Efficiency
$450 million to $600 million
It is our responsibility to identify opportunities to increase efficiency for our customers - be it through providing centralized computer applications or by identifying methods to make the most effective use of the transmission infrastructure in the Midwest.
A Look Behind the Calculation
The Midwest ISO's market-based method for managing congestion involves the commitment and dispatch of more than 125,000 MWs of electric generation across the region. The market-based method used by the Midwest ISO results in three separate categories of efficiency-related benefits, which are:
- Dispatch of energy
- Dispatch of operating reserves
- Dispatch of contingency reserves
Dispatch of energy calculation - The benefits of this increased efficiency were first provided to Midwest ISO stakeholders through the regional commitment and dispatch of generation to meet the energy needs of the region. This benefit is best modeled using an industry standard technique called production cost modeling. Analysis by a number of independent firms has consistently found that a market, such as the Midwest ISO's, that commits and dispatches generation for a large region will be more cost-effective than committing and dispatching that same generation for a number of sub-regions.
The benefits of this regionalized energy dispatch originate from the increased use of the region's most cost-efficient generation. Therefore, it is not surprising to see that the utilization of the region's baseload (coal, nuclear and hydro) generation has increased since the creation of the Midwest ISO. From 2000 to 2006, the capacity factor (ratio of a power plant's average production to its rated capability) for coal generation in the region increased by twenty-five percent (from 55 percent to 69 percent). During the same period, the capacity factor for intermediate generation (high efficiency gas) increased by forty-six percent (to 17 percent in 2006). Meanwhile, the utilization of peaking generation (lower efficiency gas) remains low with a 2006 capacity factor of only four percent. Through the Midwest ISO's market, the growing energy needs of the region have been met by utilizing the most cost-efficient generation. The most recent study of the Midwest ISO region indicates stakeholders receive annual benefits of between $200 million and $250 million from this regionalized energy dispatch.
Dispatch of contingency reserves calculation - In order to operate the electric system in a reliable manner, there is always a certain amount of generation capacity that is set aside in the event of emergency. This contingency reserve is used should a system event occur. The unforeseen loss of a generation unit is an example of such an event. The Midwest ISO has worked with both its market participants and surrounding generation owners to reduce the amount of contingency reserves that are required to maintain system reliability. The result of those efforts is a forty percent reduction in the required contingency reserves. This capacity is freed up to meet the energy needs of the region. The net result of these efforts is an annual benefit to Midwest ISO stakeholders of between $135 million and $145 million.
Dispatch of operating reserves calculation - The Midwest ISO expects its stakeholders to receive similar benefits with the 2008 launch of Ancillary Service Markets (ASM). Those benefits stem from two primary areas. First, regional management of the operating reserves and regulation will allow the Midwest ISO to capture the value of load diversity over the footprint reducing the overall requirements. Second, the regional commitment and dispatch of operating reserves and regulation in parallel to energy will allow for the most cost-efficient, co-optimized use of generation to meet all three requirements. The Midwest ISO estimates annual benefits from the Ancillary Service Markets to be between $115 million and $205 million.
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