Demand Response: Lessons from US Experience

Transcription

1 6-7 September 2018 Demand Response: Lessons from US Experience ERRA Workshop: Innovation and Regulation Budapest, Hungary Michael Hogan Senior Advisor The Regulatory Assistance Project (RAP) Sunapee, New Hampshire United States raponline.org

2 Key points: US experience best understood in context of market fundamentals The role of responsive demand is undergoing a radical transformation Success will depend on who can play and how they re compensated Technology, retail tariff design & consumer education are key enablers or barriers Regulatory Assistance Project (RAP) 2

3 1 Demand response in context Revisiting market fundamentals Regulatory Assistance Project (RAP)

4 What s the VoLL? terminology & key concepts Value of lost load (VoLL) (or value of shifted load) Loss of load expectation (LoLE) (also: loss of load probability (LoLP), expected unserved energy (EUE)) Locational marginal price (LMP) System Average Interruption Duration Index (SAIDI) (also: System Average Interruption Frequency Index (SAIFI)) Regulatory Assistance Project (RAP) 4

5 Reliability, objectively Imputed Average Value of Lost Load Average value of lost load ($/MWh) 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 One event in ten years 24 hours in ten years Optimal? Price cap Annual duration of firm load curtailment (hours/year) Regulatory Assistance Project (RAP) Source: W. Hogan, Harvard University, Kennedy School of Government. 5

6 What VoLL is imputed in ISO New England s capacity market? a. $1,500/MWh? b. $10,000/MWh? c. $250,000/MWh? Answer: c. $250,000/MWh (based on the resource adequacy standard of one firm load curtailment event in ten years ) Regulatory Assistance Project (RAP) 6

7 Distorted legacy price formation Regulatory Assistance Project (RAP) 7

8 Desired price formation (with DR) Here is where the value of DR often lies Regulatory Assistance Project (RAP) 8

9 New role for responsive demand Demand response : The recognition that the VoLL for a given end use is often far less than what it costs to serve (and far more than the price we charge). Regulatory Assistance Project (RAP) 9

10 2 The changing role of demand response From limited-use capacity to everyday energy Regulatory Assistance Project (RAP)

11 DR as limited capacity resource Traditional Demand Response Regulatory Assistance Project (RAP) 11

12 Flexibility is the scarce resource The infamous CAISO Duck Curve Regulatory Assistance Project (RAP) 12

13 System flexibility: More valuable than ever Benefit-cost ratios of different flexibility options Source: IEA, The Power of Transformation (2014) Regulatory Assistance Project (RAP) 13

14 Sources of system flexibility Grids Interconnectors Market geography Generator flexibility Market operations Demand participation Electricity storage Energy & services markets CRM Regulatory Assistance Project (RAP) 14

15 How valuable is flexible demand? Reduction due to 20% responsive demand, in GW of investment needed Source: Roadmap 2050: A practical guide to a prosperous, low-carbon Europe (ECF, 2010) Regulatory Assistance Project (RAP) 15

16 Controllable load acting as supply Example: PJM frequency regulation signal vs. Water heater power consumption +/- 2.25kW base point Regulatory Assistance Project (RAP) Source: PJM 16

17 Price-responsive demand June 10, July 30, CP Reduce = Interval Actual Baseline Reduce HR 17:00 August 10, CP Reduce = Interval Actual Baseline Reduce HR 17:00 September 18, MW MW MW MW Example: The 4 peak days in ERCOT s 4CP demand response mechanism CP Reduce = CP Reduce = Interval Actual Baseline Reduce HR 17: Interval Actual Baseline Reduce HR 17:00 Source: Electric Reliability Council of Texas Regulatory Assistance Project (RAP) 17

18 Price-responsive demand Example: ERCOT Real Time Pricing program 14,700 customers, $ /MWh price 5% reduction or shift in demand MW Houston May 19, MW Reduce Price ($/MWh) Interval base actual reduce price Source: Electric Reliability Council of Texas, Demand Response Working Group Regulatory Assistance Project (RAP) 18

19 New role for responsive demand will now need to shape, not just shave, demand Regulatory Assistance Project (RAP) Source: ECF Roadmap 2050 Study 19

20 New role for responsive demand Moving from a world where we forecast load and schedule generation, to a world where increasingly we forecast generation and schedule load Regulatory Assistance Project (RAP) 20

21 3 Participation and compensation The right to play & to be paid for the value delivered Regulatory Assistance Project (RAP)

22 Demand response in PJM Source: PJM Demand Response Strategy (June 2017) Regulatory Assistance Project (RAP) 22

23 DR in PJM: a major system resource Source: Brattle Group, 2 nd Assessment of PJM Capacity Market (2012) Regulatory Assistance Project (RAP) 23

24 Re-trading of committed DR Source: Brattle Group, DR Participation in PJM Markets (for AESO), Sept 2017 Regulatory Assistance Project (RAP) 24

25 Context for re-trading Regulatory Assistance Project (RAP) 25

26 Diversity of value as capacity Source: Brattle Group, 2 nd Assessment of PJM Capacity Market (2012) Regulatory Assistance Project (RAP) 26

27 Capital-intensive capacity-intensive Regulatory Assistance Project (RAP) 27

28 Revenue model lags market need Source: PJM Demand Response Strategy (June 2017) Regulatory Assistance Project (RAP) 28

29 The role of demand aggregation Regulatory Assistance Project (RAP) 29

30 The role of demand aggregation Source: PJM and Enbala Regulatory Assistance Project (RAP) 30

31 Addressing the fuel cost issue in dispatchable demand response 1 issue, 2 contexts: Over-compensating demand (US), or paying for scheduled supply (EU) FERC Order 745: LMP minus G vs net benefits test (US) Balancing responsible parties, supplier compensation and net benefits test? (Europe) Compensatory measures justified only in proportion to progress on reforming energy and services pricing Regulatory Assistance Project (RAP) 31

32 Price-responsive DR: the next frontier MW Price ($/MWh) Interval 0 base actual reduce price Source: ERCOT Demand Side Working Group (2017 report) Regulatory Assistance Project (RAP) 32

33 Price-responsive DR: the next frontier G1 Offer to Sell: 60,000 $50/MWh G2 Offer to Sell: 2,000 $300/MWh LR Bid to Buy: 1,000 $200/MWh ß willingness to consume up to 1,000 MW if LMP at or below $200/MWh No ramp rate limitations for any Resource All Resources follow 5 minute SCED Base Points LR Base Point is instruction on how much to consume t t+5 t+10 t+15 t+20 t+25 LMP Inelastic Demand 58,500 59,700 60,050 60,125 59,075 58,500 NPF_LR 1,000 1, GTBD 59,500 60,700 60,350 60,125 59,075 59,425 BP_G1 59,500 60,000 60,000 60,000 60,000 59,500 BP_G BP_LR 1, ,000 Source: ERCOT Demand Side Working Group (2017 report) Regulatory Assistance Project (RAP) 33

34 Price-responsive DR: the next frontier Demand Curve t,t+25 t+20 t+5 t+10 t+15 Supply Curve Regulatory Assistance Project (RAP) 34 MW 59 K 60 K 62 K Source: ERCOT Demand Side Working Group (2014 report)

35 End-use storage vs electricity storage Sources: Electricity Storage Association, Ecofsys, Sandia National Labs, EPRI Regulatory Assistance Project (RAP) 35

36 Innovation: 3 rd party access is critical Regulatory Assistance Project (RAP) 36

37 4 Technology & retail tariff design Critical gateway issues for realizing DR s potential Regulatory Assistance Project (RAP)

38 Energy charges are only half the story Average European household & small industrial bill breakdown (2015) Source: RAP, Cleaner, Smarter, Cheaper: Network tariff design for a smart future. Regulatory Assistance Project (RAP) 38

39 Advanced metering technology Estimates of advanced meter penetration rate (US) Source: FERC, Demand Response & Advanced Metering Report Regulatory Assistance Project (RAP) 39

40 Advanced metering technology Estimate of advanced meter penetration by region and customer class (2015) Source: FERC, Demand Response & Advanced Metering Report Regulatory Assistance Project (RAP) 40

41 Advanced metering in Europe Source: European Commission. Regulatory Assistance Project (RAP) 41

42 Cost-reflective charging fixed charges Customers should be able to connect to the grid for no more than the cost of connecting to the grid Source: European Commission. Regulatory Assistance Project (RAP) 42

43 Retail tariff design matters PEV charging in two US retail utility pilot projects Source: M.J. Bradley, Accelerating the Electric Vehicle Market (Mar 2017). Regulatory Assistance Project (RAP) 43

44 Volumetric time-based charging Large Commercial Rate Design: An Impediment to Workplace Charging Eversource New Hampshire (NCP) Demand Charge $13.75/kW Energy Charge: ~$0.12/kWh energy 6.6 kw charger, 200 kwh/month: $90 Demand + $24 energy = $114 = = $0.57/kWh $5.70/gallon equivalent Source: RAP analysis. Regulatory Assistance Project (RAP) 44

45 Volumetric time-based charging Sacramento: A CP Demand Charge Helps Sacramento Municipal Utility District NCP Demand Charge: $2.82/kW CP Demand: (2 8 PM, summer): $6.91/kW Energy Charges: Off-Peak: $0.10 Mid-Peak: $0.13 On-Peak ( 2 8 PM, Summer): $.19 $18.61 Demand + $23 energy = $42 = $0.21/kWh $2.10/gallon equivalent Source: RAP analysis. Regulatory Assistance Project (RAP) 45

46 Tariffs & technology work in tandem Regulatory Assistance Project (RAP) 46 Source: Faruqui, et al. (2012). Time-Varying and Dynamic Rate Design. Montpelier, VT: RAP.

47 Other considerations: Consumer education Distribution-level grid constraint engines Optimize TSO/DSO interface Others? Regulatory Assistance Project (RAP) 47

48 Bibliography Electric Reliability Council of Texas ( ERCOT ), 2017 Annual Report of Demand Response (March 2018) (accessed at ERCOT, Demand Side Working Group, Load Participation in the Nodal Market (23 April 2015) ERCOT, Analysis of Load Reductions Associated with 4-CP Transmission Charges and Price Responsive Load/Retail DR, Raish, Carl L. (24 March 2017) ERCOT, Load Participation in SCED v1: Overview & Refresher, Demand-Side Working Group(23 April 2014) U.S. Federal Energy Regulatory Commission ( FERC ), Assessment of Demand Response and Advanced Metering, Staff Report (December 2017) Regulatory Assistance Project (RAP) 48

49 Bibliography (continued) FERC Order No. 745, Demand Response Compensation in Organized Wholesale Markets (15 March 2011) Lawrence Berkeley National Laboratory, 2025 California Demand Response Potential Study: Final Report on Phase 2 Results (1 March 2017) PJM Interconnection, Demand Response Strategy (28 June 2017) The Brattle Group, Demand Response Review (prepared for AESO), Pfeiffenberger, J. and Hajos, A. (March 2011) The Brattle Group, Demand Response Participation in PJM Markets (prepared for AESO), Spees, K. et al (26 September 2017) Regulatory Assistance Project (RAP) 49

50 Bibliography (continued) Hogan, William W., Electricity Market Design: Market Models for Coordination and Pricing (Harvard University, John F. Kennedy School of Government, 8 April 2008) MJ Bradley & Associates, Accelerating the Electric Vehicle Market: Potential Roles of Electric Utilities in the Northeast and Mid-Atlantic States (March 2017) Hogan, M., Follow the Missing Money: Ensuring reliability at least cost to consumers in the transition to a low-carbon power system, The Electricity Journal (2016) Lazar, J. & Gonzalez, W., Smart Rate Design for a Smart Future, Regulatory Assistance Project (July 2015) Faruqui, A., Hledik, R. & Palmer, J., Time-Varying and Dynamic Rate Design, Regulatory Assistance Project & The Brattle Group (July 2012) Regulatory Assistance Project (RAP) 50

51 About RAP The Regulatory Assistance Project (RAP) is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future. Learn more about our work at raponline.org Michael Hogan Senior Advisor The Regulatory Assistance Project (RAP) Sunapee, New Hampshire United States mhogan@raponline.org raponline.org