Transcript California’s Electricity Market and US Energy Bill

Session 3
Orientation/context for discussion
 Session 1 covered the theory & basics
 Session 2 covered financing &
implementation issues + CA case study
 Session 3 covers new EE frontiers made
possible with advancements in technology
Smart meters can measure usage by time of use
Two-way communication can deliver dynamic prices
Smart devices can automatically respond to prices
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Session 3
Outline of topics covered
 Smart grid/metering schemes
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What is the motivation for investment in AMI?
 Dynamic pricing
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Will it be the killer application everyone expects?
 Demand response
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Paying customers for negawatts becomes profitable
 “Prices to devices” revolution
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Will it materialize?
 Customer behavior – can it be changed/modified?
 Anecdotal examples
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Evolution of smart grid
Not just smarter, but different
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More integrated
More distributed generation (DG)
Far more renewable resources (RE)
Significant number of EVs, perhaps V2G
Can handle zero net energy concept
No longer one-way
“Prices-to-devices” & “smart energy”
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Smart Grid
Rapidly expanding global footprint
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Source:
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Smart from the start, PwC, 2010
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California’s future grid
CAISO has a vision of future driven by state mandates
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Source: Smart Grid Roadmap & Architecture, Dec 2010,
CAISO
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Investment in AMI
Expected to grow to $24 billion by 2015
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Source: Paving the road to smart grid success, UtiliPoint International, 13 July 2010, available at http://www.utilipoint.com/reports/Whitepapers.asp
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CA’s AMI rollout
Replace virtually all meters by 2012
# Electric Meters
Million
# Gas Meters
Million
Projected costs
$billion
Utility
SCE
5.3
NA
$1.75
PG&E
5.1
4.2
$2.2*
SDG&E
1.4
0.9
$0.572
* PG&E’s original costs esimtate in July 2006 was $1.74 billion but the company has asked for an additional $476 million
Source: The companies, based on filings at various dates, all numbers rounded
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PG&E’s AMI business case
Present Value of Revenue Requirement
$ millions
Cost-effectiveness marginal & contingent on DR
Total
Costs
$2,265M
Total
Benefits
$2,362M
O&M
$366M
Demand
Response
$338M
Operations
$950M
Meters,
Networks,
IT
$1,899M*
Meter
Reading
$1,074M
* Deployment costs are $1,7M resulting in
$1,899M in present value of revenue requirement
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Source: PG&E
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Why interest in dynamic pricing?
 Flat pricing is “flat wrong”
Peaky consumers subsidized
Energy efficiency under-valued
No incentive for DR
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 Missing “correct” price signal discourages
“prices-to-devices” from taking hold
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Historical context
How did we end up where we are?
 ROR regulations => Flat rates
Simple bill = Flat rate * volumetric consumption
Simple infrastructure: dumb grid, dumber meters
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 Major drawbacks
Flat rates => Poor price signal =>Peaky load profile
Volumetric basis => Incentive to sell more kWhs
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 Effect?
Peak load under-priced & expensive to serve
IOUs have incentive to sell more kWhs, not less
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Pricing that varies by time
The most significant variable in electricity business
 Comes in many varieties
 Requires upgrading of infrastructure
 How will consumers react?
Telephone analogy
Mid-week skiing rates
Matinee theatre tickets
Cruise tours in the wrong season
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Moving towards dynamic prices
No risk, no reward
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Source: A. Faruqui, Brattle Group, Aug 2010
Energy Economics
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Time of Use (TOU)
Higher during peak, lower off peak
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Source:
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Critical Peak Pricing (CPP)
High on-peak, discounted price otherwise
$1.00
CPP
$0.90
Existing
All-In Rate ($$/KWh)
$0.80
$0.70
$0.60
$0.50
$0.40
$0.30
$0.20
Existing Rate = $0.095
$0.10
Off-Peak Rate = $0.056
$0.00
0
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Real Time Pricing (RTP)
Varies according to market prices, supply/demand
Energy & Capacity Rate ($/KWh)
$0.30
RTP
$0.25
Existing
$0.20
$0.15
$0.10
$0.05
$0.00
0
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21% response encouraging
SCE CBP DO Load & impacts, avg. of 2 events
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Dynamic pricing
Regulatory support is essential
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“Chicken-and-egg” problem
Benefits of DP => universal implementation
But regulators are unwilling to mandate
Without mandate few may volunteer
=> Benefits of DP limited
FERC has identified this as problem
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Justification for FERC’s intervention may be challenged
Limits on what FERC can and cannot do
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The poverty of time-based pricing
MARK TONEY, Ex. Dir. The Utility Reform Network (TURN)
California is ground zero in the national debate on time-based pricing or
“dynamic pricing”
DP rests on the theory that residential customers will shift their energy use
to nighttime hours if they are subjected to variable prices
TURN refers to Daytime Pricing (higher time–of–use rates during the
day), and Heat Wave Pricing (astronomically high critical peak rates
during the hottest days of the year)
TURN is concerned about the health threats of Daytime Pricing and Heat Wave
Pricing, and on weaknesses in the economic theory of the rational actor
TURN prefers more effective solutions to lowering peak energy use, overall
energy consumption, and reduce GHG emissions.
PANC 12 April 2011: http://www.panc.org/meetings.shtml
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DR dependent on price signal
Can you believe the numbers?
Estimates of the potential scale of demand response under alternative scenarios over a decade
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Source: National assessment of DR potential, FERC, June 2009
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Demand Response Potential
Potentially as much as 20% of peak load can be managed
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Source: National assessment of DR potential, FERC, June 2009
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North American Interconnected Grid
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US ISO/RTOs
System Operator
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Generating
Capacity
(MW)
ISO-New England (TRO)
31,000
New York ISO
37,000
PJM (expanded) (RTO)
164,000
Midwest ISO (MISO)
130,000
California ISO (CAISO)
52,000
ERCOT (Texas)
78,000
Southwest Power Pool (RTO)*
60,000
ISO/RTO Total
552,000
Total U.S. Generating Capacity
970,000
* Organized markets being developed
Source: P. Joskow, The Energy Journal, 2006
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CA IOUs: DR Budgets
2009-2011
PG&E
SCE
SDG&E
DR Budget
$ Million
$350
$250
$52
Customers
5+ million
4.5 million
1.2+ million
Electric & gas
Electric only
Electric & gas
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PJM
Largest centrally dispatched ISO in North America
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PJM
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600 members
1,325 generation plants
729,000 GWh annual energy
57,000 miles transmission network
51 million people
145 GW peak demand, 167 GW capacity
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What does it take to deliver?
 400,000 residential customers
 10,000 C&I customers
 DSR Emergency Resource: 9,052 MW
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Approx 6.25% of PJM system peak load
 DSR Economic Resource: 2,383 MW
 Synchronous Reserves: 100 MW
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Different types of DR
 Demand Side Response (DSR)
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Customer with ability to shift or reduce load in response to
price signal
 Energy Efficiency (EE)
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Customer investing in assets resulting in sustained net
decrease in energy & demand
 Price Responsive Demand (PRD)
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Dynamic retail prices with SCADA systems on customer
devices with predictable impact on capacity
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Role of 3rd parties
 Utilities make use of 3rd parties for EE/DR
It is “outsourcing” in every sense
It has its pros & cons
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 Performance contracting
Pay for performance, works for certain schemes
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 Demand bidding, demand response
Reduces chores & customer contacts
Puts 3rd party at risk of performance
Misfires if poorly handled
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FERC’s DR decision
Background to ruling, 15 Mar 2011
 Congress passed Energy Policy Act in 2005
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Recognized the role of demand-side, DR, etc
Advocated smart meters => time-variable pricing
Assigned implementation of EPA05 to FERC
 FERC examined status of smart meters
 Determined DR potential
 Ordered RTOs/ISOs to treat DR as
“resource”
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Some progress achieved, but not nearly enough
PJM provides a good example of progress to date
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What does FERC Order say?
Issued 15 Mar 2011
 Establishes principles for DR
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Formally puts demand-side “on par” with supply-side options
 Establishes requirements for RTOs/ISOs
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Says when RTOs/ISOs must buy DR resources
 RTOs/ISO’s must submit filings by July 2011 & implement
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Says how much they must pay for it
 Avoided-cost of energy, LMP – and double payment issue
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Establishes cost-effectiveness test
 Puts limits on DR revenues to be collected
 Highly controversial
Many unhappy with FERC’s ruling
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FERC Order 745
15 Mar 2011
 Details available at FERC website
 www.ferc.org
 Summary in handout
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Discussion
Now what?
 First
What does this mean?
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It is a potential “game changer”
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What will be the impact?
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Remains to be seen
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Will others copy or ignore?
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Relevance to Argentina?
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Prices to devices revolution
What does it take?
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Smart meters + 2-way communication =>AMI
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Cost-reflective dynamic prices delivered to smart meters
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Smart devices respond to smart prices automatically
Third parties encouraged to act as intermediaries
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 Finally
Customers adopt & respond to new price regime
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Going after hard to reach fruit
Incremental effect of alternative options for CA, $ billion
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Source: Ahmad Faruqui, Brattle Group, May 07
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Opposition to smart meters
The silent majority vs. the vocal minority
 Small but vocal opposition to smart meters
Put enormous pressure on politicians
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 CPUC recently succumbed to pressure
Ordered IOUs to offer “opt-out” options
PG&E has announced an option already
There are costs/penalties for opting out
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 Future of smart meters in doubt?
What happens to benefits?
Full impact yet to be seen – perhaps a temporary
setback?
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Customer behavior
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Growing research field
Removing the illusion of plenty
Power of peer pressure
Concept of need ill-defined
Different prices/levels of service
Personal energy/carbon ration
Product energy labeling
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Targeted pricing?
“Other industries do it, why shouldn’t we?”
 Consumers derive vastly different values
from different electricity consuming
devices
Critical 24/7 loads, e.g., security, data centers
Premium loads, computers, entertainment, Internet
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Discretionary loads, e.g., pool pump, washing machine
Special loads: EVs, storage devices, water heaters
“Load from hell” AC – deserves its own pricing
Interruptible loads, e.g., air separation business
Energy storage: making ice, pumping water
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How do airlines do it
By differentiating every conceivable attribute of service
 Differentiation at its best?
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Vary fares by class of service
By date, time & length of travel
By market & competition in a given route
How long prior to departure date
How many empty seats are left on any given flight
Aisle or window?
Early boarding
Extra leg room?
Checked luggage, carry on
What’s next: Weight of passenger
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Dynamic pricing
Lack of customer interest is being debated
 What if customers are offered DP as option
… and few choose to adopt?
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 Or, DP is made mandatory
… and customers revolt?
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 Is CERA’s Larry Makovich right?
Says don’t expect much additional results from DR
Claims we have already got most of what DR there is
DR and DP will not be smart grid’s “killer app”
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Controversial issues, highly debated in academic circles
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Read all about it
EU Energy Policy Blog
http://www.energypolicyblog.com/2011/03/28/will-consumers-like-dynamicpricing/
'Will Consumers Like Dynamic Pricing?'
Fereidoon Sioshansi
“The answer to this rather trivial question, to a great extent, will determine
if all the money going into smart meters, two-way communications, smart
devices, energy management technologies, and ultimately the smart grid,
will be
worth it. The reason is simple. At the core of nearly every smart metering
scheme is the ability to implement dynamic pricing – which in turn – is
expected to influence consumer behavior and energy consumption,
presumably from peak to off-peak period.”
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Challenges to FERC
FERC decision not popular with many
 Generators planning to sue
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Complain about “double payment”
Puts generation at disadvantage
EEI also expected to challenge decision
 Large industrial customers not happy
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Cost-effectiveness test will reduce DR rewards
 Curtailment service providers not happy either
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Their profit margins likely to be squeezed?
 Who is happy?
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Possibly some regulators who think consumer may gain
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Fate of FERC’s decision
 Too early to tell
 Courts may challenge FERC jurisdiction on
DR
 May take a while for dust to settle
 Will the policies be copied elsewhere?
 Implications for Argentina?
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Do customers respond to prices?
 Theory says it should
Consumers are rational
They respond to price signals
“Price elasticity” & discretionary consumption
Shifting load away from peak period well-documented
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 Experiments support the theory
 A lot more that we do not yet understand
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10% reduction, 15% at peak
Seattle trial conducted by PNNL
 112 homes equipped with smart meters, digital programmable
thermostats, computer controllers connected to water heaters &
clothes dryers, everything connected to Internet
 Homeowners could set ideal home temperature on the Web,
specify level of tolerance for fluctuating electricity prices
 Soon, they began to mange usage & control electricity bills
 “Consumers with the means to track & adjust their energy usage
reduced consumption by an average of 10%; 15% during peak
demand periods”
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Consumers respond to prices
70 pilot projects document varied response to dynamic pricing
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Source: A. Faruqui, Brattle Group, Aug 2010
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Dynamic price + technology
Results of 17 CPP residential pilots with technology
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Source: A. Faruqui, Brattle Group, Aug 2010
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Customers response to SmartRate
On average, customer peak load drops 15%
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CPP Works
2009 results for SDG&E
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21% response encouraging
SCE CBP DO Load & impacts, avg. of 2 events
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EV charging major concern
EV charging must be strictly curtailed during peak periods
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My personal take
 Demand-side rising
EE, DR, DP, smart meters, smart devices, smart grid are in
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 Markets or mandates?
Fundamental debate on proper role of markets vs. mandates
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Cost-reflective DP should provide adequate/automatic DR signals
 Argentina to chart its own way
Each country must find its own unique solutions
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 Implications for Argentina?
A “golden opportunity?”
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Back-up slides
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Different DR resources
 DSR Emergency Resource
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Capacity resource capable to reduce load when needed
with penalties for non-compliance
 DSR Economic Resource
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Energy &/or capacity capable to participate based on
wholesale or retail price signal
 EE Resource
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Permanent load reduction during peak periods
Auctions up to 3-year in advance
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All Organized mkts. have DR
FERC has just issued a seminal decision on DR
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PJM
NY ISO
ISO New England
MISO
SPP
ERCOT
CAISO
IESO, Alberta, Canada
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PG&E’s TOU Rates
Residential
PG&E has 2 TOU tariffs for residential customers
E7: 78,000 customers (currently closed)
E6: 7,400 customers (open)
E7 is a 2-period, 5-tier tariff
Peak period: Same all year long from noon-6 pm on weekdays
Off peak: all other hours
E6 is more complicated
Peak period: 1-7 pm in summer months ONLY
Summer partial peak: 10 am – 1 pm plus 7-9 pm M-F and 5-8 pm on
Sat/Sun
Winter peak: no peak period
Winter partial peak 5-8 pm weekdays ONLY
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Focus on those who count
Surprise! Small % provide most of the benefits
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Incentives & marketing
Customers like to be “touched,” incentives don’t hurt
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Diverse portfolio
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Residential
Dynamic pricing projects, PG&E has the largest in US
Peak pricing programs
PG&E has proposed CPP as default service
AC cycling programs, SCE has the biggest
C&I
Interruptible load programs
Demand bidding programs (DBP) at PG&E and SCE
Voluntary opt-in CPP programs at PG&E and SCE
Opt-out CPP at SDG&E
Default dynamic pricing by 2012 with a TOU opt-out option
Aggregator managed programs at all 3 IOUs
AC cycling programs at all 3
Agricultural & pumping
Interruptible rates for farmers & water pumping
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AC Cycling
CA IOU AC direct load control programs
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Enrollment in AC Cycling
SCE biggest w 450,000 AC units under contract
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Results vary across 3 IOUs
2009 CPP load impacts vary from 3-19%
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Non-residential programs
DBP, CPP & CBP
 Dynamic pricing targeted to C&I
Demand bidding programs (DBP)
Critical peak pricing programs (CPP)
Capacity bidding programs (CBP) managed by third party
aggregators
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 Details/results vary
 “Lot more we don’t know”
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SCE’s DBP Program
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1,368 accounts
1503 MW of demand
53% in manufacturing sector
15 events declared in 2009
505 accounts submitted at least 1 bid
413 bids per event
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DBP results at SCE
Results encouraging despite small scale
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Statewide CBP
The statewide capacity bidding program (CBP) offers a monthly
capacity payment in $/kW based on amt. of load reductions that
participating aggregators elect each month, plus additional $/kWh
energy payments based on the actual kWh reductions relative to
program baseline
Participants can adjust their bidding each month
There are also options such as day-ahead (DA), day-of (DO), 4-6
hr events or 8-hr events
CBP events may be called on non-holiday weekday May-Oct
between 11 am and 7 pm
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Smart grid anecdotes
EEnergy Informer, Sept 2010
 PG&E
Huge consumer backlash
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 BG&E
Regulators are not as dumb as they may appear
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 Xcel
Plan for the worst, hope for the best, and budget
accordingly
When in doubt, under-promise, over-deliver
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Xcel smart city trial
Boulder, CO
 25,000 homes with advanced meters & two-way communications
 Ability to offer time-variable prices and differentiated prices
E.g., plug loads & lighting charged one rate – possibly a flat one
Air conditioning on a different & variable price
Plug-in hybrid vehicles on different tariff & variable by TOU
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 “Over time, consumers may come to associate different prices at
different times – as they do with their long-distance calls or mobile
phones today.”
 Xcel initially decided to proceed w/o seeking approval
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Cost recovery after “we have proven the benefits”
Has turned out to be a costly decision
EEI, Sept 2010
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2-800,000 EVs by 2020?
Alternative projections of # EVs on PG&E system
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EVs massive load on network
A fast charging EV more than an entire house load
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