de martini - univ of florida oct 11, 2012

© 2012, Newport Consulting Group

Evolution of Distributed Markets & DER Pricing

Paul De Martini

October 11, 2012

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Source: ACEEESource: EIA

2011 US State Renewable Policy 2010 US State EE Policy

Policy is Spurring DER Adoption

Combined with accelerating improvements in DER technology price & performance are creating opportunities for electric system efficiencies

Over 80% of US population under the equivalent of EU’s 20/20/20 Plan

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Solar PV is Reaching Tipping Point

2010

McKinsey & Co.

SEPA Report:• More than 1.2 million solar PV panels were installed

by the top 20 corporate solar users in US

• Walmart and Costco combined have more solar PV on their store rooftops than all of the PV capacity deployed in the state of Florida

• The top 10 companies (by capacity) have individually deployed more solar energy than most electric utilities in the U.S.

$0.10/kWh installed by 2020

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DG Policy will change distribution design + operations

White House 2020 goal to increase total CHP in U.S. by 40GW (50%) to over 120GW

McKinsey forecast 200 GW of Solar PV in 2020

322 GWs Solar + CHP

100,000 Distribution circuits(20% of US total)

= 3.2 MWs/circuit

Sources: SEPA, DoE, USCHP

50 GWhs of Solar PV115 GWhs of CHP

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Electric Network + LargeTraditional Gen & VER

Responsive Demand4,500 MW15% of Peak

Conceptual Example: CA Utility System Peak at 30,000 MWs

Distributed Gen10,000 MW30% Adoption

Distributed Storage3,000 MW10% Adoption

2025 Grid: CentralizedHybrid Grid: Centralized & Decentralized

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Customer-Grid Evolution

Automated (advanced)

Transactive

2005 2015

Passive &

Deterministic

2010

Campus

Micro-grid

Virtual Power Plants

“Interconnection

w/Grid & Markets”

Utility-scale Micro-grid

“Integration w/Local

Balancing Markets”

Customer

Relationship

Distribution

Operations

Active &

Stochastic

Bldg/Home

Nano-grid

“Self Optimization”

Instrumented

Intelligence

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Operational Evolution: 1978-2001

Traditional Design: Controllable gen flowing power to deterministic aggregate load

generationstorage

load

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Instrumented & Intelligent: Increased DER will require better state information

and decision support analytics

Customer Micro-grids: 2002-2014

Customer

Self-Optimized

Micro-grids

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Virtual Power Plant: 2002-2020

Advanced Automation: Multi-direction and variability of DER power flows drive

circuit design changes, new grid components and control systems

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Distance & Temporal Considerations

Operational systems are challenged by increased span of control and decreasing timing of information and decision and control responses

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Customer Experience Paradigm Change

2008 2015

Ric

hn

ess

Customer

Experience

Distribution

OperationsInstrumented

Intelligent

Context

Control

Automated (advanced)

Collaboration

TransactiveCo-creation

2010

Drives increasing real-time interdependency bet customer experience and

distribution operations that will redefine both

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Differentiated Services Approach

22 Services that DER can provide with proper structuring and pricing

Source: SCE

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Unlocking Latent DER – Pricing Structure Matters

Traditional “best efforts” programs are not effective for most grid operations – need new approach

Adapt Quality of Service Concept:

Availability (On/Off or Will be)

Guarantees (Firmness)

Auditability (Measurement & Verification)

Use of forward pricing structures to balance customer needs for comfort and convenience while providing firm resources for grid operations

Differentiated services may be bundled to keep pricing simple – “good enough” is fine

Forward pricing structures also enable customer side investments in enabling technology

Value Realization Requires Satisfying Multi-Party Requirements

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Current DR Pricing Schemes Don’t Scale

Multiple prices to distributed resources create multiple uncoordinated

feedback loops – plus opportunity to game pricing options

CAISO

Source: CAISO

Source: P. De Martini

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“Prices to Devices” Create Unacceptable Oscillations

Lessons to be learned from High Frequency Trading –especially since this involves physical reliability not just market economics

Source: Nanex

High Frequency Trading

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Distributed Controls

Integration of DER with Markets & Grid Changing Control Paradigm

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Operational Evolution: 1978-2001Utility Scale Micro-grid: 2017-2025+

Transactive Distribution: Creation of local balancing & markets

variable connectivity

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Net Metering: Creating Clean Energy Divide

Issues: Net metering shifts costs from DER customers

to non-DER customers (Customer avg income adopting Solar PV in CA = $100k/yr)

Net metering rates are not linked to the cost of DER technologies being promoted

Recommendations: “Avoided cost” purchase rates based on the

costs that the utility clearly avoids by accepting generation from distributed generators, or market based price reflecting distribution locational values

Retail rates should be modified so that all fixed costs are recovered through an access charge paid by all customers connected to the grid

SCE Net Metering Rate

Any support mechanism for these technologies must be fair, efficient and sustainable and preserve the interests of DER and non-DER customers alike

Source: Edison International

paul@newportcg.com

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