Transcript Valuing Load Reduction in Restructured Markets

Valuing Load Reduction in
Restructured Markets
Supply Cost Curve
Regressions
Market Price vs. Value of
Load Reduction
Photovoltaic Case Study
William B. Marcus
JBS Energy, Inc.
311 D Street - West Sacramento, CA 95605 - (916) 372-0534
Research on California
and Mid-Atlantic States (PJM Market)
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Results presented at three conferences
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Pace University Law School energy conference 11/10/00
Natl. Assn. of State Utility Consumer Advocates (NASUCA)
11/15/00
Natl. Assn. of Energy Service Companies (NAESCO) 11/16/00
Sponsorship
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NAESCO and Pace Energy Project sponsored PJM research
The Utility Reform Network (TURN – a California consumer
group) sponsored California research
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Competitive Market (In Theory)
In a Perfect Market:
 The commodity can be stored.
 There is perfect information on price.
 There are no transaction costs.
 There are competitive options.
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The Market Reality
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Electricity storage is very limited.
Small customers receive no real price signals.
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Load profiles
Do not know price until after electricity is used.
Significant transaction costs, particularly for
small customers, in seeking out competitive
options.
Developing oligopoly creates market power
through strategic bidding.
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“Electricity is just
another commodity,
like oxygen is just
another gas.”
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Reducing Demand
Empowers Customers
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Two different ways to reduce demand
Real-time customer response, based on prices
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Ultimately computer automated
Investments in:
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Efficiency
Load Shifting
Distributed Generation behind the meter.
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Load Reduction
Reduces Prices for Everyone
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When consumption is reduced the market price
is reduced for everyone.
The Value of Load Reduction is greater than
market price, once the price reduction is
factored in.
It can be analyzed using a quantitative
framework.
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Old World
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versus
Price for last unit only
set by last bid.
Marginal Cost incurred
for last most expensive
unit only.
Value of Load Reduction
equal to last unit’s
marginal cost.
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New World

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Price for all units set by
last bid in “Poolco”
structure.
Value of Load Reduction
is equal to bid price for
last unit plus increase in
bid price for all other
units (except last unit).
Methodology
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Create Cost Curves relating market price to
load.
Calculate market price and value of load
reduction as they vary by load level.
Further analysis based on time-of-use periods
or time pattern of savings from specific
conservation or distributed generation options
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Photovoltaic case study analyzed here
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Methodology – Cost Curve
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Collect hourly market price and load data
Create supply (cost) curve using regression
analysis.
Multiple equations may be needed to fit
different portions of the curve.
May obtain “family” of curves that vary by
month, day of week, time of day.
Ancillary services can be analyzed in same way
(but only 2-8% of energy cost).
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Mid-Atlantic States Supply Curves
Comparison of Supply Curves
350
100
90
Detail less than 45,000 MW
80
Weekday, w inter and summer ($2.50 Gas)
70
Weekend w inter and summer ($2.50 Gas)
60
Weekday, March
300
250
Weekday April-May
50
200
30
20
10
150
0
100
See Detail
50
15,000
20,000
25,000
30,000
35,000
System Load (MW)
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40,000
45,000
0
50,000
Cost ($/MWh)
Weekday Oct-Nov
40
California Supply Curve
90
Supply Curve PX Day Ahead + NP 15 Weekday Daytime
Ancillary Services (Cost in cents/kWh of Total Load)
80
70
High Base Case ($5 Gas)
50
2000 Summer Shift ($5 Gas)
40
2000 Summer Shift with Price Cap
30
20
10
15000
20000
25000
30000
35000
ISO Day-Ahead Forecast Load (MW)
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40000
0
45000
(cents/kWh)
60
Restructuring Base Case ($2.50 Gas)
Methodology – Value of Load
Reduction
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Methodology – Value of Load
Reduction – In Words
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Greater than Market Price
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[(Market price at existing load X existing load)
MINUS
(Market price at reduced load X reduced load )]
DIVIDED BY
(existing load – reduced load)
Adjust for hedging
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The Impact of Hedging
on the Value of Load Reduction
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Physical versus Contractual Hedging
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Each has different Impacts on the Value of Load
Reduction
Physical hedging is based on generation sold on a
cost basis
Contractual Hedging is based on an expectation of
future market prices
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The Impact of Hedging – continued
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The difference between the Value of Load
Reduction on Market Price is attenuated in the
longer term.
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Impacts the construction of new generation.
Impacts utility system operations through unit
commitments.
Assume a portion of supply is not exposed to
pool price to consider these factors.
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California Supply Curves –
Value of Load Reduction
120
PX Day-Ahead + NP 15 Weekday Daytime Ancillary
Services, Market Price vs. Value of Demand Reduction ,
40% physical hedge, 2000 Summer Shift Case, Capped
Value of 5% Load
Reduction
80
60
40
20
Market Price
0
15000
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20000
25000
30000
35000
ISO Day-Ahead Forecast Load (MW)
40000
45000
Value of Reduction (cents/kWh)
100
California Supply Curves – Value of Load
Reduction as a Percent of Market Price
650%
600%
Value of 5% Load Reduction as % of Market Price, 40% physical hedges
(PX Day-Ahead Energy + Weekday NP15 Ancillary Services)
550%
500%
450%
2000 Summer Shift ($5 Gas)
400%
Restructuring Base Case ($2.50
Gas)
350%
2000 Summer Shift w ith Price Cap
300%
250%
200%
150%
100%
50%
0%
15000
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20000
25000
30000
35000
40000
45000
PJM Value of Load Reduction –
Hedged versus Unhedged
Value of Load Reduction: No Hedging versus 50% Hedged
Weekday, Winter and Sum m er
6000
500
450
Detail less than 45,000 MW
5000
400
No Hedge
350
50% Hedge
4000
250
Market Price
200
3000
150
100
50
2000
0
1000
See Detail
15,000
20,000
25,000
30,000
35,000
System Load (MW)
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40,000
45,000
0
50,000
Cost ($/MWh)
300
PJM Relative Value of Load Reduction
1800%
Value of Load Reduction as Percentage of Market Price
1600%
1400%
No Hedge
1200%
1000%
50% Hedge
800%
600%
400%
200%
0%
15,000
20,000
25,000
30,000
35,000
System Load (MW)
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40,000
45,000
50,000
Valuing Photovoltaics
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Photovoltaic production data collected for two
UPVG sites in Pennsylvania and California.
Hourly market price and value of load
reduction applied to photovoltaic generation.
Weighted average of hourly generation
calculated to value PV.
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PV Characteristics
Sacramento Airport, California 134 kW
PV Generation
Summer
Winter
Annual
PV Hours
Summer
Winter
Annual
PV Load Factor
Summer
Winter
Annual
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On-Peak
42%
29%
Mid-Peak
26%
70%
40%
Off-Peak
32%
30%
31%
Total
100%
100%
100%
17%
0%
10%
20%
38%
28%
62%
62%
62%
100%
100%
100%
On-Peak
55%
Mid-Peak
30%
27%
28%
Off-Peak
12%
7%
10%
Total
23%
15%
19%
55%
PV Characteristics –
Plymouth Meeting, Pennsylvania Site
PV Generation
Summer
Winter
Annual
On-Peak
35%
PV Load Factor
Summer
Winter
Annual
On-Peak
38%
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17%
38%
Mid-peak
49%
83%
67%
Off-Peak
16%
17%
16%
Total
100%
100%
100%
Mid-peak
24%
17%
19%
Off-Peak
7%
4%
5%
Total
19%
11%
14%
Value of Photovoltaics
Annual - Sacramento Airport, California
Market Price / Value of Load Reduction Comparison
$400.00
$350.00
Off-Peak
$300.00
Mid-peak
$250.00
On-Peak
Grand Total
$200.00
$150.00
$100.00
$50.00
$Average of
Baseload Market
Price ($/MWh)
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Baseload Value
Of Load Reduction
Hedged ($/MWh)
PV Market
Price
($/MWh)
PV Value of Load
Reduction Hedged
($/MWh)
Value of Load Reduction vs. Market Price
Sacramento Airport Project
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PV Market Price is 8.7 cents/kWh
PV Value of Load Reduction is 20.2 cents/kWh
Data
Off-Peak
Mid-Peak
On-Peak
Grand Total
Average of Calculated Market Price ($/MWh)
$
52.28
$
76.76
$
124.17
$
66.39
Value of Load Reduction Hedged ($/MWh)
$
99.03
$
151.21
$
350.60
$
139.07
PV Revenue Calculated MP ($/MWh)
$
65.42
$
76.28
$
124.88
$
86.75
PV Value of Load Reduction Hedged ($/MWh)
$
127.86
$
152.75
$
355.96
$
202.91
Off-Peak
Mid-Peak
Value of Load Reduction / Market Price
189%
197%
282%
209%
PV Value of Load Reduction / PV Revenue CMP
195%
200%
285%
234%
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On-Peak Grand Total
Value of Photovoltaics
Annual – Plymouth Meeting, Pennsylvania
$300.00
Market Price / Value of Load Reduction Comparison
$250.00
Off-Peak
$200.00
Mid-peak
On-Peak
$150.00
Grand Total
$100.00
$50.00
$Baseload
Market
Price ($/MWh)
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Baseload Value
of Load Reduction
Hedged ($/MWh)
PV Market
Price
($/MWh)
PV Value of Load
Reduction Hedged
($/MWh)
Value of Load Reduction vs. Market Price
Pennsylvania Project
• Market Price for PV Oct. ’99 to Sept ‘00 is 3.3 cents/kWh
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PV Value of Load Reduction is 10 cents/kWh
Prices and Value of Load Reduction were much higher in 1999
Data
Off-Peak
Mid-peak
On-Peak
Grand Total
Average of Calculated Market Price ($/MWh)
$
15.93
$
28.22
$
52.76
$
24.28
Value of Load Reduction Hedged ($/MWh)
$
36.81
$
68.15
$
245.12
$
65.11
PV Revenue Calculated MP ($/MWh)
$
22.91
$
29.17
$
56.43
$
32.69
PV Value of Load Reduction Hedged ($/MWh)
$
54.63
$
69.03
$
270.71
$
100.23
Off-Peak
Mid-peak
Value of Load Reduction / Market Price
231%
242%
465%
268%
PV Value of Load Reduction / PV Revenue CMP
238%
237%
480%
307%
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On-Peak Grand Total
Findings
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Load Reduction Has Greater Value than Market
Price
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Twice (off-peak) to Five Times (peak)
Evident in both California and PJM

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California Price Cap reduces differential
This result is structural because of the upwardly
sloping supply curve.
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Conclusions
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Don’t Be Afraid to Invest in Energy Efficiency, Load
Shifting and Distributed Generation
Rate Increases from DSM Will Be Mitigated or
Reversed by Reductions in Market Price
Peak Reduction Has Highest Value
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High Fixed Charges in Rates Are Counter-Productive
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Air conditioner programs and photovoltaics
Encourage Consumption and Raise Rates for Everyone
Net Metering for Photovoltaics Is Justified by Higher
Value of Load Reduction
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