Slide 1: Transmission: LMP and Participant Funding
Transmission: LMP and Participant Funding Entergy 2002 Analyst Meeting Michael Schnitzer, Director The NorthBridge Group, Inc. ae June 14, 2002 =n tergy
Slide 2: The Problem: Transmission Congestion
The Problem: Transmission Congestio Congestion occurs when transmission constraints require “out of merit” dispatch rome ew an <=. soo mw | Se ceva ‘ ee " mv sae _ 4,000 mW Congestion = 1¢ pais i ‘ i The Solution: Locational Marginal Pricing
Slide 3: Parallel flow means electricity flows over all interconnected lines
Parallel flow means that electricity will flow over all interconnected lines between source and sink Electricity flows do not follow contract paths 4113 MW A 1MW generation te 1MW Load Note: Ait ines have equal impedance. Dollar figures are the generator bids at each bus,
Slide 4: Why LMP?
Why LMP? Economic use of the transmission system can vary significantly “a 200 MW $40/MWH ies 800 MW $30/MWH 600 MW Limit Flow-gate 1000 MW $60/MWH ad % 1800 MW OoMW $40/MWH $30/MWH 600 MW Limit Flow-gate 2000 MW 200 MW $60/MWH
Slide 5: Preferred Approach: LMP with Financial Rights
Preferred Approach: LMP with Financial Rights For dispatch, price signals using LMP is the best answer Low Load Case High Load Case wt 200 MW $40/MWH LMP=$40 bane 800 MW $30/MWH LMP=$30 600 MW Limit Flow-gate 1000 MW $60/MWH LMP=$50. a SS 1800 MW OoMW $40/MWH $30/MWH LMP=$40 LMP=$20 600 MW Limit Flo
Slide 6: LMP Pricing Example
LMP Pricing Example LMP Example in High Load Case ot y 1800 MW OoMWw $40/IMWH $30/MWH LMP=$40 LMP=$20 600 MW Limit Flow-gate 2000 MW 200 MW $60/MWH LMP=$60 Two ways to transact: e Schedule bilaterally, pay congestion charge for transmission @ Ato C= $20/MWH @ Bto C= $40/MWH e Transact in LMP market,
Slide 7: The Problem: Transmission Expansion
The Problem: Transmission Expansio For new generator siting decisions, pricing of transm in upgrades is key Generation Expansion at Point A. B or C? @ ®) e Should a new 800 MW unit ae Ln be sited at A, B, or C? e Answer depends on @ Relative generation costs 600 MW Limit @ Relative siting costs ¢ Tr
Slide 8: Participant Funding?
Participant Funding? Alternative Implications . Makes transmission “free” Let generation locate to generators; encourages anywhere; roll in costs of = siting that creates network upgrades congestion Have RTO decide where to locate generation, what Replaces integrated utility transmission to build an
Slide 9: The Bottom Line
$ The Bottom Line $ Market Participant Economic Challenge Merchant Generator Location or transmission hedge Originator How much/how to hedge Trader Predict/manage short term congestion Transco owner Identify/market economic investment
Slide 10: Summary - Transmission
Summary - Transmission * Transmission pricing and funding structures determine system efficiency by establishing participants’ risks and incentives + Locational marginal pricing with financial rights is the best answer to congestion, for efficient dispatch and use of the system + Participant funding