, and Study, analyze, and the flow of electricity oversee the markets plan to make sure New over the region’s where wholesale England's electricity high-voltage electricity is bought needs will be met over transmission system and sold the next 10 years

ISO-NE PUBLIC 3 Region’s Wholesale Markets Provide Opportunities for Resources with Varying Characteristics

Electric Energy: The Day-Ahead and Real-Time Energy Markets are Energy forward and spot markets for trading electric energy. Energy prices fluctuate throughout the day and at different locations in New England, Market reflecting the amount of consumer demand, constraints on the system, and the change in cost to meet a one megawatt change in load.

Short-Term Reliability Services: Resources compete in the ancillary Ancillary markets to provide backup electricity as well as services needed to support the physical operation of the system, such as frequency Markets regulation and voltage support. These services are critical during periods of heavy demand or system emergencies.

Forward Long-Term Reliability Services: Resources compete to sell capacity to the system in three years’ time through annual Forward Capacity Auctions. Capacity The Forward Capacity Market works in tandem with the Energy Markets Market to attract and sustain needed power resources today and into the future.

ISO-NE PUBLIC 4 Annual Value of the Region’s Wholesale Electricity Markets Over the Past Decade

Annual Value of Wholesale Electricity Markets (in billions) Energy Market $14 1.5 Ancillary Markets $12 12.1 Forward Capacity Market $10 1.1 1.0 $8 1.6 9.1 1.3 1.8 8.0 7.3 1.1 $6 6.7 1.2 2.2 5.9 5.9 1.2 5.2 $4 4.1 4.5 $2

$0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Source: 2016 Report of the Consumer Liaison Group; *2017 data are subject to adjustment Note: Forward Capacity Market values shown are based on auctions held roughly three years prior to each calendar year.

ISO-NE PUBLIC 5 Ancillary Services Are a Relatively Small Part of the Wholesale Electricity Markets

$8 Value of Wholesale Markets in 2017 Ancillary Service Markets in 2017 (in $ Billions) (in $ Millions) $7 $140 Winter $120 Reliability $6 29 2.2 Program $100 $5 Regulation $80 30 Service $4 4.5 $60 Forward 40 Reserves $3 $40

$2 $20 Real-Time 30 Reserves $0 $1

$0 Source: ISO New England Internal Market Monitor Energy Market Ancillary Markets Capacity Market 2017 Annual Markets Report

ISO-NE PUBLIC 6 Exhibit NG-A – FCM Qualification Decision Tree (Page 1 of 2)

ISO-NE PUBLIC 7 Exhibit NG-A – FCM Qualification Decision Tree (Page 2 of 2)

ISO-NE PUBLIC 8 Comments on Exhibit NG-A • Generally, an accurate summary. A few things to note: • FCM resource qualification and asset registration are distinct processes

– A resource must be qualified by the ISO to participate in the Forward Capacity Auction and take on a Capacity Supply Obligation (CSO) – Assets comprising a resource must be registered with the ISO to fulfil a CSO, or to participate in any real-time market (e.g., energy, ancillary services) • To participate in the FCM, a resource must have ≥ 100 kW of capacity • The applicable rules for Generator Assets are a function of size and location

– “Modelled” Generators:

• A generating facility ≥ 5 MW, or a facility of any size interconnected at 115 kV or above • Are modelled in the ISO Energy Management System, and must meet technical requirements (e.g., telemetry, communication) and participate in the Energy Markets

– Generating facilities ≥ 1 MW and < 5 MW interconnected below 115 kV:

• May register as a Modelled Generator • May register as a Settlement-Only Generator (SOG) or • May elect to reduce load and not participate as a resource in the wholesale markets

– Generating facilities < 1 MW interconnected below 115 kV:

• May register as a SOG or • May elect to reduce load and not participate as a resource in the wholesale markets

ISO-NE PUBLIC 9 Comments on Exhibit NG-A, continued

• Demand Resources (DR) include energy efficiency (EE), load management (LM), and distributed generation (DG) installed at end-use customer facilities that reduce electric energy consumed from the grid during specific hours

– Passive DR – i.e., On-Peak Demand Resources or Seasonal Peak Demand Resources – reduce load during defined system peak hours

• Are FCM-only resources and cannot participate in any real-time market

– Active DR – i.e., Demand Response Resources (DRRs) – reduce load when dispatched by the ISO

• DRRs may or may not be associated with a FCM resource with a CSO • Can participate in the energy and operating reserve markets • Behind-the-meter resources do not have to participate in wholesale markets to produce value for customers

– Rather than receiving wholesale market payments, the value produced by behind-the-meter resources can be monetized by reducing wholesale charges

ISO-NE PUBLIC 10 Comments on Exhibit NG-A, continued Behind-the-meter demand resources can participate in the wholesale markets as a passive or an active demand resource (DR)

Opportunities for DR Participation in Regional Wholesale Electricity Markets

ANCILLARY MARKETS ENERGY CAPACITY REGULATION RESERVES

Passive DR (e.g., EE and NO YES NO NO Passive DG)

Active DR (e.g., Dispatchable YES YES YES YES LM and DG)

ISO-NE PUBLIC 11 Care Must Be Taken to Avoid Double Counting

• To avoid double counting, a Generator Asset (such as a SOG) and an active DR may not be located at the same facility • For example: – Assume a facility that is consuming 400 kW and is simultaneously generating 100 kW with solar PV – The baseline of the active DR, which is measured from the facility’s retail delivery point, is -300 kW

• The negative value reflects consumption from the grid – The active DR is dispatched and interrupts all 400 kW of consumption – The active DR is paid for 400 kW – i.e., the difference between its -300 kW baseline and the +100 kW net energy injection onto the grid – If a SOG is also registered at the same facility, it is paid for +100 kW of net energy injected onto the grid – This would result in the +100 kW of energy injection being double counted – once on the active DR and once again on the SOG

ISO-NE PUBLIC 12 STORAGE TECHNOLOGIES Examples for Participation in the Markets

ISO-NE PUBLIC ISO-NE INTERNAL USE 13 Storage Technologies Participate in FCM Like Other Resources Summary of Potential FCM Qualification Options Resource Characteristics Dispatchable Non-dispatchable Generator Demand Resource Demand Resource (Active) (Passive) Connected to Transmission Yes No No System Connected to Behind Behind Distribution Yes Retail Delivery Point Retail Delivery Point System (RDP) (RDP) Separate resource Co-located with Yes, as SOG only as illustrated in Separate resource or map to another FCM Example # 3; otherwise, must be a (only one Demand Response existing resource of Resource separate resource Asset at the RDP)* same capacity type

Non-Intermittent Generator On-Peak or Seasonal Peak Capacity Active Demand (Example # 1) or Intermittent Resource (Passive Demand Resource Type Capacity Resource Generator (Example # 3) Resource)

Single Asset at Facility: Single Asset at Facility: Single Asset at Facility: Examples Example # 1 Example # 4 Example # 4 Discussed on the following Slides Co-located Asset at Facility: Co-located Asset: Co-located Asset: Example # 2 & 3 Example # 5 Example # 6

* Under Price Responsive Demand (PRD), only one Demand Response Asset can be located behind a single retail delivery point. Therefore, two or more Active Demand Response Assets cannot be co-located behind a single retail delivery point.

ISO-NE PUBLIC 14 Example #1: Storage Technology Connected Directly to Power Grid as a Generator Power Grid • Non-Intermittent resource qualification Step-Up XFMR • The Capacity Network Resource Capability (CNRC) would be the Battery’s net discharge capability that would be able to be Facility maintained continuously over the audit duration associated with its asset type

M1 – Summer value is measured at 90°F – Winter value is measured at 20°F New Generator • Interconnection rights as a generator must be Asset established regardless of whether the generator is in front of the meter or behind the meter (SOG)

– Generally, generation greater than 5 MW is interconnected via ISO-NE’s interconnection procedures (Schedules 22/23) Generating Capacity – In most cases, SOGs are less than 5 MW and interconnected Resource via an agreement with the Transmission Provider – The type of interconnection is determined by whether there are existing wholesale transactions on the interconnecting line, Sample Calculation Resource 1 – Battery regardless of voltage Assuming Battery discharge cycle of 2 hours • The asset type for the Battery is “Energy Storage (Excludes Nameplate Capability = 3.00 MW Pumped Storage)”

Summer Discharge = 2.75 MW – Winter Discharge = 2.50 MW Establish Claimed Capability and Seasonal Claimed Capability Losses = 0.25 MW audit durations are 2 hours

CNRC Summer= 2.75-0.25 = 2.50 MW • The CNRC for the Battery is not affected by its charging cycle CNRC Winter= 2.50-0.25 = 2.25 MW

ISO-NE PUBLIC 15 Example #2: Co-locating Storage Technology at a Solar Facility as a Generator • Each Resource has separate interconnection rights and separate qualified capacities

Power Grid – Similar to Example #1

Step-Up • Each generator asset will have a revenue quality meter XFMR (RQM) for wholesale market settlement

– Revenue quality meter reads are used in verifying the Facility capability of the asset and in turn the overlying FCM resource M1 M2 • Battery:

Solar Battery – Non-Intermittent resource qualification Generator Generator – The CNRC would be the Battery’s net discharge capability Asset Asset that would be able to be maintained continuously over the audit duration associated with its asset type • Summer value is measured at 90°F • Winter value is measured at 20°F – The asset type for the Battery is “Energy Storage Generating Capacity Generating Capacity (Excludes Pumped Storage)” Resource 1 Resource 2 • Establish Claimed Capability and Seasonal Claimed Capability audit durations are 2 hours – The CNRC for the Battery is not affected by its charging cycle • Solar:

– Intermittent resource qualification – Resource’s median net output over Summer/Winter Reliability Hours • Summer: Hours Ending 1400-1800 • Winter: Hours Ending 1800-1900

ISO-NE PUBLIC 16 Example #3: Co-locating Storage Technology at a Solar Facility as a Settlement-Only Generator • Intermittent resource qualification – The qualified capacity will depend on its design (relative size Power Grid of battery, panels/wind production and inverter) and whether the inverter will limit the operation of the facility – May be one asset representing one FCM resource if RDP Meter supporting solar/battery qualification data allows it – As a single resource, the qualified capacity would be the combination of the solar and the battery’s net discharge Facility capability that would be able to be maintained continuously Inverter over the audit duration which is the median net output over Summer/Winter Reliability Hours • Summer: Hours Ending 1400-1800 Combination • Winter: Hours Ending 1800-1900 Solar / Battery Generator • Preferred configuration is one Market Participant Asset • Interconnection rights (CNRC) will be established with the Transmission Provider – Usually the combination of the available output of the solar and battery if not limited by the inverter but may have separate interconnection agreements for the solar and Generating Capacity battery Resource • A single revenue quality meter (RQM) at the host facility load (Retail Delivery Point) is needed for wholesale market settlement – Used to verify the capability of the asset and FCM resource

ISO-NE PUBLIC 17 Example #4: Storage Technology as a Passive or Active DR at a Single Facility

Passive (On-Peak) Resource • The Battery must have a separate Power Grid RQM as well as a RQM at the host facility load (Retail Delivery Point) RDP Meter • For Passive DR, the installation date Facility must be after the applicable Existing M1 Capacity Qualification deadline for Active Resource the given Capacity Commitment Load Period that the unit is seeking On-Peak Asset Power Grid qualification in (Battery) Asset RDP Meter • Interconnection rights need to be established with the Transmission On-Peak Demand Facility Provider Resource M1 • Upon registration, the aggregate Demand nameplate of the Distributed Response Load Asset Generation must be less than 5 MW Asset or not exceed the non-coincident (Battery) peak host facility load in the prior 12 months, whichever is larger Demand Response Resource (DRR)

ISO-NE PUBLIC 18 Example #5: Co-locating Storage Technology at a Single Facility as a Passive DR Option 1 – Single Passive Resource • Both the Battery and Solar must have separate RQMs as well as a RQM at the host facility load (Retail Delivery Point) • For Passive DR, the installation date must be after the applicable Existing Capacity Qualification deadline for the given Capacity Commitment Period that the unit is seeking qualification in • Preferred configuration is one Market Participant Option 2 – Two Passive Resources • Interconnection rights need to be established with the Transmission Provider • Upon registration, the aggregate nameplate of the Distributed Generation must be less than 5 MW or not exceed the non-coincident peak host facility load in the prior 12 months, whichever is larger

ISO-NE PUBLIC 19 Example #6: Co-locating Storage Technology at Solar Facility as Active DR

• Both the Battery and Solar must have Power Grid separate RQMs as well as a RQM at the host facility load (Retail Delivery Point) RDP Meter • Under Price Responsive Demand (PRD), Facility only one Demand Response Asset can be located behind a single retail delivery point M1 M2 • Preferred configuration is one Market Demand Solar Participant Load Response On-Peak Asset Asset Asset • Interconnection rights need to be (Battery) established with the Transmission Provider • Upon registration, the aggregate nameplate of the Distributed Generation must be less Passive Demand Active Demand than 5 MW or not exceed the non- Resource (On-Peak Resource (Demand Demand Resource) Response Resource) coincident peak host facility load in the prior 12 months, whichever is larger

ISO-NE PUBLIC 20 PAY FOR PERFORMANCE (PFP) OVERVIEW

ISO-NE PUBLIC 21 Background: FCM Pay for Performance

• Creates a two-settlement construct in the Forward Capacity Market (FCM) with a forward sale (Base Payment) and Performance Payment

– Effective on June 1, 2018 for the ninth Capacity Commitment Period (CCP9) • Base Payment = Capacity Supply Obligation (CSO) x price • Performance Payment = Delivery Charge + Delivery Payment

– Performance is measured during 5-minute reserve shortages only – Delivery Charge is assessed based upon the resource’s share of the capacity need – Delivery Payment is paid based upon the energy and reserves provided

Note: Additional information on pay for performance can be found in the following ISO New England training document, beginning on slide 55: https://www.iso-ne.com/static-assets/documents/2018/03/20180319-18-wem101-intro-new-england-fcm.pdf

ISO-NE PUBLIC 22 Performance Payment Concepts

• Delivery Charge collects funds for the share of capacity need at the Performance Payment Rate (PPR)

– Performance Payment Rate x Balancing Ratio x CSO

• Performance Payment Rate = $2,000/MWh on June 1, 2018 • Balancing Ratio (Br) = (load + reserve requirement)/total CSO • Delivery Payment provides compensation for energy and reserves provided at the PPR

– Actual Capacity Provided x PPR

• Actual Capacity Provided (ACP) = reserve + energy for the 5-minute interval • Performance Payments = PPR x (ACP – Br x CSO)

ISO-NE PUBLIC 23 Example: Under Performance under PFP • When a resources does not deliver on its share of the system requirement, it receives a charge for the shortfall at the PPR (reducing the Base Payment it receives) • System variables: – Assume a full hour of scarcity (only scarcity in the month) – Br = 0.60 – PPR = $2,000/MWh • Resource variables: – CSO = 10 MW (or 10 MWh for a full hour) – ACP = 0 MWh (no energy provided during scarcity condition) • Performance Payment = PPR x ( ACP – Br x CSO ) $2,000/MWh x (0 MWh – 0.60 x 10 MWh) -$12,000/month • Base Payment = CSO x price 10 MW x 5.00/kW-month $50,000/month

ISO-NE PUBLIC 24 Example: Over Performance under PFP

• When a resources delivers more than its share of the system requirement, it receives a payment for the over performance at the PPR • System variables: – Assume a full hour of scarcity (only scarcity in the month) – Br = 0.90 – PPR = $2,000/MWh • Resource variables: – CSO = 10 MW (or 10 MWh for a full hour) – ACP = 10 MWh (energy provided during scarcity condition) • Performance Payment = PPR x ( ACP – Br x CSO ) $2,000/MWh x (10 MWh – 0.90 x 10 MWh) $2,000/month • Base Payment = CSO x price 10 MW x 5.00/kW-month $50,000/month

ISO-NE PUBLIC 25 Solar as a Generation Capacity Resource

• For solar facilities “in front of the meter” that are participating as a Generation Capacity Resource, participants need to evaluate the resource’s expected output as compared to when scarcity conditions may occur

– Receives CSO in four months (June-September) – Receives energy payments for any output • If this same solar facility is instead behind an end-use load (assume settlement-only generator), the participant also needs to evaluate how the consumption at the site impacts “push-back” or net energy it is supplying

– Receives CSO in four months (June-September) – Receives energy payments for any push-back

ISO-NE PUBLIC 26 Solar as a Demand Capacity Resource

• If this same solar facility behind an end-use load participates as a passive Demand Capacity Resource, it does not need to factor in the consumption at the site because the solar is sub-metered (measured similar to a Generation Capacity Resource)

– Receives a CSO in eight months (March-October) – Does not receive energy payments for any push-back

ISO-NE PUBLIC 27 Additional Resources

• Historical Data on Operating Reserve Deficiencies

– https://www.iso-ne.com/static- assets/documents/2017/01/rcpf_activation_data_2006_10_thru_present.zip • Operating Reserve Deficiency Information for Capacity Commitment Period 2021-2022

– https://www.iso-ne.com/static- assets/documents/2017/12/pspc_oprting_resrve_deficiency_memo_1207201 7.pdf

ISO-NE PUBLIC 28 ISO-NE PUBLIC 29