Blog October 05, 2016

Since 2012, New York’s Zone A has transformed from one of the calmest zones in the state to one of today's most volatile. While there are many factors that are driving this volatility on a daily basis, the primary driver has been linked to generation retirements. In combination with other factors that affect the zone, generation retirements have resulted in the difficulty to predict and forecast when and where the volatility will occur. This blog, we will examine Zone A’s recent history, upgrades made by the NYISO, market drivers of price separation including congestion, and what this means for its future. 

Recent History

Zone A used to be traded as a "base price" zone because volatility remained low. Low load, a surplus of generation, and large power imports from PJM and Ontario kept the volatility at this level. As a result of the low prices, a significant amount of supply was sent towards New York City to meet the high demand. However, the following generation retirements significantly increased volatility:

1. Dunkirk retired 2 units in 2012

2. Dunkirk retired remaining 2 units in January 2016

3. Huntley retired in March 2016

NYISO’s Efforts to Maintain Reliability

NYISO conducted studies focusing on the impact that several 2016 generator retirements would have on Zone A and implemented upgrades to avoid reliability issues. Though, some benefits derived from these upgrades, this blog will explore many of the problems that still linger.

Western NY Reinforcement Project:

Following NRG’s request to retire Huntley, both NYISO and NRG performed a coordinated analysis to determine the reliability impacts on both the local transmission system and the Bulk Power System. NYISO published the results of the analysis, showing necessary upgrades to be implemented in western New York, which will maintain a reliability until 2020. Some of those upgrades include:

  • Install capacitor banks at the Huntley 230 kV station by June 1, 2016
  • Possible system configuration changes and relay adjustments associated with the 23 kV load station
  • Adding series reactors to the most constraining 230 kV lines north of Huntley, with a planned in-service date of June 1, 2016

After all the implementations were complete, congestion continued to remain strong during high demand days in Western New York. However, congestion in the zone has decreased during low load days, likely as a result of the recent upgrades. 

Fall Outlook: Zone A Futures

Impacts in Zone A

The market dynamics rapidly changed beginning with the generation retirement at two Dunkirk coal units in 2012. Four years later in 2016, Dunkirk then mothballed its remaining units in January and the Huntley coal unit retired in March, increasing Zone A volatility.

Since the Dunkirk retirements in 2012, congestion on the 230 kV system became a significant volatility driver in Zone A as a result of low 230 kV generation in southern Buffalo.

Zone A volatility was somewhat manageable while Huntley and remaining Dunkirk units were still operating on the 230 kV system in Buffalo, avoiding most of the Zone A congestion when they were dispatched.

The dilemma rose for Huntley and Dunkirk when they did not run during high load days, resulting in high prices at their node (usually the highest in NYISO), which caused Huntley (and/or Dunkirk) to be dispatched as a marginal unit. However, when they did ramp up, they would significantly decrease the congestion and receive low LMP at their node. The result was that these generators were unable to capture any value from Zone A congestion, ultimately forcing them to retire due to financial reasons in 2016.

The 2016 retirements of Huntley and Dunkirk have significantly increased the volatility amount in Zone A, as they were the biggest congestion-eliminating plants left in the area. Their retirements limit the system operator’s ability to reduce volatility in the zone, resulting in stronger congestion and volatility than before. The following image shows Genscape's NYISO Spring 2016 Outlook Presentation capture the DA power prices for three days following Huntley’s retirement. After Huntley retired, Zone A started to clear above Zone G, while before it was trending below. This graph also exemplifies how we called for Zone A's expensive trend to continue in 2016, despite the western New York Reinforcement Project.

NYISO Spring 2016 Outlook Presentation

New Congestion Drivers after Retirements: 

Zone A Transmission System

Prior to the retirements, Zone A power used to flow towards the southwest portion of the state (Zone J). To meet load requirements some of that power now flows towards southern Buffalo. Since the western New York transmission system was not designed for this purpose it causes congestion on the lines that flow towards southern Buffalo, increasing the Zone A volatility. This is why many upgrades on the western New York transmission grid were deemed necessary by the ISO (Western NY Reinforcement Project).

Ontario Imports and Somerset Coal Plant Generation (345 kV connections)

With weak southern Buffalo generation, a portion of power on the 345 kV lines in northern Buffalo now flows down on the 230 kV lines towards southern Buffalo, resulting in strong Niagara-Packard congestion on the 230 kV system. When the Niagara-Packard congestion occurs, it reduces flows from Ontario imports and output from the Somerset coal plant, which are connected to the 345 kV in Zone A. Therefore, strong flows from Ontario and generation strength from Somerset increase the risk for Niagara-Packard congestion. In the past, Ontario and Somerset had bearish impact on Zone A, but they now drive Zone A congestion.

Niagara Hydro (230 kV injection only)

The Niagara Hydro project connects to the western New York grid with both 230 and 115 kV lines. As mentioned above, the transmission system in Zone A is heavily congested, especially on the 230 kV lines. Added generation on the 230 kV lines from Niagara Hydro exacerbate this congestion on the Niagara-Packard 230 kV lines, whereas the generation on the 115 kV lines can feed southern Buffalo, resolving congestion.

Due to its design, Niagara Hydro plant is only able to inject on the 115 kV if they are already injecting on the 230 kV lines. This means that Niagara Hydro cannot resolve congestion without adding to congestion

One of the many rule changes applied by NYISO was concerning Niagara Hydro’s settlement. Niagara Hydro receives different prices for 230 kV and 115 kV injection points and due to congestion, the 230 kV node is usually cheaper than their 115 kV node. Originally, they would settle at their 230 kV price, completely disregarding the 115 kV price. In other words, Niagara Hydro would receive all the blame for Zone A congestion (230 kV generation), but none of the credit for resolving it (115 kV generation).

Similar to many power plants, when they received downside at their 230 kV node they would either lower their generation (at both 115 and 230 kV) or operate at a loss. When they lowered their generation on 115 kV, Zone A congestion would also increase, meaning their lowering did not assist with the zone's congestion.

With the new rule change, NYISO acknowledges Niagara’s 115 kV injection’s impact on resolving congestion in Zone A and they now settle Niagara’s node at an average of 115 kV and 230 kV nodal prices in order to pay them fairly. This new rule resulted in increased revenue for Niagara Hydro, and (likely) helped with lowering Zone A volatility.

PJM imports and strong Wind generation in western New York

Similarly, strong PJM imports along with strong wind generation can sometimes drive additional Zone A congestion on the Wethersfield and Meyers 230kV lines. 

South Ripley – Dunkirk 230 kV line

Another congestion driving line after the retirements is the South Ripley – Dunkirk 230 kV line. This transmission line is part of a larger one that connects southern Buffalo to PJM. Flows on this line usually move from southern Buffalo to PJM, exporting precious power from the city out of Zone A, which in return creates need for more power to flow towards southern Buffalo. Naturally, this creates even more stress on the already-congested Niagara-Packard and other 230 kV lines in Zone A. We suspect that NYISO puts this line on outage whenever they expect strong Zone A volatility, and brings the line back in-service when the volatility is low. NYISO brought the South Ripley – Dunkirk line back in service as of October 3, 2016. Genscape suspects the main reason for this line to come back in-service before December 5, 2016 as scheduled, is driven by the lack of Zone A volatility in the recent weeks. As the line came back in-service, Zone A congestion increased due to southern Buffalo exporting power to PJM.This is an example of how unpredictable and difficult it is to foresee Zone A congestion drivers ahead of time. Even though this line is not scheduled to be on outage again anytime soon, Genscape expects the line to be on outage once Zone A volatility increases.

Overall, Zone A became price-sensitive to multiple factors following generation retirements, making it difficult to predict congestion occurrence. Highlighted areas in the map below have direct impact on Zone A congestion.

NYISO map

Just how volatile is it?

Volatility is good for the markets when it is predictable. Predicting is easier when the drivers are known and few. However in Zone A, there are simply too many price driving factors, such as load and generation forecasts, Ontario imports, PJM imports, wind forecasts, Somerset coal plant generation , the South Ripley to Dunkirk line outage, 230 kV line outages near Niagara or Packard, changes in virtual load and generation, and any derates on Dysinger East or Central East interfaces.

All of the aforementioned drivers are equally important, which makes this zone very hard to forecast. If one of these drivers is not accurately forecasted, it will result in a large error in forecast accuracy. In other words, forecasting ‘almost everything’ correctly will generate a good forecast for other zones, but this will not apply to Zone A.

As there are multiple drivers for Zone A congestion, it can be challenging at times to find out the primary driver of change in congestion day–over-day. For example, Zone A congestion has quadrupled from $3.80 to $14.00 from June 8 to June 9 2016, even though cleared demand decreased by 0.7 GW and no other major changes had occurred in the market.

June 8-9, 2016 Demand vs Congestion

Results

Genscape expects Zone A congestion to remain strong in the near future despite the recent market implementations in the summer of 2016.This is mainly because the implementations only limit certain congestion drivers, but not all. Day-over-day changes in the zone will remain a challenge to forecast due to many variables impacting the zonal price. The volatility should vanish once new generation is added to the southern part of Buffalo, such as possibility of Dunkirk re-firing on natural gas in 2018.

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