IEEE Power & Energy Magazine - January/February 2021 - 39

The advance purchase fractions of the final demand are the regulator's
security blanket to ensure that system demand can be met for all
hours of the year and for all possible future system conditions.
currently used to compute firm capacity values. Multiplying a unit's megawatts of firm capacity by the number of
hours in the year would yield the unit's firm energy value,
which is the upper bound on the amount of SFPFC energy
the unit owner could sell in all auctions for an annual compliance period. Because the firm capacity of a generation
unit is defined as the amount of energy it can produce under
stressed system conditions, this limitation on the annual
sales of firm energy implies that intermittent wind and
solar resources would sell much less SFPFC energy than
the total megawatt hours they expect to produce in a typical year, and controllable generation unit owners would sell
significantly more SFPFC energy than the total megawatt
hours they expect to produce in an typical year.
In most years, a controllable resource owner would be
producing energy in a small number of hours of the year but
earning the difference between the price at which the energy
was sold in the SFPFC auction and the hourly short-term
market price times the hourly value of its SFPFC energy
obligation for all of the hours that it does not produce energy.
Owners of intermittent renewables would typically produce

Advantages of the SFPFC Approach
to Long-Term Resource Adequacy
This mechanism has many advantages relative to a capacitybased approach. There is no regulator-mandated aggregate
capacity requirement. Generation unit owners are allowed to
decide both the total megawatts and the mix of technologies
to meet their SFPFC energy obligations. There is also no
prohibition on generation unit owners or retailers engaging
in other hedging arrangements outside of this mechanism.
Specifically, a retailer could enter into a bilateral contract
for energy with a generation unit owner or another retailer to
manage the short-term price and quantity risk associated with

MWH

MWH

MWH

MWH

more than their SFPFC obligation in energy and sell the
additional energy at the short-term price. In years with a low
renewable output near their SFPRC obligations, controllable
resource owners would produce close to the hourly value of
their SFPFC energy obligation, thus making average shortterm prices significantly higher. However, aggregate retail
demand would be shielded from these high short-term prices
because of their SFPFC holdings.

144
108
81

72

9
1

18
2

3
(a)

36

27
4

Time

2

36

27

18
1

72

54

54
36

108

3
(b)

4

Time

1

2

3
(c)

4

Time

1

2

3

4

Time

(d)

Four Retailers:
Retailer 1 Holds 90 MWh
Retailer 2 Holds 180 MWh
Retailer 3 Holds 270 MWh
Retailer 4 Holds 360 MWh
Total Amount Held by Four Retailers = 900 MWh

figure 9. The hourly forward contract quantities for four retailers (10% lower). The forward contract obligation per period
for (a) Retailer 1, (b) Retailer 2, (c) Retailer 3, and (d) Retailer 4.
january/february 2021	

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IEEE Power & Energy Magazine - January/February 2021

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