Securing Alternative Supply: Advanced Renewable Tariffs and Demand Response

Bruce Chapman Christensen Associates Energy Consulting

October 3, 2012

Wisconsin Public Utility Institute Fundamental Course: Energy Utility Basics

Agenda

 Advanced Renewable Tariffs  Demand Response October 3, 2012 2



Advanced Renewable Tariffs

Precursors to ARTs

 PURPA required utilities to buy others’ generation at avoided cost  On-site generators of large customers served under standby tariffs  Net metering: many jurisdictions mandate some means to permit small providers to net out own supply and sell back surpluses to the utility  Limits on size of generation units and overall peak capacity served  Selling back sometimes credited at utility’s retail rate, more often at avoided cost October 3, 2012 4

ART/“Feed-in” Tariff Components

 Guaranteed interconnection  Premium rate, declining over 20-year contract life  Rate based on renewable generation source’s cost of service, including reasonable return  Cost recovery via a system benefits charge  Can include a MW maximum for jurisdictions, to limit risk to utilities and consumers of price rise October 3, 2012 5

Status in U.S. of ARTs/FITs

Source: NREL,

A Policymaker’s Guide to Feed-In Tariff Policy Design, July 2010p. 20 http://www.nrel.gov/docs/fy10osti/44849.pdf

October 3, 2012 6

Recent Trends in ARTs/FITs

   2010-12 have featured pauses, backward steps in some jurisdictions:  Spain, the U.K., other nations in Europe and elsewhere and have cut payments, including retroactively German rates are also being reduced to reflect declining technology costs North American jurisdictions mixed:  U.S. not advancing, perhaps due to government budgets, rise of shale gas potential  Canada expanding, especially Ontario and Nova Scotia; Ontario now among the most generous North American jurisdictions, but prices are declining as renewable technology costs decline October 3, 2012 7

Illustrative FIT Prices ($US)

Jurisdiction Years Wind $/kWh Large Solar Years $/kWh Years Small Solar Degres $/kWh sion Biomass Years $/kWh Hydro Years $/kWh North America

Florida, Gainesville Indiana (NIPSCO) Vermont Wisconsin (Alliant-WPL) Wisconsin (Xcel Energy) Ontario Nova Scotia

Europe

Germany Spain France Great Britain NA 15 20 NA 20 20 12.40

20 20 NA $0.10

$0.13

$0.09

$0.13

$0.13

$0.12

$0.12

$0.15

20 15 25 20 NA 20 25 25 $0.24

$0.26

$0.30

$0.43

NA $0.29

$0.18

$0.13

20 15 10 20 NA 20 25 25 $0.32

$0.30

$0.25

$0.69

NA $0.39

$0.38

$0.58

Source: Paul Gipe http://www.wind-works.org

• Prices vary widely across technologies.

• Prices vary widely with scale of technology.

• Prices are relatively similar across jurisdictions.

• Some prices “degress” over time at an annual degression rate.

NA 15 20 0.073

20 20 -9% -10% 20 NA 20 NA $0.11

$0.13

$0.07

$0.13

$0.17

$0.15

NA $0.15

NA 15 20 NA 40 20 20 NA 20 NA $0.12

$0.13

$0.09

$0.12

$0.14

$0.11

NA $0.07

October 3, 2012 8

The German Experience

  German intention:  Reduce environmental impact of energy  Stimulate development of clean energy industry Outcome:  Share in electricity consumption rose from 6.4% in 2000 to 17% in 2010; targeting 35% for 2020  Germany is now a significant producer in renewable energy generation – Government claimed 280,000 jobs in 2009 October 3, 2012 9

Current Issues

    Renewable targets are being reviewed as part of discussion of fate of nuclear generation Electricity cost increases are being questioned:  Small apparent price increases, but future uncertain  Subsidy for renewables vs. claimed negative effect of renewables on spot prices Out-of-merit dispatch vs. absence of environmental cost in standard generation costs Cap and Trade results in (partial) offset of German conservation by increased fossil production elsewhere October 3, 2012 10

ART vs. RPS

  ARTs may compete with Renewable Portfolio Standards in stimulating demand for renewable generation  An RPS attempts to regulate the quantity of renewable generation while an ART/FIT attempts to regulate its price  Arguably, one must choose – Europe has chosen ARTs – US favors RPSs but is still looking at ARTs – ART advocates maintain that having both is feasible 29 states, DC and two territories have a mandatory RPS; 8 states and two territories have voluntary RPS targets (DSIRE 2012) October 3, 2012 11

ARTs & RPSs World-Wide

High income Upper-Middle Income Lower-Middle Income Low Income Total No. of Countries 46 36 24 13 119 N 35 20 16 3 74 ART R 3 0 0 0 3 T 38 20 16 3 77 N 8 5 4 1 18 RPS R 4 0 0 0 4 T 12 5 4 1 22 N 5 2 4 0 11 Both R 2 0 0 0 2 T 7 2 4 0 13 N: national; R: regional; T: total Source: Renewables 2012 Global Status Report, pp. 70-72 Use of ARTs continues to spread, but the rate of growth is slow.

October 3, 2012 12



Demand Response

Demand Response – (DR)

or, Price-Responsive Demand (PRD)



What is it?

 Changes in consumers’ electricity usage pattern (particularly in peak periods) in response to – Price signals (e.g., occasional high prices), – Incentive payments (for load reductions), or – Requests to curtail usage October 3, 2012 14

Why Important? Inefficient Markets

Disconnect Between Wholesale and Retail Markets

 Wholesale costs – vary substantially by season, day, and hour (and location)  Highly skewed – many low-cost hours; few very high-cost hours (e.g., 1 – 2%)  Retail price – typically fixed at an average for season or year (or possibly time of day)  Consumers don’t see or respond to variations in wholesale costs October 3, 2012 15

Market Inefficiency / Lost Opportunities

(Persistent differences between cost and price)

$500

Cost far exceeds price

$400 $300 $200 $100 Hourly wholesale costs

Price exceeds market cost

Retail price October 3, 2012 $0 0% 10% 20% 30% 40% PJM LMP 50%

Hours

60% Average price 16 70% 80% 90%

DR Has a Role in Various Wholesale Electricity Markets

 Energy markets (kWh)  Day-ahead  Hour-ahead  Real-time  Capacity markets (maximum kW)  PJM, ISONE  Utility resource plans  Ancillary services markets  Supplemental/non-spinning reserves  Synchronized/spinning reserves October 3, 2012 17

How to Achieve Price-Responsive Demand (PRD)

  Price-based mechanisms:  Dynamic retail pricing: Prices vary to reflect costs  DR programs: Retail prices remain fixed, but consumers receive credits for load reductions Quantity-based mechanisms  Utilities: Direct load control (e.g., AC); interruptible service (large customers)  DR programs: Emergency or capacity-based DR through ISO/RTOs October 3, 2012 18

Do Customers Respond to Dynamic Pricing? Overview

 YES. Numerous studies show significant price response on average  Considerable variability across customers  Most responsive – large; energy intensive; have facilitating technology  Small % of customers provide large % of total response October 3, 2012 19

CPP for C&I Customers (> 200 kW)

Recent California Experience

   Voluntary CPP rates offered since 2005 Transition to default CPP  SDG&E in 2008;  SCE in fall 2009  PG&E in spring 2010 CA Energy Consulting conducted statewide load impact evaluations for 2006 through 2009, as well analysis of other demand response programs October 3, 2012 20

Default CPP Load Impacts, SDG&E

Average Event Day

500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 Reference Event Day Load Impacts 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 50,000 0 0 October 3, 2012 1 2 3 4 5 6 7 8 9 10 11 12 13

Hour

14 15 16 17 18 19 20 21 22 23 24 21 -10,000

Distribution of C&I CPP Load Impacts across Customers

 Share of load impacts accounted for by the top-responding 5% of customers:  PG&E: 64% (16% of load)  SCE: 55% (15% of load)  SDG&E: 74% (13% of load) October 3, 2012 22

Conclusions

 Price-responsive demand is vital to well functioning wholesale power markets  Dynamic pricing provides natural market-based approach  DR programs can provide price signal in absence of efficient retail pricing 

Key issues:

 Costs of advanced metering  DR program design without subsidies  Measuring DR load impacts (baseline) October 3, 2012 23

Appendix: Types of Price-Responsive Demand

 Dynamic, time-varying pricing  Utility programs  Direct load control  Interruptible programs  ISO/RTO programs  Economic response  Reliability response October 3, 2012 24

A. Dynamic, Time-Varying Pricing

 Real-time pricing (RTP)  Hourly pricing with day-ahead or hour-ahead notice  Critical-peak pricing (CPP)  Flat or TOU rate, plus a critical peak-period price when high-load/high-cost market conditions occur  Peak-time rebate (PTR)  Credit for critical, or peak-time load reductions relative to baseline load October 3, 2012 25

B. DR Programs – Utilities

 Direct load control (e.g., AC, water heat)  Monthly credit for utility right to invoke cycling strategy  Interruptible service  Capacity credit for utility right to call for interruption  No payment for performance or over compliance  Strong penalty for non-compliance October 3, 2012 26

C. DR Programs – ISO/RTOs

   Retail load “participates in the wholesale market” by bidding demand reductions Needed due to absence of dynamic retail pricing Customers generally participate through energy providers or curtailment aggregators  Economic – Customers receive DR payment ($ per kWh-reduced), as substitute for a dynamic price  Reliability – Customers receive capacity credit for committing to curtail when called; and often an energy payment for load reductions during events October 3, 2012 27