Part 2: Re-dispatch Across the West
This is the second of a four-part post on EIM benefits and how to maximize them.
Major, quantifiable benefits of participating in CAISO’s Energy Imbalance Market are re-dispatch in real time and EIM Transfers. If it’s midday and the sun is shining in California, there is typically a glut of cheap power that you can tap into with EIM. If it’s early evening and the sun is setting (while the load picks back up), there’s a deep, available market for additional energy that you can sell into. What’s a power marketer to do when VERs are so uncertain and the decision to buy or sell is no longer made on the trading floor but is determined by a supercomputer in Folsom, CA? I argue it’s simple: Bid your true cost and true capability – as true to actual as you can get it. Your mantra should be to “Say what you can do, and do what you said.”
Let’s examine the options:
- Bid below cost
- Bid above cost
- Bid at cost
Bidding Below Cost
If you bid below cost, CAISO will gladly let you spend more on your fuel and O&M than you’ll get back in energy payments. This is not to say there’s never a reason to bid below cost. Perhaps you’re packing a gas pipeline, and it’s better to stay out of penalty and lose a little money on energy production than eat a lot in fuel penalties and have relationship issues with your gas company. That’s definitely not a long-term winning strategy.
Bidding Above Cost
Worse than selling your power for too little is trying to sell it for too much. In the second case of bidding above your cost, resources oftentimes get dispatched down, requiring you to buy energy at prices higher than your costs to produce. Ouch!
Bidding at Cost
So, if there’s harm in under and over-bidding, what makes the bidding at-cost option so good? The reason is that it delivers an accurate price signal in the market’s engine. LMP markets should always drive dispatches at bid or better so, at a minimum, the market compensates you for your costs, though oftentimes, that resource isn’t the marginal resource, in which case you’re getting the better of the bid or better rule. The “better” here applies on both sides of the dispatch. If you’re dispatched up, you’re paid at LMPs, typically higher than the bid. If you’re dispatched down, you buy back that portion of your base schedule at below your bid.
Occasionally, you get the opportunity to buy energy back at negative prices and, as PCI Senior Vice President Khai Le says, “This is like a double-dip on an ice cream cone; lowered production costs and revenue from purchases!”