The Role of Zonal Resource Planning Analyses
On January 26, 2016 a once-in-a-lifetime event occurred that may have been overlooked by the casual observer: Mexico launched the first phase of its reformed, now competitive, electric market. The day-ahead market began for the Baja Mexico interconnection and is the first component of a comprehensive change to the nation’s electric system.
Over the last few years, sweeping market reforms and designs were drafted, approved by the government, and are now beginning to be implemented in a fundamental shift for electricity in Mexico. The expectation is that incorporating a market structure will modernize a constrained and aging system, improve reliability, increase development of renewable generation and drive new investment.
A market shift like this underscores the critical need to produce meaningful and accurate analyses for long-term resource planning, in addition to participating in the day-ahead nodal market.
The importance of data availability to market participants cannot be overstated. As a result of the market reforms in Mexico, the sole utility, Comisión Federal de Electricidad (CFE), is being split into multiple entities and government organizations are being restructured to address the change from a state-run system to a competitive marketplace. Yet, the detailed data required for trading activities, such as those begun in January, and to support the proposed nodal market is difficult to obtain. Sources for much of this data are still being determined and still not available in some cases.
However, for typical generator development and economics, investment, and lifecycle forecasting – studies that require 30-40 year planning horizons – data is available. Resource planning analytics have become imperative to the development of new generation and transmission, informing investment in the energy sector, producing integrated resource plans for utilities, as well as numerous different studies for other stakeholders. Planning tools like AURORAxmp play a key role in these analyses, but so does the need for accurate market data.
Dispatch simulation models used for these studies typically define market topographies at the zonal (or control area) level. Mexico is currently divided into nine of these zones, or, “control regions”.
Each of these zones contains generator information, load/demand information, and aggregated transmission capacities to/from adjoining zones. This data can be used by the dispatch simulation to forecast prices, value, risk, etc. for the study period. In the case of resource planning, it can produce detailed capacity expansion analyses to understand:
-Understand the value and operation of existing units.
-Determine whether to retire uneconomic or obsolete generators.
-Consider the value and performance of new generation that may have been added by the simulation.
Analysts can specify additional information such as new generation technologies (e.g. renewable generator options), capital costs, return components and other financial information to produce results that will inform build/buy decisions.
AURORAxmp has been used in a variety of studies in Mexico since 2002. Consultants and IPPs have utilized the software to produce meaningful results used in long-term resource planning decisions, and the zonal topography has provided the advantage of demonstrating value in the current market.
Developing a solid fundamental outlook that allows the assessment of potential long-term risks and opportunities is imperative for decision making and sound financial planning whether you are assessing the development a new power plant or acquiring an existing asset in Mexico. The wholesale power market in Mexico is expected to from a day-ahead and real-time nodal market to include traded pricing hubs with a futures market. A zonal model using AURORAxmp can provide an invaluable tool for long-term price forecasting, scenario analysis and asset valuation for the new Mexican reality.
– Marcelo Saenz, Pace Global, A Siemens Business
Although the proposed market will eventually operate at the nodal level, long-term studies at the zonal level remove the effects of temporary events at the nodal level, thus providing a more stable result for financial decisions.
AURORAxmp has the robust abilities to simulate both zonal and nodal markets. However, its leading capabilities in performing long-term resource planning analysis will continue to be especially important for markets, like Mexico, that will go through enormous changes and growth over the next few years.