New electricity market rule changes will help hybrid resource projects advance in the Midcontinent region. The changes provide methods to determine hybrid resources’ capacity value, a vital metric for maintaining the reliability of the region’s electric grid. Since hybrid resources can combine multiple electricity generation technologies and storage devices, they are an important opportunity to increase carbon-free energy in the region.
Key takeaways:
- Capacity accreditation is an essential process at MISO, which must assess the potential for electricity generation resources to provide electricity to the grid reliably.
- Accreditation of hybrid resources’ capacity value will support financing of hybrid projects and support state and utility resource planning decisions.
- MISO’s new rules will help advance the many hybrid resources in the queue to interconnect to the electric grid.
- The rules provide ways to calculate the capacity of new and existing hybrid resources.
In early 2020, we discussed how hybrid resources were starting to be developed in the MISO region and considerations for crafting market rules to incorporate them. At the time, there were about 2,500 megawatts (MWs) in MISO’s interconnection queue slated for service starting in 2021. MISO recently updated its interconnection queue with a new slate of hybrid resource projects entering in mid-2021. With these new projects, the volume of hybrid resources seeking to interconnect in MISO has increased to over 16,000 MWs. That’s enough to power over 3 million average American households for an entire year! Clearly, the need for market rules to accommodate hybrid resources is growing.
Without market rules in place, hybrid resources would not be developed in MISO. Capacity value is critical for the selection of electricity generation resources in utility planning and in power purchase agreements. One of the major benefits of making a renewable generator a hybrid is the boost in reliability value, which manifests today as capacity value.
Fortunately, in October 2021, MISO and the Federal Energy Regulatory Commission (FERC) took meaningful action to support the growing market for hybrid resources in the Midwest. MISO proposed—and FERC approved—to formally define hybrid resources in its tariff and establish a methodology to accredit the capacity value of hybrids.
By adding this formal definition to its governing documents, MISO has begun the process of officially incorporating hybrids into its market.
Capacity market rules open new revenue opportunity for hybrids
MISO’s markets are segmented between the capacity market and the energy market. The rules being discussed here apply only to the capacity market. Rules to enable hybrids to participate in the energy market must still be developed and clarified. While the outstanding energy market rule gaps still present barriers to participation, these new capacity market rules are a significant step in the right direction for several reasons.
Capacity accreditation by MISO for hybrids will enhance their chances of being selected in state resource planning processes. The Planning Resource Auction (MISO’s capacity market) augments state-level resource planning processes by allowing utilities to trade capacity. In state resource planning processes, the market serves as an option to procure capacity that may be less costly to ratepayers than the utility building new generation assets. Every new and existing generation resource in MISO is assigned a capacity credit each year. The credit can either be counted toward the owning utility’s Planning Reserve Margin Requirement (i.e., their capacity obligation) or offered into the Planning Resource Auction to be sold to another utility. Because MISO runs the accreditation process for the regional market, states typically defer to MISO for setting reserve margin requirements and resource accreditation, both of which are inputs into state resource planning decisions. Having these rules in place gives hybrid resources a seat at the table on equal footing with other technologies.
The capacity market provides critical revenue to hybrid resources. MISO’s capacity market does not provide much revenue compared to some other capacity markets in deregulated parts of the country. However, it still provides revenue to resources that clear the auction and supports their ongoing operation. This is a key price signal telling generation capacity to be available to provide energy when needed, thus providing reliability value to the region.
Having an accreditation process on the books provides market certainty. As project developers and utilities undertake more hybrid projects, they also take on the associated risk. Having a MISO capacity accreditation process in place mitigates market uncertainty. As a result, there is likely to be an increased appetite to develop hybrid projects in the Midwest.
MISO’s approach to the capacity value of hybrid resources
So, with an understanding of why MISO’s new rules are an important development, let’s dive into the details. MISO’s FERC filing outlines is a two-part approach to assigning the capacity value of hybrid resources. The approach bifurcates new resources and existing resources with historical operating data. As new hybrid resources come to the market and operate, they will transition from the first methodology to the second.
Methodology 1: New hybrid resources—a “sum of parts” approach
New hybrids will be accredited or assigned capacity credit based on the sum of the established credit values of their component technologies up to their firm transmission service level. In other words, the baseline capacity credit values MISO has established for the various technologies that make up the hybrid will be summed and capped at the level of firm transmission service the hybrid owner has secured.
For example, let’s take a solar plus storage hybrid, the most common configuration we’re seeing in the market today:
- Currently, MISO assigns a 50 percent capacity credit for solar and a 95 percent capacity credit for battery storage with a 4-hour maximum output duration capability.
- If the hybrid is comprised of 100 megawatts (MWs) of solar and 50 MWs of storage and has 100 MWs of transmission service, the capacity credit would be 97.5 MWs.
As we discussed in our post on hybrid interconnection issues, FERC Order 845 allows any resource type to procure interconnection service that is fewer megawatts than its installed capacity. As a result, the sum of a hybrid’s parts may be greater than its interconnection service and, subsequently, its firm transmission service level. In such a case, the firm transmission service level would be the assigned capacity credit. So, in the solar plus storage example above, if the hybrid only had 80 MWs of firm transmission service, the capacity credit would be 80 MWs.
Methodology 2: Existing hybrid resources with historical operating data
Once a hybrid resource has been in service and has generated sufficient operational data, MISO will use that data to calculate the resource’s capacity credit. MISO’s business practice manual on Resource Adequacy defines this minimum historical data criterion as “sufficient operating history to demonstrate availability over the top eight daily peak hours occurring June through September of the prior planning year.”
Ok, so what does that mean? MISO’s current resource adequacy construct is built around the idea that if sufficient megawatts of generation capacity are built to meet peak load in the summertime, we will have enough to get us through the rest of the year as well. Therefore, the performance of the hybrid resource will be evaluated for the eight daily peak load hours, limited to one hour per day, from June through September, when the MISO system-wide load is highest. [Note: MISO is developing a seasonal resource adequacy construct. Once implemented, hybrid accreditation will evolve to evaluate performance across the entire year, not just the summer months.]
MISO will look back at whether the hybrid was available (did it offer to sell energy into the market?) and the hybrid’s performance (if instructed to sell energy by the market, did it hit its instructed MW output level?) during these hours to determine the capacity value of the hybrid resource:
- If the hybrid was offered into the market during the eight daily peak load hours but was not told to inject energy to the grid because it was not needed, it will receive capacity credit for the amount offered.
- However, if the hybrid was given a dispatch instruction to inject energy to the grid and could not meet the instructed injection level, the level it achieved across each of those eight peak load hours will be averaged to calculate the capacity credit.
Let’s carry our solar plus storage example from above through this method of accreditation. Assume the hybrid resource has 80 MWs of firm transmission service and offers that full 80 MWs of capacity into the energy market during all eight daily peak load hours in the summer. If MISO had committed the hybrid for that full 80 MW output for all eight of those hours, but the hybrid was only able to achieve 70 MWs of output during one of them and 60 MW during another, MISO will calculate the average output and accredit the hybrid resource at that level.
Is MISO’s approach consistent with industry best practices?
This is a bit of a loaded question because there are no clearly established best practices for determining the capacity value of hybrid resources. Another approach is called an effective load carrying capability, or ELCC. An ELCC approach seeks to project the amount of load a given resource type can meet by comparing the load profile of the grid and the hybrid resource’s expected production profile over many hours. ELCC is an accepted and widely used methodology for determining the capacity value of other resources like wind and solar.
Unlike MISO’s “sum of parts” approach, ELCC could enable more nuanced capacity accreditation because it can capture interactions between hybrid components that MISO’s approach may not. Utilities in California have explored this issue, and the Energy Systems Integration Group is exploring this issue to provide industry guidance toward best practices.
Looking ahead
Moving forward, we will conclude our multi-part series on hybrid resources with a final installment on market rules. MISO, its stakeholders, and even FERC have committed time and energy to exploring the complex issues surrounding hybrid resource participation in wholesale electricity markets. We’ll summarize progress made to date and highlight key issues that must be resolved to enable hybrid resources to provide their full value to the market.
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