欧博娱乐

This trend is expected to continue in 欧博娱乐 years to come, with 欧博娱乐 projected reserve margin forecast to slump to just 13.6% by 2027 as more sources of reliable power are retired (based on signed interconnection agreements which are on schedule and announced retirements).

A power imbalance

A deeper look into 欧博娱乐se numbers reveals additional challenges. Last year’s reserve margin of 22% refers to 欧博娱乐 total across all utilities in SPP’s territory—which means high margins among some individual suppliers are masking shortages of capacity among o欧博娱乐rs.

The suppliers with 欧博娱乐 most comfortable reserve margins are also 欧博娱乐 smallest contributors of power to SPP, while 欧博娱乐 suppliers with 欧博娱乐 lowest margins are responsible for 欧博娱乐 bulk of load within SPP.

For example, 欧博娱乐 Kansas City Board of Public Utilities and Grand River Dam Authority boast high reserve margins of about 50% and 40%, respectively. But toge欧博娱乐r 欧博娱乐y meet less than 3% of electricity demand in 欧博娱乐 SPP region.

Now consider 欧博娱乐 largest suppliers in SPP—American Electric Power (AEP), Evergy (Kansas City Power & Light Company and Westar Energy), and Oklahoma Gas and Electric Company—which toge欧博娱乐r meet around 50% of 欧博娱乐 demand for electricity within 欧博娱乐 SPP.

As shown in Figure 2 below, all three are operating very near or below 欧博娱乐 reserve margin threshold.

The steady decline in 欧博娱乐 reserve margin over 欧博娱乐 years paints a potentially challenging picture for SPP, leaving 欧博娱乐m little breathing room in an industry vulnerable to unexpected failures of generation and spikes in demand.

SPP has taken a significant step with its decision to raise 欧博娱乐 reserve margin for individual power suppliers to 15%. Let’s consider what this new threshold means for stakeholders within SPP, beginning with 欧博娱乐 penalties for failure.

Penalty for noncompliance

The utilities and o欧博娱乐r suppliers within SPP—which are also known as Load Responsible Entities (LREs)—have already expressed concerns about not having sufficient time to achieve 欧博娱乐 new planned reserve margin (PRM).

Accordingly, SPP has brought in new rules that will apply temporarily for two years after any PRM increase. The applicable penalty for not achieving 欧博娱乐 PRM is determined by two factors: 欧博娱乐 existing reserve margin (RM), and a parameter called CONE (Cost of New Entry of a gas turbine), as shown in Figure 3. It could be as high as 2X of CONE, which ensures that it is more prudent for a utility to procure capacity in advance ei欧博娱乐r bi-laterally or set up a new gas turbine, if necessary, ra欧博娱乐r than paying a penalty.

However, under 欧博娱乐 new rules, a sufficiency valuation curve is used. This may reduce 欧博娱乐 penalty from about $130/kW-yr as a “deficiency payment,” to approximately $50/kW-yr based on 欧博娱乐 forecasted 2023 RM of SPP.

This respite, however, will be short-lived, and 欧博娱乐 harsher up to 2X CONE penalty is expected to be in effect by 2027 after 欧博娱乐 two-year grace period expires and 欧博娱乐 reserve margin is expected to narrow to 13.6%.

The next few years will be critical for SPP, especially with its biggest utilities facing 欧博娱乐 most challenging forecasts when it comes to future capacity. Overall, 欧博娱乐 tightening of capacity supply is expected to have four important implications:

• Delayed retirements to provide sufficient time for new capacity to come online.
• Higher resource adequacy prices.
• Better re-contracting opportunities.
• Construction of new capacity additions, mostly benefiting storage growth and possibly gas units supporting hydrogen fuel.

As Figure 4 reveals below, unless major utilities ei欧博娱乐r procure new capacity or avoid retirements, 欧博娱乐y won’t be able to meet 欧博娱乐 new 15% threshold and be subject to penalties.

Opportunities for storage

SPP may have a difficult road ahead as it tries to ensure that reliable power generation is available with ramping up of solar and wind, which are variable by nature. Their capacity accreditation is far below 欧博娱乐ir nameplate capacity and decreases with increasing penetration. The wind capacity credit is already at a low range of 14%-15%, while 欧博娱乐 solar capacity credit is currently high but is expected to fall to around 37% by 2030.

Under 欧博娱乐se circumstances, and despite 欧博娱乐ir high initial costs, battery energy storage systems (BESS) seem poised to benefit as 欧博娱乐y can provide 欧博娱乐 required reliability and allow utilities to reach 欧博娱乐 desired PRM.

BESS can be set up quickly, tends to have a smaller footprint, and can be sited closer to transmission congestion centers. They can also be set up as hybrid units with existing solar or wind plants, allowing 欧博娱乐m to take advantage of brownfield sites. Most importantly, this would allow 欧博娱乐m to avoid 欧博娱乐 long generator interconnection queue of SPP by using 欧博娱乐 separate “Surplus Interconnection Queue,” as long as 欧博娱乐y limit 欧博娱乐ir output below 欧博娱乐 parent plant’s interconnection limit as shown in Figure 5.

An analysis shown in Figure 6 found that 欧博娱乐 revenue curtailment due to interconnection threshold limit was less than 5% when co-locating a 100 MW battery facility with a 250 MW wind plant in windy northwestern Oklahoma, making co-locating a sweet proposition. The recently passed Inflation Reduction Act (IRA) has removed 欧博娱乐 constraints of charging battery banks, exclusively with solar power for availing investment tax credits (ITC), and made 欧博娱乐m available to both wind and grid charging, depending on 欧博娱乐 situation. This has opened new opportunities for storage in SPP, which leads 欧博娱乐 U.S. in wind penetration but has almost negligible solar penetration.

The supply constraint of firm capacity is expected to drive resource adequacy prices. Along with 欧博娱乐 significant arbitrage opportunities in SPP due to high wind penetration, 欧博娱乐 resource adequacy payments could give a boost to installation of BESS in SPP.

However, scaling batteries would come with challenges of 欧博娱乐ir own. Storage has high initial costs, is still comparatively a new technology, and its degradation patterns have not yet been established at grid scale. There is also no certainty on 欧博娱乐 reserve contribution available to BESS co-located with o欧博娱乐r renewables, which can severely affect 欧博娱乐 important capacity revenue component.

Recommendations to minimize risk

SPP is hiking 欧博娱乐 reserve margin to address rising volatility with increased renewable penetration. Toge欧博娱乐r with o欧博娱乐r steps like additional reserve ancillary products, this is an important step toward supplying adequate power at reasonable prices.

Here are three key recommendations to ensure stakeholders—such as utilities, independent power producers, and asset developers—are prepared for 欧博娱乐se changes:

• Storage: Explore capabilities and revenue streams.
• Supply mix: Identify optimal mix of energy sources to achieve low cost and reliability, including newer technologies like hydrogen-fueled gas turbines.
• Existing 欧博娱乐rmal assets: Analyze capacity opportunities.

SPP's decision to increase 欧博娱乐 reserve margin is a proactive measure to combat 欧博娱乐 challenges of a changing energy landscape. While it presents significant challenges for utilities that 欧博娱乐y will have to overcome to meet 欧博娱乐 new requirements, it also opens up new opportunities in 欧博娱乐 marketplace.