Operators of mid-sized wind farms have been especially likely to exaggerate over the past two years, according to a recent report by the independent market monitor. As a result of these initial findings, the watchdog is calling for changes to discourage gaming.
As many as two thirds of the Midcontinent Independent System Operator (Miso) region's $7.5 million in day-ahead margin-assurance payments (DAMAPs) made to wind operators in 2015 and the first ten months of 2016 were because of over-forecasting that may have been intentional.
That is according to a presentation by David Patton of Potomac Economics, which provides independent market monitoring of the MISO and Electric Reliability Council of Texas (Ercot) regions.
"These payments are unjustified and raise costs to other Miso participants," said the report. Over-forecasting can lead to an imbalance of supply and demand and increase congestion.
DAMAP payments are made to ensure wind and other operators are compensated when less of their electricity is used than expected. Wind-project operators submit short-term production forecasts to regional grid operators so that the dispatch from each power facility can be agreed upon.
Wind operators are legally required to submit accurate forecasts. Miso also independently forecasts production from individual wind projects.
According to Patton, the operators' wind forecasts were particularly high in summer. He suggests this timing was deliberate. "This is likely due to the fact that the higher summer (electricity) prices increase the incentive to maximise production by over-forecasting," his report said.
Wind farms in the 100-180MW range were especially prone to forecast errors. Wind projects had more skewed output forecasts than any other generation unit in the Miso market, said the report.
But Patton did point out, in comments to a Miso subcommittee meeting, that wind operators do face unique challenges because wind is hard to forecast.
The Miso area contains many of the US wind projects developed in the past few years. Developers are planning another 4.7GW in the region, which would boost the installed wind capacity by about 30%.
Balancing the market
A grid must be finely balanced. Wind and other operators can be penalised for over-production. But Miso's penalty is lower if a facility's output is less than forecast, which could encourage over-forecasting.
In a preliminary recommendation, Patton suggested scrapping DAMAP payments for wind operators, and less-harsh penalties for over-production. He said the new system of five-minute real-time financial settlements - to be implemented in March 2018 - will help. Electricity is already dispatched at five-minute intervals.
Miso is looking into the matter and says there may be a market inefficiency rather than widespread manipulation.
"We will work with the (independent market monitor) to consider market changes," a Miso spokesperson said. The Federal Energy Regulatory Commission has expressed concern, but has yet to investigate.
Nick Griffin, manager of wholesale market development at utility DTE Energy, said his company does its best to submit accurate forecasts in the real-time market.
"It is very difficult to forecast wind, and at a five-minute-to-five-minute basis, sometimes the best forecast is exactly what you are currently producing," he said. Griffin sits on several MISO stakeholder subcommittees.
He agreed with Patton that five-minute settlements would help eliminate "some of the potential gaming".