Share this
Concerned about performing zonal trading in MISO? As an energy trader, it can be challenging to set up zonal trading to achieve performance and risk objectives in the Midcontinent Independent System Operator (MISO).
Let’s dive into how MISO zonal trading works and its advantages and disadvantages.
The Midcontinent Independent System Operator (MISO) spans 15 US states and the Canadian province of Manitoba. Within MISO, one of the essential concepts for market operations is zonal trading. This approach helps balance supply and demand, manage congestion, and optimize resource utilization within the energy market.
Source: Wikipedia
What Is Zonal Trading?
MISO is divided into zones, with each zone representing a geographical area with specific generation and load characteristics. These zones aggregate transmission nodes to simplify market operations. By grouping nodes into zones, MISO can streamline energy pricing, congestion management, and resource scheduling.
In the MISO market, zonal trading operates in conjunction with locational marginal pricing (LMP), which reflects the cost of delivering the next unit of electricity to a specific location, considering generation costs, transmission constraints, and losses.
Key Components of MISO Zonal Trading
- Aggregation of Nodes
Transmission nodes within a geographical area are grouped into a single zone. This aggregation simplifies market operations by reducing the number of variables MISO must analyze in its market-clearing process.
- Zonal Prices
MISO assigns each zone a price, which is the average LMP of the nodes within that zone. Market participants operating within a zone pay or receive this zonal price for energy transactions.
- Congestion Management
Zonal trading helps identify and manage grid congestion. If transmission constraints arise, MISO uses re-dispatch strategies to ensure electricity flows efficiently while maintaining grid reliability.
- Day-Ahead and Real-Time Markets
Zonal trading is integral to MISO’s day-ahead and real-time markets. In the day-ahead market, zonal prices are forecasted based on expected supply and demand. In the real-time market, prices are updated to reflect actual conditions.
Advantages of Zonal Trading
- Simplification of Market Operations
By aggregating nodes, zonal trading reduces computational complexity and makes it easier for market participants to plan and execute trades.
- Cost Transparency
Zonal pricing offers a clear and predictable framework for energy transactions, enabling market participants to make informed decisions.
- Efficient Congestion Management
By identifying zones where congestion is likely, MISO can implement measures to optimize power flows and minimize disruptions.
- Enhanced Market Participation
Zonal trading lowers the barrier to entry for smaller market participants, such as distributed energy resources (DERs), by offering a simplified pricing mechanism.
Challenges of Zonal Trading
- Granularity vs. Accuracy
Aggregating nodes into zones may obscure localized issues, such as transmission bottlenecks or generation shortages, leading to inefficiencies.
- Zonal Price Volatility
Unexpected events, such as generator outages or sudden demand spikes, can influence zonal prices, causing price volatility.
- Market Power Concerns
In smaller zones, dominant generators may exert market power, impacting competition and price fairness.
Yes Energy Can Help!
Setting up zonal trading for MISO virtual trading requires a deep understanding of market dynamics, robust data pipelines, and sophisticated predictive models.
Submission ServicesTM takes the guesswork out of DA virtual and spread trade submission. It ensures you are fully enabled with the capabilities needed for zonal trading in MISO and other Independent System Operators (ISOs). We deliver this all to your front office through a visual portfolio analysis dashboard and an easy-to-integrate data API.
Our team of market experts stays up to date on ISO developments and proactively updates our solutions as required. This is all part of our providing exceptional performance in trade execution and validation. Put our knowledge and expertise to work for you so that you can keep the focus on maximizing your returns in the DA market.
Learn more about Submission Services today, or schedule a demo to see how this tool can enhance your trading.
About the author: Daniel Cullen has more than 10 years' experience in commodity and power markets. The majority of that experience focused on the development and delivery of performance and risk solutions. At Yes Energy, he serves as the product manager for Submission Services, Position Management, and FTR Positions Dataset.
