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The Regulatory Assistance Project
email: [email protected]: www.raponline.org
50 State Street, Suite 3Montpelier, Vermont 05602Tel: 802.223.8199Fax: 802.223.8172
Demand Response:Turning Theory into Reality
(“This is not your father’s DSM”)
NECPUC Annual SymposiumJune 18, 2002
Richard Cowart
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Old Lessons…New twist
• Productivity and environmental quality--still count
• Market barriers and failures -- still real
• Demand-side potential remains very large
• New markets - new challenges and opportunities
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Electric RestructuringYear 2000
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Electricity: Market Lessons
• Early market problems: price volatility, price spikes, reliability challenges, generator market power
• “Plain vanilla” pricing ignores reality
• Physical reality: electricity has distinctive time and location values
• Policy responses: cost-causers should pay; those providing high-value benefits should be rewarded
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State of Energy -- 2002
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Wholesale barriers to demand response
• Supply-only bidding• Load profiling by pools and RTOs• Reliability rules and practices excluding
demand-side resources• Historic subsidies for wires and turbines• Transmission pricing and expansion
policies can undercut low-cost demand-side resources
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Retail barriers to demand response
• Averaged rates and default service plans block price signals, slow innovation
• Disco rate designs promote throughput• Uniform buy-back rates don’t include premium for
avoided distribution costs• Utility as gatekeeper vs. utility as facilitator
– Can customers or their agents sell directly into wholesale markets?
• Metering traditions, costs and standards
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New England Demand Response Initiative
• Goal: balanced energy markets• Breadth: Remove market and policy barriers to
all customer-based resources: load response, energy efficiency, and distributed generation
• Depth: Propose coordinated policies and programs for wholesale, wires, and retail
• Facilitated stakeholder process– ISO-NE, 6 state PUCs, DOE , EPA, state air
directors, market participants and advocates
• New England can lead
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Demand Response: Five substantive areas
• (A) Price-response in wholesale markets
• (B) Reliability programs: ancillary services, emergency curtailments
• (C) Retail pricing, advanced metering
• (D) Long-term Demand Response: Embedded energy efficiency
• (E) Transmission -- congestion relief, prices, and expansion plans
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The Market Value of Price-Responsive Load
2016
0
20
40
60
80
100
0 5 10 15 20 25 30 35 40
ENERGY AMOUNT (GW)
BID
PR
ICE
S (
$/M
Wh
)
InelasticDemand
Price-ResponsiveDemandBid
SupplyBid
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Demand Response (A) Wholesale market features
• Demand-side bidding• Price-sensitive load bids reveal a real demand
curve
• Multi-settlements markets• Day-ahead settlement permits economic
resales of planned load reductions
• Demand release resales• Resales into short-term markets will moderate
price spikes and generator market power
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Actual Performance of PRL Programs: Summer 2001
0
100
200
300
400
500IS
O-N
EL
RP
–C
lass
2
NY
ISO
DA
DR
P
PJM
ISO
LR
P –
Eco
nom
ic
AE
SN
ew
Ene
rgy
BG
&E
LR
P–
Op
tion
1
BP
A
Do
mIn
ion
Vir
gin
iaE
LC
P
Pa
cifiC
orp
PG
E
MW
Subscribed Load
Actual Average Curtailed Load
• Several programs successfully enrolled ~300-400 MW
• Most PRL programs achieved modest actual reductions (Average = 19 MW)
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Demand Response (B) Reliability Resources
• Retail Loads Should Be Able to Participate in All Wholesale Markets
• Day-ahead ancillary services– Spinning reserves– Nonspinning reserves– Replacement reserves
• Real-time (intrahour) energy and • congestion management• Emergency load interruptions
Loads should be able to set prices, not just be price takers!
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Can Demand Participate in More Valuable Reserve Markets?
NYISOASPrices
0
1
2
3
4
5
Apr-00 Jul-00 Oct-00 Jan-01 Apr-01 Jul-01 Oct-01
NY
RE
SE
RV
E P
RIC
ES
($/M
W-h
r)
Spin = $3.0/MW-hr
Nonspin = $2.0/MW-hr
Replacement = $0.9/MW-hr
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Demand Response (B)Reliability: Challenges
• Wholesale policy needs:• Needed: neutral terms for bidding reserves• Can system operators rely on sampling, avoid
expensive metering on dispersed DR assets?
• Retail policy issues:• Can end-users and their agents provide ancillary
services, or just utilities/LSEs? • How to lessen burdensome interconnection rules and
standby charges?• How to coordinate RTO-level and utility-run programs?
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Demand Response (C)Retail tariffs and meters
• State policy dilemma: • Most customers want uniform retail rates; but• TOU and market-based rates are needed to
improve price response in the wholesale market
• “Push-Pull” on Real Time Pricing– Market reformers: “show them the price” – Consumer advocates: “the ENRON price?”
• Good news - there are lots of options:– Flat -- Block -- TOU -- RTP– California 20/20 ; Puget TOU program
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Tariffs and metering Challenges and options
• How can states add TOU prices or price response options to franchise tariffs and default service plans?
• Flat, averaged, or deaveraged distribution rates?• Should standard offer prices track the market?
How closely? • Mandatory TOU or RTP rates for C & I?• Mass deploy advanced metering? Mandatory or
optional? Who owns the meter and its data?
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Demand Response (D) Long-term Efficiency
Combined Commercial Cooling and Lighting LoadshapeBaseline and Load Management Compared to Energy Efficiency
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
Hour
Wat
ts p
er S
quar
e Fo
ot
Load ManagementBaselineEfficient
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Impact of California DSM Programs and Standards
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1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1975 1980 1985 1990 1995 2000
MW
Public Agency ManagedLoad Mgmt Non DispatchableFuel SubstitutionEnergy EfficiencyBuilding Stds.Appliance Stds.
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(D) Investing in Efficiency:Options and challenges
• Can states reform Disco ratemaking to eliminate the throughput incentive?
• Financing efficiency: wires charges and other• Can NE adopt regional codes and standards?• Should the ISO permit “regional reliability
charges” to support cost-effective regional efficiency programs?
• Can the regional value of long-term EE be revealed in ICAP markets?
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Demand Response (E): Transmission Policy
• Thinking twice about congestion: LMP reveals value of DR, EE, DG in load pockets
• The rolled-in facilities problem:– generators indifferent to costly locations– undermines load center resources
• Transmission planning:– Transmission AND its alternatives
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Load Densities - Southern New England
The geography of congestion
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The Challenge of
Transmission Planning
• FERC: RTO has Transmission planning responsibility
• NTGS: “Regional planning processes must consider transmission and non-transmission alternatives when trying to eliminate bottlenecks.”
• Challenges: (a) integrated analysis in a de-integrated industry (b) transmission system is regional, but siting decisions and transmission alternatives are local
• How can the ISOs weigh alternatives?
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Transmission expansion-Demand-side issues
• Efficient Reliability Decision Rule -– A least cost “hard look” at proposed socialized costs
• “Open Season” for transmission upgrades and their alternatives– Expose proposed grid enhancements to marketplace
alternatives
• State transmission siting rules– Recognize regional needs , but– Consider demand-side options in determining what
those needs really are
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For more information
• New England Demand Response Initiative – web links at www.raponline.org and
www.raabassociates.org
• “Efficient Reliability: The Critical Role of Demand-Side Resources in Power Systems and Markets” (NARUC June 2001)
• “Demand-Side Resources and Regional Power Markets: A Roadmap for FERC” (RTO Futures, January 2002)
• papers posted at www.raponline.org