The proposed changes to the Bid Cost Recovery (BCR) formula for storage resources by CAISO aim to address complications and unintended consequences that have emerged from the current BCR design when applied to storage. Key points of the proposed modifications include:
- Addressing Unwarranted BCR Payments
The current formula has led to inefficiencies and unearned transfers, including inflated BCR payments due to certain bidding strategies by storage operators that carry little risk but result in excess compensation. To counter this, CAISO and market surveillance have proposed interim revisions focused on real-time BCR procedures to reduce these inflated payments. - Eliminating “BCR on Phantom Losses”
A significant concern is the inclusion of both charging bids and discharging offers within the BCR calculation, which can generate “phantom losses”—virtual losses that inflate the BCR payments without reflecting actual costs. The long-term goal is to remove these phantom loss effects from the BCR formula, helping ensure payments more accurately reflect real costs borne by storage resources. - Improving Incentives for State-of-Charge Management
Currently, the BCR mechanism can reduce the incentive for storage operators to manage their state-of-charge through bidding strategies effectively. The proposed changes intend to align incentives better so storage can optimize intraday operations to meet day-ahead schedules, promoting more efficient market participation and resource utilization. - Proposals to Modify the BCR Calculation Basis
Specific stakeholder suggestions have included changing the BCR formula from using the difference between real-time dispatch and day-ahead schedules to using day-ahead locational marginal prices (LMP) as a reference, aiming to better capture cost recovery aligned with market prices. - Ongoing Storage Resource Design Initiative
CAISO has launched a broader Storage Design and Modeling Initiative to comprehensively address the challenges with storage participation in the market, including further refining the BCR rules and related default energy bid constructs. This initiative is expected to lead to more systemic reforms for storage resources over time.
In summary, the proposed changes seek to make the BCR formula for storage resources more accurate in reflecting actual costs, eliminate distortions such as phantom losses, and improve incentives for efficient storage operation in the real-time and day-ahead markets.
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