Grid Operator Attempts Renewables Risk Management Change

By Published On: July 22, 2011

The grid operator is attempting to dissolve a risk management program for renewable energy bids and in its place lead alternative energy bidders in its wholesale market to use derivatives trading to hedge risk. The California Independent System Operator hedging program for solar and wind doesn’t work, according to grid operator staff. “[The program] was implemented well before there was a clear expectation of the enormous growth of variable renewable resources,” noted a CAISO staff proposal. Staff maintains the program, which is optional, does not allow for the most financially efficient dispatch to put renewable electricity on the grid because renewables receive a bit of subsidy under it. Some market participants want to keep the program to mitigate financial risks. They expect that forcing renewables suppliers into more risk at the wholesale level would make it more difficult to finance projects. The program now available allows bidders to pool gains and losses. CAISO wants the burgeoning renewables supply market to get out of that risk protection, adding resources to the general market to increase liquidity. It’s expected that with higher liquidity, the grid operator’s wholesale market would be more efficient. CAISO prefers to have renewable energy traders use its derivatives market, called a “convergence” market, to hedge risks. Currently, according to staff, wind and solar cannot take advantage of the grid operator’s real-time pricing--which brings high revenues when prices are up--because their payments are netted on a monthly basis. The grid operator proposes assigning renewables’ bidders more direct costs so “resources in one market do not diminish revenues in another market,” according to staff. CAISO staff expects a final proposal to change the program on a short-term basis to go to its board in October.

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