Dive Brief:

• The Federal Energy Regulatory Commission (FERC) this week approved a flexible ramping product proposed by the California Independent System Operator (CAISO).

• The product is designed to help CAISO with the growing amount of renewable resources on its grid and the uncertainty it causes in its day-ahead and real-time electricity market. FERC rejected calls from some distributed energy providers to make the ramping product biddable. 

• The operator's existing frequency regulation service addresses some of those grid issues, but CAISO opted for a new product to preserve capacity for regulation service and because using frequency regulation when a ramping service could be used could distort regulation pricing.

Dive Insight:

One of the top concerns at California’s grid operator is how to bridge the gap between the spike in evening demand for electricity and the corresponding dip in solar generation as the sun sets, a phenomena known as the Duck Curve.

While it could use frequency regulation to address the ramping issues, CAISO argued that could distort the market and create greater uncertainty.

CAISO did not want to dip into its frequency regulation reserves because doing so could lead to more real-time dispatch prices being compensated at administratively-set penalty rates. Instead, the grid operator opted for a separate service.

Some distributed energy companies in the case wanted the new service to be biddable, but the ISO argued that the costs of resources that provide flexible ramping service are “entirely in the form of the opportunity costs of not selling energy or ancillary services within the CAISO real-time markets.”

CAISO further argued that those opportunity costs could be calculated from the resource energy offer and real-time prices and used to determine the real-time price of the flexible ramping product, and those “opportunity costs will be fully captured in CAISO’s co-optimization and pricing models."

FERC, in its order, agreed with CAISO’s assessment.

"Because the opportunity cost paid for uncertainty awards is based on the real-time energy price, we find that flexible ramping product compensation is market-based, as opposed to an administratively determined price, even though suppliers will not submit separate bids for it," federal regulators wrote.