Economic Adequacy Target

1
EconomicAdequacyTarget

• Resource Adequacy ForumTechnical
  CommitteeAugust 24, 2007

2
Outline

• What do we mean by economic adequacy?
• How the Council addressed economic risk
• Options for an economic adequacy target

3
Defining Economic Adequacy

• Minimizing risk of high-cost futures by
• Reducing exposure to market supplies by owning
  more resources
• Reducing exposure to high fuel costs by
  diversifying resource mix
• Reducing the need for peaking resources by
  implementing demand-side programs
• While not raising the average cost significantly

4
Physical Adequacy vs.Economic Adequacy

• There are many resource plans that provide a
  physically adequate supply but not all of them
  necessarily minimize the risk of high-cost
  futures, i.e. plans with
• Too few resources
• Too many resources
• Wrong kind of resources

5
Councils MethodAverage Cost and Economic Risk
for a Resource Plan
TVar90
Risk average of costsgt 90 threshold
Likelihood (Probability)
Power Cost (/kWh)-gt
6
Efficient Frontier
Minimizes Cost
Increasing Risk
Minimizes Economic Risk
Increasing Cost
7
Options Along the Efficient Frontier(Illustrative
)
Physical Target LOLP 5Firm Bal - 1,500 MWa
2010 Firm Bal 200 MWa
Councils TargetBal 1,500 MWa LOLP 0
8
A Potential Plan
Development schedule will differ for different
futures
9
Calculating an Economic Target

• Once the desired point along the efficient
  frontier is determined,
• Extract the expected build schedule from that
  particular resource plan
• For the year of interest
• Calculate the annual L/R balance economic
  energy target
• Calculate the monthly reserve margins economic
  capacity targets

10
Options

• Use the TVar90 parameter for economic risk
• Use the Councils power plan to select the
  desired point along the efficient frontier
• Select a different point along the efficient
  frontier using an alternative method
• Define an alternate parameter for economic risk
• Develop a method to assess this parameter for
  various plans
• Develop a method to determine an appropriate
  value for the alternative risk parameter
• Use resources without uncommitted IPPs and
  planning adjustment to define the economic target
  (more like NRF)

11
Options Pros and Cons