Transcript Competitive Procurement of D3 Resources

Competitive Procurement of D3
Resources
D3 Expert Stakeholder Workshop
3 March 2011
Chris Neme, Energy Futures Group
Paul Peterson, Synapse Energy Economics
3 March 2011
The Regulatory Assistance Project
48 Rue de Stassart
Building C, BE-1050
Brussels, Belgium
Phone: +32 2-894-9300
web: www.raponline.org
Presentation Overview
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1. Foundation Issues
2. Types of competitive procurement in U.S.
3. Lessons learned
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Introduction
Foundation Issues
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D3 Provide Multiple Benefits
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•
•
•
•
System Peak Capacity
Transmission Capacity
Distribution System Capacity
Energy
– Usually clean, carbon-free
Some at prices much lower than supply alternatives
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D3 Investment In U.S.
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• Increasing rapidly
• Not just New England and California any more
• Impacts are measurable
– Policies and trends (some examples in extra slides)
But lots more to be done…
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Treating D3 as a “Resource”
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•
•
•
Equivalent to power plants, poles/wires, BTUs
Available at competitive prices
Not just a policy objective or obligation!
Requires changing/creating market structures
– Revenues available to any competitive D3 supplier
– Paid by all customers – just as for supply alternatives
• Some progress in U.S., but more needed
– Examples of market competition to follow
– But much of US still treats D3 as just a policy goal
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Advantages
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• Venue to bring D3 innovations to market
– Not just a choice of “obligated entities”
• Diversifies funding options for D3
– Not at whim of government policy
– Not reliant on unregulated suppliers’ balance sheets
• Can by-pass “artificial” government caps
– funding caps or obligation levels
• Strengthens cap-and-trade & carbon pricing
– Removes market barriers to low-cost system resources
– Lowers overall cost-per-tonne of carbon reductions
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…But Not Panacea
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• D3 choices today affect D3 options in the future
• Markets provide near-term price signals
– Inadequate foundation for long-term needs
• Profit-maximizing leads to cream-skimming
– Inadequate foundation for long-term needs
• Market can be adjusted to better address long term
• But may still need/want “performance-based
obligations”
– As complementary policy
More on all this later…
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Introduction
Competitive Procurement of D3:
U.S. Experience
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Range of Examples
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•
•
•
•
“Forward” capacity markets
Transmission congestion relief
Distribution system upgrade deferral
Efficiency utility
Standard Offer
In all cases, all costs are allocated to all customers
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New England ISO and PJM Territories
FCMs cover regions with installed
WA
generation capacity
on the order of:
MT
VT
ND
 About 1/4ORof the EU-27 member
ID
states combined installed
WY
capacity
MN
NH
WI
SD
NV
 The combined installed
UT
CO
generation
capacity
of Poland,
CA
Germany and Belgium
OH
IL
MO
VA
KY
MD
DC
NC
TN
AR
LEGEND
PJM territory - covers all or most of the state
NJ
DE
IN
WV
NM
ISO New England territory
CT
PA
IA
KS
MA
RI
NY
MI
NE
AZ
ME
SC
MS
TX
AL
GA
LA
FL
PJM territory - covers part of the state
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Forward Capacity Markets
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Example: New England ISO
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•
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•
Focus: system peak capacity for reliability
Bidding to deliver 3 to 8 years in future
Declining price auction
Efficiency, DR, DG compete with power plants
Contracts up to 5 years at clearing price
– receive $ for longer lived measures thru future auctions
• Reliability planning and M&V requirements
• Costs allocated “pro rata” to energy suppliers
More on this example in the afternoon
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Capacity Market Results—New England ISO
Demand Resources Cleared
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DR
FCA
MW
FCA 1
FCA 2
FCA 3
FCA 4
Net ICR*, MW
FCA Clearing Price, $/kW-Month
FCA Prorated Price, $/kW-Month
Net ICR*, MW
FCA Clearing Price, $/kW-Month
FCA Prorated Price, $/kW-Month
Net ICR*, MW
FCA Clearing Price, $/kW-Month
FCA Prorated Price, $/kW-Month
Net ICR*, MW
FCA Clearing Price, $/kW-Month
FCA Prorated Price, $/kW-Month
$
$
$
$
$
$
$
$
32,305
4.50
4.25
32,528
3.60
3.12
31,965
2.95
2.54
32,127
2.95
2.52
EE
% ICR MW
DG
% ICR MW % ICR
Total Demand
Resources
MW
% ICR
1,853 5.7%
655 2.0%
46
0.1%
2,554
7.9%
1,953 6.0%
890 2.7%
93
0.3%
2,937
9.0%
1,836 5.7%
975 3.0%
87
0.3%
2,898
9.1%
2,055 6.4%
1,167 3.6%
128
0.4%
3,349 10.4%
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D3 Reduces Cost of Reliability
ISO-NE Calculation for a single year:*
– D3 reduced costs by ~$290 million
– Savings >15% of total cost
Note: substantial savings in PJM capacity auctions, too.
* FCA-1 Installed Capacity Requirement = 32,305 MW
– 2,554 MW of demand resources cleared
– Surplus of 2,047 MW at floor price of $4.50/kW-month
– Without D3, auction clears between $5.63 to $5.25
•
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System Load vs. Forecast
Thunderstorms move
through South
Western CT
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D3 Resources are Reliable:
ISO-NE Real-Time DR Obligation and Performance by Load Zone
Load Zone
Total Net CSO
Average Aggregate
Performance*
Percent Net
CSO
(across 100% dispatch)
Connecticut
226.83
170
33.9
West Central Massachusetts
79.59
79
11.9
Northeast Massachusetts
70.74
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10.6
Southeast Massachusetts
45.23
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6.8
Rhode Island
27.76
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4.1
Vermont
23.71
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3.5
New Hampshire
29.11
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4.4
Maine
166.22
239
24.8
669
653
100.0
New England
* Additional meter data corrections to address data quality issues will adjust the net
performance. The values noted above adjust for known problems and anomalies.
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But The Money Also Flows To High-Carbon Resources
and Windfalls to Existing Plants …..(more on that later!)
Other Renewables (Existing)
0.68%
Coal--Existing
Gas--Existing
Hydro-Existing
Other Renewables (Planned)
0.05%
Demand Resources
2.43%
Oil (Planned)
0.00%
Nuclear (Planned)
0.00%
Nuclear-Existing
Energy Efficiency Resources
0.07%
Oil (Existing)
8.14%
Oil-Existing
Demand Response
Coal (Existing)
30.01%
Nuclear (Existing)
21.06%
Hydro (Planned)
0.00%
Hydro (Existing)
4.91%
Coal (Planned)
0.16%
Gas (Planned)
0.66%
Gas (Existing)
31.83%
Cumulative PJM Capacity Revenues ($42 billion)
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Source: Market Monitoring Analytics (PJM) Communications
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Transmission Congestion Relief
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Example: New England ISO (SW Connecticut)
• Focus: buying time while transmission line being built
• 2002 Gap RFP purchased 84 MW, including:
– over 10 MW of emergency generation
– 4 MW of energy efficiency
• 2004 Gap RFP for 300 MW of quick start resources
– included firm load reductions & emergency generation
• Paid for by all transmission customers in CT
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Distribution Upgrade Deferral
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Example: Con Edison (New York City)
• Focus: local distribution peak reductions
• Goal: 149 MW across several areas by 2012
• Up-Front Decision to use demand resources
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Estimated to be less expensive
Avoid major disruptions in city (e.g. digging up streets)
Efficiency, DG, storage, fuel-switching all allowed
• Competitive bidding by ESCOs to deliver
• Extensive M&V
• Costs born by all customers thru regulated (e.g.,
distribution network operator) tariffs
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Distribution Deferral Results
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Graph courtesy of Con Ed
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Distribution Deferral Results
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Graph courtesy of Con Ed
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Efficiency Utility
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Example: Vermont
• Focus: Capacity, T&D and Energy Reductions
–
Heaviest focus on energy
• Competitive bids from ESCOs
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3 year contract, with 3 year renewal option
Fixed budget from customer billing surcharges
Hold-back portion of payment unless goals met
Energy suppliers cannot bid (concern about conflicts)
• Keys to bid:
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Magnitude of savings proposed (ability to deliver other goals too)
Believability of bid
• Independent evaluation of results
• Costs paid by all customers thru volumetric surcharge
on energy bill (e.g., on DNO portion of bill in UK)
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Efficiency Utility Results
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Efficiency Utility Results
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Standard Offer
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Example: PSE&G (New Jersey)
• Focus: Energy savings
• Started 1994; last offer for bids in 2005 (still paying)
• Offered weighted avg. ~$0.05/kWh savings delivered
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–
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Time differentiated prices
Efficiency only
Payment every year measures remain installed
• Long-term contracts
– 10 years for lighting, 15 years other measures
• Extensive M&V
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Standard Offer Results
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• Savings ~1500 GWh/year in 2000
• Payments ~$1 billion to date
• Dominated by large C&I lighting retrofits
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•
Cheaper than supply alternatives, but over-paid
C&I lighting programs typically <$0.03/kWh
Again, costs paid by all customers via nonbypassable charge (e.g., DNO portion of bill)
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Lessons Learned
Lessons Learned
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D3 Resources Can Compete
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But…
• Need access to forward contracting
– paid by all consumers (just like supply alternatives)
• Need “level playing field” market rules
– comparable to supply alternatives
• Need to be paid for all attributes delivered
–
–
peak capacity, T&D deferrals, energy, carbon reduction
Far fewer D3 participate if only 1 or 2 markets accessible
• Need to minimize transaction costs
– e.g., balance EM&V precision vs. cost
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Long-Term Commitment Critical
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• ESCOs need to develop new business models
– requires certainty & stability
• Takes several years to ramp up some D3 initiatives
• Many D3 measures provide savings for 10+ years
• Alternative is problematic
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price premiums for D3 that is delivered
cream-skimming
sub-optimal levels of cost-effective D3
no foundation for deeper savings needed later
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Reflect All Goals in Market Structure
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• Competitive bidding produces cheapest resources
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–
Separate markets/bids for more expensive measures
Like different FITs for different renewables
• Other goals need to be reflected in structure too
–
E.g., different markets/bids for low income
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Not a Panacea (revisited)
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• Difficult to optimize markets for long-term needs
• Need multi-fuels perspective
• Most markets emphasize retrofits
– Hard to address lost opportunity markets w/many suppliers
• Need other approaches to get all cost-effective D3
– Supplier or other types of obligations—performance based!
– Codes, standards and/or other regulations
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This Afternoon...More on Forward
Capacity Markets and D3
1.
2.
3.
4.
5.
6.
Emerging D3 Resources
Forward Capacity Market Design
Market Mechanics of Participation
Benefits & Challenges for D3
Capacity Market Results (Good & Bad)
Lessons learned
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About RAP
The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that
focuses on the long-term economic and environmental sustainability of the power
and natural gas sectors. RAP has deep expertise in regulatory and market policies
that:
 Promote economic efficiency
 Protect the environment
 Ensure system reliability
 Allocate system benefits fairly among all consumers
Learn more about RAP at www.raponline.org
Contact Meg Gottstein, Principal
[email protected]; mobile: +1 209 304 5931
Extra Slides
Introductions
US EE Policies-Trends
•States with EEPS
•Spending on EE via Regulated (e.g, DNO) Tariffs
•US Historic Energy Intensity
•EE results—annual savings
•Long term impacts (peak loads)
Distribution Referral Results for EE
PJM-ISO/NE map & extra FCM graphs
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Introduction
Introductions
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Energy Futures Group
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Efficiency Expertise
Range of Clients
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Policy Development
Program Design
Building Codes
Evaluation
Cost-Effectiveness
Government Agencies
NGOs
Regulators
Utilities
Clients in 15 states/provinces plus regional, national and
international organizations.
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Synapse Energy Economics
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Areas of Expertise
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Range of Clients
Energy and Environment •
Electricity Markets
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System Planning
Renewable Resources •
Greenhouse Gas Policy •
Utility Tariffs and Regulation
Federal, State and
Local Government
Advocates
NGOs
Foundations
Clients across the US and Canada and few utility clients.
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States w/EEPS
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Source: ACEEE, State Energy Efficiency Resource Standard Fact Sheet, Updated December 2010
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U.S. Spending on EE via
Regulated (e.g. DNO) Tariffs
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Source: ACEEE, 2010 State Energy Efficiency Scorecard
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All Energy kBtu/$
40
20
400
18
16
360
320
14
12
280
240
10
8
200
160
6
4
2
120
80
40
0
0
1949
1959
1969
1979
All Energy/GDP
1989
1999
Electricity MWh/M$
US Historic Energy Intensity
2009
Electricity/GDP
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Improving Trend in New England
New England Weather Normal Net Energy for Load, 1981-2010,
Excluding 1991-1993 and 2008-2009 Recession Years
140000
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130000
120000
2344 GWh
110000
3481 GWh
100000
90000
80000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Net Energy for Load, GWh
561 GWh
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EE Results
Annual
Savings (%)
Year(s)
Source
Interstate Power & Light (MN)
Efficiency Vermont (VT)
Massachusetts Electric Co.
(MA)
2.6
2.5
2006
2008
Garvey, E. 2007. “Minnesota’s Demand Efficiency
Program”
Efficiency Vermont 2009. 2008 Highlights
2.0
2006
Pacific Gas & Electric (CA)
1.9
2008
Minnesota Power (MN)
Puget Sound Energy (WA)
1.9
1.4
2005
2007
Connecticut IOUs (CT)
Pacific Corp (ID & WA)
Energy Trust of Oregon (OR)
Southern California Edison
(CA)
Avista Corp (ID, WA, MT)
Idaho Power Co (ID)
San Diego Gas & Electric (CA)
PUD No 1 of Snohomish (WA)
1.3
1.3
1.3
2006
2007
2005
1.2
1.1
1.1
1.1
1.0
2008
2005
2007
2008
2007
Otter Trail (MN)
Seattle City Light (WA)
MidAmerican (IA)
0.9
0.9
0.9
2005
2007
2008
Entity
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EIA 861
CPUC 2009. Energy Efficiency Verification Reports
issued on February 5, 2009 and October 15, 2009
Garvey, E. 2007. “Minnesota’s Demand Efficiency
Program”
Northwest Power and Conservation Council
CT Energy Conservation Management Board
(ECMB). 2007
Northwest Power and Conservation Council
Northwest Power and Conservation Council
CPUC 2009
Northwest Power and Conservation Council
Northwest Power and Conservation Council
CPUC 2009
Northwest Power and Conservation Council
Garvey, E. 2007. “Minnesota’s Demand Efficiency
Program”
Northwest Power and Conservation Council
Iowa Utilities Board 2006
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Long-Term Impacts
Peak Load Forecast and Peak Load Net EE, MW
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30000
Year
ISO-NE Total Peak Demand (MW)
ISO-NE Assumptions, Load - ODR (MW)
ISO-NE Modified Assumptions, Load - ODR (MW)
ISO-NE Current Programs, Load - EE (MW)
ISO-NE Best Practices, Load - EE (MW)
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2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
25000
2010
MW
35000
Distribution Deferral Results
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• 89 MW reduction thru May 2010
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Relative to goal of ~97MW
• Capital savings of $221 million
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–
Includes $85 million in expansions never needed
Acquisition costs of $134 million (including admin/M&V)
• Total benefits of $461 million
–
Includes value of energy and other savings
• Almost all savings from efficiency measures
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–
Mostly lighting
No DG initially, but some projects now in pipeline
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Distribution Deferral Results
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Participant
End Use Sector
Reduction
(MW)
% of Total
Residential Apartment
35.9
40.3
Commercial
18.0
20.2
Residential Single Family
12.3
13.8
Office Building
6.9
7.8
Education
3.8
4.3
Hotel
2.9
3.2
Non-Profit
2.8
3.2
Manufacturing
1.7
1.9
House of Worship
1.4
1.6
Medical
1.3
1.5
Private Club
0.6
0.7
Theater
0.6
0.7
Government
0.4
0.5
Commercial Services
0.3
0.4
89.0
100.0%
TOTAL
Graphs courtesy of Con Ed
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Capacity Markets Results
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