Characteristics of Regional Power Markets

June 16, 2003 Harrisburg, PA

The Regulatory Assistance Project

50 State Street, Suite 3 Montpelier, Vermont USA 05602 Tel: 802.223.8199

Fax: 802.223.8172

177 Water St.

Gardiner, Maine USA 04345 Tel: 207.582.1135

Fax: 207.582.1176

Website: http://www.raponline.org

Market Issues

 Regional Power Markets – Some Concerns  Market power  Price spikes  Resource adequacy  Locational differences  Long-range market efficiency  System Planning and Expansion, including distribution system issues and challenges for the future (environment, diversity, other public interests.)  Security and Reliability

Distributed Energy Resources

 DER is part of the big picture of electric utility investment  DER can solve/prevent system problems  State regulation, wholesale regulation, and wholesale markets can be organized to make the most of DER  DER happens at the retail level  Recognizing value

DER Values

 Values of distributed energy resources  Reduced volatility  Reduced costs running cost  Reduced investment cost (if credit is allowed)  Improved environment  Cleaner than average (need to assess local margin)  Back out spinning reserve  Delay large asset construction (technology may provide better “big system” solutions later)  Improved security

Value Disconnect

 Who will compensate the distributed generator for providing these values?

 There are free-riders

Considerations

 Market Power – Needs active demand side  Price Spikes – Promoted by demand growth  Capacity – Customer resources may cost less and be less intrusive  Improve energy – environment connection  Efficiency – Regulation can help direct capital to most valuable investments

Can customer resources be regional resources?

New England Spot Energy Prices 12 Months Ending July 21, 2000 80 70 60 50 40 30 20 10 0

Hours Max = $6000/MWh, May 8, 2000 1% of hours above $73/MWh Top 1% of Prices equal 15.8% W holesale Costs (weighted by load)

100 80 60

2016

40 20 0 0

The Market Value of Price Responsive Load

5 Price Responsive Demand Bid Inelastic Demand Supply Bid 10 15 20 25 ENERGY AMOUNT (GW) 30 35 40

Combined Commercial Cooling and Lighting Loadshape with Efficiency and Load Management (Four-Hour Curtailment by 15%)

2.50

2.00

1.50

1.00

4.50

4.00

3.50

3.00

0.50

0.00

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Hour

Source: Optimal Energy Baseline Efficient and Load Mng Efficient

System Security

 Not too distinct from storms and failures  New contingencies  Resilient Network  Single facilities vulnerable  Assure minimal effect on customers in the event a facility is taken out  DER serves local loads  Lighter system loads than would otherwise exist reduces vulnerability