More Reliable and Sustainable Energy in the USA; has the USA become world's frontrunner in smarter grid programs?

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1 More Reliable and Sustainable Energy in the USA; has the USA become world's frontrunner in smarter grid programs? Arnhem, October 6th 2010 Pier Nabuurs/Ralph Masiello 1

2 U.S. Retail Electricity Prices Overview, Trends Real electricity prices vary, depending on the economy, fuel prices, regulations, competition in wholesale and retail markets, and costs of new generation. The US Department of Energy forecasts (reference case) that average annual electricity prices will fall from 9.8 cents per kwh (2008 dollars) in 2008 to 8.6 cents per kwh in 2011 because of a drop in fossil fuel prices and lower demand that coincides with the startup of new renewable, natural gas, and coal-fired capacity. After 2011, prices rise to 10.2 cents per kwh by 2035 (Figure 60) in response to rising fuel prices and the construction of new power plants as demand rises. Average Retail Price of Electricity to Ultimate Customers by End-Use Sector, June 2010 and 2009 Source: Detail: Regional Prices vary Widely Based on Fuels Coal or Hydro vs Gas / Nuclear in Terms of Cost Source: 2

3 U.S. States with Retail Electric Choice Eligible Size and Total Migration In the map below, the size of the pie associated with each state is the relative size of the total eligible (MWh) electric market; the dark blue shaded area is the percentage of total eligible customers who have switched to a competitive commodity supplier. Twenty-one (21) states have retail electric choice. Although two states (Montana and Virginia) passed re-regulation laws in 2007, customers > 5 MW in these two states are still allowed to shop for competitive service, but cannot switch again if they return to utility service. Market is 100% Competitive In the Northeast most commercial and industrial customers have direct retail access. Only in Texas and Pennsylvania is competitive retail the norm for residential consumers 3 Statewide Electric Restructuring 100 percent eligibility Retail Restructuring in place partial eligibility 2007 laws approved to reregulate No Activity

4 Market Structures the ISOs The US ISO markets today are all variations of FERC Standard Market Design - unbundled ancillary services, locational pricing, co-optimization, and day ahead hour ahead real time price regimes. The typical ISO market has >100 energy and ancillary products that are managed and settled by the ISO. ISOs also manage participant credit risk. The ISOs are also Regional Transmission Organizations or RTOs responsible for regional transmission planning Some have zonal pricing and some have nodal pricing 4

5 New technologies are potentially disruptive to the traditional utility value chain Traditional Utility Value Chain Power Production Transmission Distribution Consumption Degree of Market Disruption Distributed generation and renewable energy systems Distributed energy storage Carbon price and RPS policies Synchronized Phasor Measurement Units (PMUs) Flexible AC Transmission High Voltage DC Substation energy storage Advanced Metering Infrastructure (AMI) Line fault sensors Automated reclosers Automated Volt/VAR control Loss Reduction Fault Current Limiters Micro Grid Home area networking Autonomous DR Smart appliances Distributed generation Building to Grid Electric Vehicles Micro energy storage Rooftop solar energy Third-party service providers (e.g., DR) Moderate Moderate Large Transformational Note 1: Department of Energy; The Reform Institute, The Smart Alternative: Securing and Strengthening Our Nation s Vulnerable Electric Grid These Transformations are Still Very Much Evolving Confidential 5

6 Grid - Stimulus Spending Note: energy efficiency programs are not part of Stimulus 6

7 Impact of Smart Grid on Energy Policy and Portfolio Visibility and Integration of Distributed Renewable Resources especially PhotoVoltaic Utilization of Electricity Storage Emphasis on Customer Behavioral Changes Peak Shaving to Reduce Role of Inefficient Generation and Reduce Peak Market Prices Load Following Demand Response to Facilitate Renewables Integration Energy efficiency Programs 7

8 Renewable Development Changes Direction Wind Slows Down Cost increases and uncertainty over future tax credits (which are production based) Solar Accelerates Cost reductions in Photovoltaic panels Investment Tax Credit easier for investors to value today Less difficulties with siting and transmisson 8

9 CA Pipeline transitions from Wind to Solar This data is without rooftop Photovoltaic! Data Source: CEC Contract Database (Updated 9/13/10) Assume minimum 20-30% contract failure rate Confidential 9

10 Costs of Wind Generation are Increasing LBNL suggests rising turbine costs are driving the trend Source: LBNL, U.S. DOE Wind Technologies Market Report 2010 Confidential 10

11 Electricity Storage New Resource Driven by Venture Capital and by DOE R&D Funds Links to Electric Vehicle Industry But Technologies dedicated to grid storage are also under development Seen as part of the solution to integrating renewables 11

12 Sandia Report California Potential for Storage Regulation and Substation On-site Cost Effective Today Time of Use Energy Arbitrage will develop faster if price caps are lifted (positive and negative) ditto wind integration Confidential 12

13 ISOs and Storage New York: storage systems schedule hourly energy charge/discharge for AGC ISO NE: tariff to pay a premium (administrative) for fast resources PJM: frequency only ACE component for fast resources (storage, EV) Message: Development of the Market Structure for Storage has to Proceed in Parallel with Technology Development and Independent Business Investment Storage is a New Kind of Resource Requires Market Adaptations 13

14 Electric Vehicles are Coming 1-2M EV by 2020 (plus fleet vehicles) Confidential 14

15 Consumers will want and manufacturers will offer larger batteries / faster charging Confidential 15

16 EV impact in CA Two Forecasts Agree Projected PEVs: 240,000 % of Total US: 25% Concentrations of PEVs Two of top 10 urban areas Los Angeles Metro: 105,000 San Francisco Metro: 85,000 San Diego Metro (#17): 20,000 >40,000 20,000 40,000 10,000 20,000 5,000 10,000 2,000 5,000 <2,000 Source: Freeman Sullivan Confidential 16

17 No Comparison But Is This the Future of the Grid? SF6 Power Circuit Breaker <2000 parts 1 CPU <50 sensors > $50,000 Nissan Leaf >20,000 parts >10 CPU (and a display!) >100 sensors < $30,000 My car has more sensors than a distribution circuit Pier Nabuurs, KEMA CEO, GridWeek 2010 He actually said than the distribution grid in the Netherlands Confidential 17

18 AMI Penetration will reach 25% within a few years Across the U.S.: 16.5M Installed Smart Meters (incl. gas) 34.2M Approved Smart Meters (incl. gas) 150M U.S. Electric Meters 38.5M (25%) Installed or Approved Smart Meters Sources: Edison Foundation, Institute for Electric Efficiency; Chris King, Chief Regulatory Officer emeter (via SmartGrid News) 18

19 Headlines New York PSC AMI efforts on hold pending new inquiry into overall picture California and Texas first Maryland nearly rejects $160M ARRA AMI project over risks to ratepayers forces utility to accept risks in future benefits Around the country, commissions and politicians are nervous about dynamic pricing and about the costs of AMI New York PSC thrust: Use public common carrier communications for AMI Verizon Make dynamic pricing a voluntary opt-in 19

20 Home energy management ecosystem no convergence as yet - what does Google want? Confidential 20

21 Building energy management ecosystem - B2G Attracts the BAS Suppliers Confidential 21

22 Some Ideas about Future Evolution Major Existing Players find Their Role BAS Suppliers, HVAC Suppliers, Appliance Manufacturers Utilities Silicon Valley Business Models find their role The Internet may drive disintermediation as in other industries Example: Demand Response for Ancillary Services brings consumers into the markets self aggregation a threat to today s aggregators 22

23 AMI - Lessons Consumer Outreach and Support is Essential Benefits depend upon consumer acceptance and behavior change Not a traditional utility competence Regulators hear the customers Silence re enthusiasm has been deafening Pushback re costs is very audible in the US process C&I Sectors more Amenable Straightforward business analysis dominates 23

24 North America Demand Response Markets - Overview DR introduces a supply resource that can bid into wholesale markets as a demand resource. Unlike traditional supply resources, it actually lowers peak demand growth, reducing the need for new peaking capacity. Load participation and curtailments vary across markets based on differences in: program design, market economics, generation capacity dynamics, and customer enablement technologies. In US Organized markets, existing DR capacity represents 3-9% of system peak. In Canadian Organized markets existing DR capacity ranges from 2-8%. Each ISO/RTO offers a range of economic and reliability DR programs. Customer participation and load curtailments vary substantially due to type of programs available as well as the underlying wholesale and retail market design The potential role DR plays in reducing system peak in the next 5-10 years hinges on customer participation in new and existing programs, availability of dynamic pricing and the AMI infrastructure which supports it, the use of enabling technologies, and customer behavior. As a result, DR could play a more limited role of reducing system peak growth in the 4-5% range or have a significant impact by reducing system peak growth in the 15-20% range. DR expected to lower system peak load across NA, with bulk of peak load reductions in the US: 1 4% (38 GW) in US, and 6% (2.6 GW) in Canada under the BAU scenario from Nearly a 9% (78 GW) in US and 7% (3 GW) in Canada under the Exp BAU scenario from FERC NADR Model, Data, and Analysis: 24

25 Demand Response: Definition Demand response (DR) refers to load reductions to meet system needs, particularly in periods of peak demand or high market prices North American ISO/RTO Regions Demand Response (DR) programs are offered by utilities and ISO/RTOs throughout NA to enable customers to adjust their energy use in response to price changes or incentives DR program design, market rules, and market economics vary across region as well as customer participation rates Broadly, DR programs are either energy, ancillary services, or capacity-based. 25

26 DR is a Prioritized US Policy Tool "It is the policy of the United States to encourage States to coordinate, on a regional basis, State energy policies to provide reliable and affordable demand response services to the public. The 2005 Energy Policy Act, Section 1252 Demand response can provide competitive pressure to reduce wholesale power prices; increases awareness of energy usage; provides for more efficient operation of markets; mitigates market power; enhances reliability; and in combination with certain new technologies, can support the use of renewable energy resources, distributed generation, and advanced metering. FERC Order No. 719, Source: U.S. Department of Energy

27 Demand Response is Important to US Capacity Markets Today 5-10% the Norm Today CAISO ERCOT MISO PJM NYISO ISO-NE SPP IESO AESO NBSO Geographic Region CA only Texas Midwest Mid-Atlantic Northeast Northeast Southeast Ontario Alberta New Brunswick& PEI NERC Region WECC ERCOT (TRE) Primarily MRO, somce RFC overlap RFC NPCC NPCC SPP & MAIN NPCC WECC NPCC System Peak (2008) 47 GW 63 GW 99 GW 130 GW 32 GW 26 GW 43 GW 24 GW 10 GW 3 GW Demand Response Capacity (2008) 1 3 GW 2 GW 9 GW 7 GW 2 GW 2 GW 2 GW 2 GW 500 MW 60 MW Energy Market Capacity Market Other Real-time balancing Bi-lateral Resource Adequacy (RA) Ancillary & Transmission (moving to nodal in ) Real-time balancing None Ancillary & Zonal Congestion (moving to nodal in ) Day-ahead & Real-time None Ancillary and Financial Trasmission Rights Day-ahead & Real-time Reliability Pricing Model (RPM) - 3-year forward capacity auction Ancillary and Financial Trasmission Rights Day-ahead & Realtime Regional / locational Installed Capacity (ICAP) payment Financial Trasmission Rights Day-ahead & Real-time Installed Capacity (ICAP) and Forward Capacity Market (FCM) Ancillary and Financial Trasmission Rights Real-time balancing (Day-ahead market to launch in 2012) Day-ahead & Real-time Day-ahead & Real-time None None None Financial Trasmission Rights (Ancillary market launch in 2012) Ancillary & Financial Transmission Rights Ancillary & Transmission Real-time balancing Bi-lateral Resource Adequacy (RA) Ancillary & Transmission Source: IRC ISO/RTO 2009 State of the Markets report. Demand Response load represents 2008 capacity participating in ISO DR programs 27

28 Summing Up - Challenges and Opportunities Technology Challenge Opportunity Renewables Visibility Renewables variability Renewables - inertia No standards for AMI or DA Forecasting and Balancing Stability; standards Electric Vehicles Charging Loads Smart Charging Exploit Smart Grid New operations/market products Exploit PMU and Storage Dynamic Pricing Anticipating Elasticity Data Mining and Forecasting New Market Products Automatic Demand Response Integrating Consumers; forecasting, performance, certainty, settlements Exploit Smart Grid New market / operations services and products PMU Initiatives Moving Fast to Exploit Renewables integration Stability, many others Virtual Power Plant Energy Storage Aggregators assume ISO functionality of balancing and ancillaries Accomodating multi-purpose (regulated / merchant) applications Enable smaller and smaller customer sets to participate directly; new market products; other market paradigms (e-bay) New market products and operations to exploit storage; use for renewables balancing, enhancing ADR, stability in time Utility of the Future Informed and Enabled Consumers Know and Add Value to the consumer via markets and operations Confidential 28

29 Thank you 29