FERC Accepts Tariff to Accommodate Hydropower Opportunity Costs in Energy Imbalance Market

FERC Accepts Tariff to Accommodate Hydropower Opportunity Costs in Energy Imbalance Market

Washington, D.C. (October 2, 2019) – The National Hydropower Association today applauded the Federal Energy Regulatory Commission’s (FERC) approval of tariff modifications in the Western Energy Imbalance Market that improve market rules for hydropower.

The hydropower industry, including NHA, commented to the California Independent System Operator (CAISO) that the current default energy bid (DEB) in the CAISO’s local market mitigation rules did not appropriately capture the opportunity costs for water, including the potential to sell output in the future. CAISO determined that a resource may be subject to a DEB that undervalues the resource’s marginal costs, which in turn could create a disincentive for hydropower facilities with flexible ramping capacity to participate in the voluntary EIM. FERC agreed with CAISO’s analysis.

“While hydropower continues to provide clean, renewable electricity that provides grid operators the flexibility to meet load demand and integrate other renewables, market rules consistently undervalue the services to the grid,” said Malcolm Woolf, NHA President and CEO. “ We believe the new rules more reasonably provide flexibility, certainty and transparency for hydropower resources participating in the Western energy imbalance market, as it will encourage the optimal dispatch of hydropower by real-time market participants.”

By way of background, the CAISO establishes DEBs to prevent abuse of market power. Hydropower owners were concerned that DEB pricing did not recognize the revenue a hydropower resource could receive if it utilized available water to produce power for sale in other geographic areas or future time periods.  As a result, fewer hydropower resources with fast ramping supply might be offered into the EIM at a time California needs the carbon-free energy to support solar integration.

In NHA’s comments to FERC, it argued that CAISO’s improved default energy bid option better captures opportunity costs for hydropower to sell energy in markets outside of the CAISO and encouraged FERC to accept the changes.