Transcript Price Programs – Post 2010

Achieving Price-Responsive Demand
in New England
Henry Yoshimura
Director, Demand Resource Strategy
ISO New England
National Town Meeting on Demand Response and Smart Grid
July 13, 2009
Challenges for New England
• High cost of electricity in New England.
• Potential cost, risks, and opportunities associated
with carbon-emitting resources.
• Potential for substantial growth in energy and
peak demand as plug-in electric vehicles
penetrate the market.
• Integration of greater renewables and demand
resources.
• Interest in a smarter grid.
© 2009 ISO New England Inc.
2
New England Allows Demand Resources to
Participate in the Wholesale Capacity Market
Has successfully stimulated DR growth in region
Forward Capacity Market Cleared Demand Resources – Results of the Second
Forward Capacity Auction (Total MW)
Participant Type
Merchant
Distributed
Generation Fossil
Fuel
13.050
Distributed
Generation
Renewable
0.000
Energy Efficiency
73.578
RTDR
994.100
RTEG
588.061
Total Cleared
MW
1668.789
Public Sector
39.548
0.171
90.151
0.000
0.000
129.870
Utility
40.083
0.000
726.649
200.679
170.542
1137.953
92.681
0.171
890.378
1194.779
758.603
2936.612
Notes:
•Merchant = includes competitive (non-regulated) demand-response providers, energy-service companies, retail
suppliers, and non-government customers.
•Public Sector = includes government and quasi-government entities. Does not include municipal utilities.
•Utilities = includes all utility companies (investor-owned and public power).
•Values include Transmission and Distribution and Reserve Margin.
© 2009 ISO New England Inc.
3
Real-Time Wholesale Power Costs
• What was the cost of wholesale power for a typical large
industrial/commercial customer in New England?
– About 10.8¢ per kWh in 2008.
© 2009 ISO New England Inc.
4
Price-Responsive Demand Could Further
Improve New England’s Energy Market
• Price-responsive demand: changes consumption in response to
changes in wholesale power costs.
– Consumers add and reduce consumption as prices decrease and
increase, respectively.
– Promotes more efficient use of energy, and further improves capacity
utilization in the New England system.
• Uniform retail rates do not provide customers with price response
incentives.
• Need for expanded advanced metering infrastructure in New England.
• Perception of risk related to volatile wholesale prices creates a
disincentive for most customers to consider dynamic pricing.
– Lack of information makes it difficult for customers to assess the
risk/reward tradeoffs.
© 2009 ISO New England Inc.
5
Approaches to Achieving PriceResponsive Demand (PRD)
• ISO initiated stakeholder process in October 2008 to review PRD.
– Parties seeking consensus on:
• The best approach to encouraging price-responsive demand.
– Should DR be reflected on demand- or supply-side of the wholesale energy market.
• The basis for price-response incentives.
• If incentive payments are made, who should pay.
• Two general approaches being discussed:
– Supply-side approach:
• Allow consumers to enter load reduction offers into the energy market in a
manner similar to supply offers of traditional generation resources.
– Demand-side approach:
• Give consumers opportunity to change consumption levels in response to
different energy prices in a manner similar to the demand bids of load serving
entities.
© 2009 ISO New England Inc.
6
ISO New England Proposed Approach
• ISO New England is proposing two complementary approaches to
achieve price-responsive demand – a “demand-side” and a “supplyside” approach:
– Demand-side:
• ISO would develop and make available a voluntary wholesale energy product
at an all-in, hourly real-time price (RTP).
– Supply-side:
• ISO would allow market participants to offer load reductions into the
wholesale energy markets as though such offers were an offer to supply
energy.
• The two-program approach developed in recognition of the range of
customer tolerance to price volatility and the implications of different
customer load shapes on incentives to stay on uniform pricing.
• Customers with Smart Grid applications would be in position to
benefit from these approaches.
© 2009 ISO New England Inc.
7
Background: Estimated Demand Response
Impact by Pilot Program
TOU = Time Of Use
PTR = Peak Time Rebate
CPP = Critical Peak Pricing
CAC = Central Air Conditioning
Source: Ahmad Faruqui and Sanem Sergici, “The Power of Experimentation,”
Discussion Paper, The Brattle Group, May 11, 2008, Slide 6.
8
Demand- and Supply-Side Approaches
Complement Each Other
•
•
RTP program sends efficient price signals in every hour.
•
Promotes peak shaving, load shifting, off-peak load building (e.g., plug-in
electric vehicles).
•
There is exposure to price volatility, so customers, particularly risk-averse and
fixed-budget customers may choose not participate (at least initially).
Supply-side program encourages peak shaving.
•
Customers who are averse to price volatility or benefit from flat rate pricing
would be given an incentive to reduce load when LMPs are higher than their
retail energy rate.
–
•
To avoid double counting, payments for load reductions should be based on the LMP
minus a proxy of the retail energy rate.
RTP (the riskier approach) results in lower overall customer energy bills
than the supply-side approach over time.
•
Estimated savings for the period 2005-2009 for typical C&I:
–
20% under RTP.
–
10% under a supply-side approach.
© 2009 ISO New England Inc.
9
Questions and Discussion
© 2009 ISO New England Inc.
10