Trading further-out futures: tackling renewable-fuelled congestion

As wind and solar power generation ramp up across North America’s power grid, there are questions as to how much new capacity the market can feasibly bear over the coming decade. At our recent Power and Renewables Conference: North America, I chaired a panel discussion on how high renewable penetration and transmission congestion are shifting power-trading dynamics in the US.

Sharing their valuable insights on the Trading further-out futures panel were Gene Alessandrini, Regional Vice President, PJM, MISO, Southeast & ERCOT at Brookfield Renewable US, and Roberto Rösner, Head of Commercialization and Trading US & Canada at Enel Group. Read on for a taster of our Q&A session, and fill in the form to access a complimentary selection of slides from across the two-day conference.

Q: What are some of best tools available for proper renewable generation siting?

Gene Alessandrini:

I think both a production cost model and a nodal model are very important, understanding the transmission system and what typical interconnection requirements are, and the transmission improvements that are expected. And I think the need for an understanding of both legislative policy and regulatory policy, market structure that can change over time. That's going to influence the long-term views that are going to drive your energy forecast or basis forecasts and [both your] price shape and generation utilisation.

Q: Hedging strategies are an important factor in generation siting. How has the rise in renewables impacted your strategy over time?

Gene Alessandrini:

As the market continues to evolve, we see customers fine-tuning how they're approaching power purchase agreements. Hedging strategies are becoming more focused, both geographically [and in terms of] what risks the customer is willing to take [and] what risk needs to be born by the developer/supplier. Therefore, we see ourselves focusing on things that make sure that the risks that we're being asked to take are things that we can manage.

Roberto Rösner:

I think what has been extremely surprising is the fast pace at which markets change … There is a need for an increasing level of sophistication, both in terms of sophistication on our side of the modelling, but also in the types of solutions that one can offer. And we are really aware of the fact that you need a very strong trading capability if you want to be competitive in this market.

Q: How has the increase in renewables impacted the various hedging options within the independent systems operators (ISOs), maybe other exchanges, or even outside of that?

Gene Alessandrini:

The market's going to continue to evolve. I think the challenge for all of us in the industry is to stay on top of it and try to be as predictive as possible of how those changes are going to continue to occur. What we focus on is trying to understand the markets, trying to understand how those potential changes come in … Then we generally go to market and speak to most market participants about potential solutions in the areas where we have gaps.

Q: This summer, we've seen some new systematic congestion patterns emerging in ERCOT. What are the driving factors?

Roberto Rösner:

There are limitations, of course, on the transmission system. And there is development of renewables in pockets that per se don't have a lot of load and a lot of growth in load. And, therefore, the risk is you create these pockets of issues. And one element that has been added, especially with solar, is that solar, of course, doesn't get production tax credits so it gets curtailed much earlier than the wind. And so, that congestion issue shows up not only in the form of low prices or price differential with respect to a hub where we have our contracts, but also with significant curtailments of energy.

Q: Where are we seeing the biggest impacts of renewables on market-to-market congestion, and why?

Gene Alessandrini:

I don't see any immediate solutions to some of these impacts or changes that are occurring in the market. I think the market generally will oversupply in pockets where opportunity is for land development, low interconnection costs, ease of market entry. I think all those things will continue to occur. And with that, I think you'll continue to see those types of events.

Q: So, on that theme, what do you think is on the horizon to entice development of the transmission grid?

Roberto Rösner:

It's a process that, most of the time, is very regulated. So, what can boost this process typically is the same – it’s allocating resources and using the framework of rules to allocate more resources. We can accelerate but it will be, I think, unlikely that the development of transmission keeps pace with the development of renewables.

Gene Alessandrini:

I would agree. I think transmission will continue to be a laggard, but I do think this is an area, generally, where policy, regulatory and market participants, along with the ISOs, need to find new policies that allow us to accelerate the development of transmission.

So, I do think it's natural for it to solve problems after problems are identified more so than being predictive, as it's rate-payer dollars or market-participant dollars that are solving the problems. But I think it is an area that we can be more proactive in, primarily from a cost allocation standpoint and from a methodology standpoint that identifies and implements solutions in a quicker timeline. Work needs to be done across the industry to improve this.

Explore this topic in more detail

Missed the North America Power & Renewables Conference? On demand access to all session recordings is available.

You can also fill in the form at the top of the page to access a complimentary selection of presentation slides from across the two-day event.