USA – CALIFORNIA Law and Practice Contributed by: Nora Sheriff, Gwenneth O’Hara, Samir Hafez, Antonio Carrejo and Elisa Rivas, Buchalter
resource adequacy, cost allocation and con- sumer protections.
marginal prices (LMPs) for each participating location (node). • The real-time market manages actual grid operations, adjusting for differences between day-ahead schedules and real-time con- ditions. The real-time market includes a 15-minute market and a five-minute dispatch to balance supply and demand continuously, California does not have a centralised capac- ity auction market like some other jurisdictions. Instead, the CPUC oversees a mandatory RA programme for the LSEs it regulates (IOUs, CCAs, ESPs). Previously, LSEs had to procure sufficient year-ahead and month-ahead capac- ity resources (system, local and flexible) to meet their forecasted peak demand, plus a reserve margin. These RA resources then had to offer their capacity into the CAISO energy markets. Beginning in 2025, the CPUC’s new SOD RA construct requires LSEs to demonstrate that they have sufficient capacity to meet demand in every hour of a 24-hour period, each month. The RA resources must still offer their capacity into the CAISO energy markets. CAISO Nodal Pricing The CAISO market utilises LMPs, which are calculated at thousands of specific locations (nodes) on the transmission system. An LMP at a given node reflects the marginal cost of sup- plying the next increment of electricity at that location, considering generation offer prices, transmission congestion and energy losses. This results in different prices across the grid, signal- ling local scarcity or surplus. Non-CAISO Market Management Entities within California’s electricity system that operate outside CAISO’s direct market manage- while also producing LMPs. CAISO capacity mechanism
2. Market Structure, Supply and Pricing 2.1 The Wholesale Electricity Market CAISO manages the wholesale electricity mar- ket for about 80% of the state’s load, and oper- ates the Western Energy Imbalance Market (WEIM), which is a voluntary real-time market that extends beyond California’s borders. The remaining roughly 20% of the state’s load is managed by other entities, including POUs and some federal power agencies that operate their own systems. CAISO Wholesale Market Structure and Price Determination The wholesale price of electricity in the CAISO market is primarily set by competitive bids from generators and demand-side resources. CAISO employs a security-constrained economic dis- patch to determine which resources are used to meet demand. CAISO Energy Markets and Capacity Mechanism California has both energy markets and a capac- ity mechanism. Energy markets CAISO operates distinct day-ahead and real- time energy markets. • The day-ahead market allows market par- ticipants to secure prices for energy delivery for the next operating day and hedge against real-time price volatility. Supply offers and demand bids are submitted, and CAISO determines schedules and hourly locational
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