Solar PV + Storage and the California ISO Energy Market

As renewable energy becomes increasingly prevalent in today’s power systems, grid operators are faced with new challenges to maintain both the physical reliability and economic viability of the systems they manage. The unique solutions these operators have devised to incorporate variable energy resources such as wind and solar into wholesale power markets have created opportunities and barriers for independent power producers. Independent power producers must be aware of the specific market rules of the territories in which they choose to operate, recognizing what rules can be beneficial to their plants and avoiding penalties that can weaken their plants’ economics. First Solar is one of those independent power producers seeking to improve the economics of the solar plants it co-owns or operates in the California Independent System Operator (CAISO) territory. Specifically, First Solar has seen solar photovoltaic (PV) power plant economics weakened by energy imbalance settlements in the CAISO energy market. These imbalance settlements occur when forecasts for expected power production from the plants are updated and changed based on increasingly accurate weather forecasts. This can result in additional costs in scenarios where the plant must purchase Real-Time electric power at the market price to make up for lower than expected production or pay penalties for producing more power than is needed. First Solar has recognized the economic impact of the energy imbalance settlements, but also sees a potential solution in battery storage. If a grid-scale battery system can be affordably paired with a solar PV system in the CAISO market, the battery could potentially reduce energy imbalance settlements by discharging power to make up for times when the PV system under- produces electricity and charging during times the PV system overproduces electricity. Using a battery this way is dependent on the market rules, the physical capability of a battery system to store, charge, and discharge energy, and the successful operation of the combined solar PV plus energy storage (PVS) system to respond appropriately to the current state of the grid. This study in coordination with First Solar investigates this possibility. First, a clear understanding of the CAISO energy market and the bidding procedure for variable energy resources (such as a solar PV power plant) is established, explaining energy imbalance settlements and assessing how a battery fits into that system. Next, a Microsoft Excel based data model is constructed in coordination with First Solar’s PVS team, combining the physical capabilities of a solar PV system and a battery system with the economics of constructing, installing, and operating a battery system. The economics are assessed as a discounted cash flow model that seeks to optimize the internal rate of return for the plant by adjusting the battery system energy and power capacity sizing. Finally, the results of this model are discussed and assessed, and final recommendations are made. The results of this study showed that a battery system is likely not the ideal way to mitigate energy imbalance settlements. The analysis of the CAISO energy market revealed that a majority of energy imbalance settlements are based solely on instructions from the CAISO to the plant to increase or reduce power based on weather conditions. Only a small component of the total energy imbalance settlement can be mitigated with the increased accuracy of energy delivery to the grid that a battery system can provide. However, a battery system can return positive economics with the introduction of a 5-minute, Real-Time locational marginal price arbitrage operating strategy. By programming the battery system to charge from the PV system when the Real-Time locational marginal price is lowest and then discharge energy when Real-Time locational marginal price is highest, a PVS system can capture additional revenues and more accurately respond to the needs of the grid, rather than simply responding to weather forecast updates from the CAISO. As this study was conducted with a client, I utilized private data that First Solar provided to conduct this analysis. As such, this published academic version is redacted of specific power plant names, specific dates, and specific cost and revenue data.