Price Responsive Load Programs: Framing Paper #1

Price Responsive Load Programs: Price Responsive Load Programs: Framing Paper #1Framing Paper #1

Charles GoldmanE. O. Lawrence Berkeley National Laboratory

CAGoldman@lbl.gov

NEDRI MeetingBoston, MAApril 2, 2002

Energy Analysis Department

Outline of PresentationOutline of Presentation

• Benefits (and Costs) of PRL Programs

• Summary of Recent Experience with PRL programs

- Innovative PRL programs offered by LSEs

- Potential & Actual Market Response

- ISO experience and program design

• Types of Wholesale Market DR Programs

• Overview of Key Policy Issues

Energy Analysis Department

Benefits of PRL ProgramsBenefits of PRL Programs

Collateral Savings

Load Load

Price

Q0 Q2 Q1 Q2 Q1

Supply

Participants DemandP

P2

PL

P1 P1

P2

Price

1

32

4

1

234

Demand (Q1) at Retail rate (P1)Retail demand supplied at higher wholesale price (P2)

Reduction in participants demand due to higher priceLBMP after scheduled load reductionSource: Neenan Associates, NYISO PRL Evaluation

Energy Analysis Department

Costs and Benefits of NYISO Costs and Benefits of NYISO Programs: Summer 2001 ResultsPrograms: Summer 2001 Results

• Estimated market benefits to all consumers are large relative to incentive costs

• Need standardized methods to evaluate market benefits

Source: Neenan Associates, NYISO PRL Evaluation, 2001

DADRP (million $)

EDRP (million $)

Costs Incentives $0.2 $4 Benefits Reliability - $23 Collateral $0.7 – 1.5 $1-13 Total $0.7 – 1.5 $24-36

Energy Analysis Department

Characteristics of Innovative LSE PRL Characteristics of Innovative LSE PRL ProgramsPrograms• Substantial customer response at high

offer prices

• Multiple program options & features offered under a single “brand”

• LSE/customer share benefits (often not transparent to customer)

• Lots of customer care & education

• Use of customer-specific baselines

• Variety of forward contracting options

• Motivated or “incented” LSEs

Energy Analysis Department

Portland General Electric’s Portland General Electric’s Demand Buy Back ProgramDemand Buy Back Program• Successful Demand Bidding Program with

three variants: day-ahead, week-ahead, and term events (i.e., demand buy-back)

• Eligible to customers with >250 kW demand and interval meters

• Participation in 2001: 26 customers, 230 MW potential load reduction

- Prior to FERC price caps: 122 events (July 2000 – May 2001), 162 MW average load reduction

- After FERC price caps: No more day ahead bidding; 75 MW through term events procured prior to caps

Energy Analysis Department

Portland General Electric’s Portland General Electric’s Demand Buy Back Program (cont.)Demand Buy Back Program (cont.)• High level of demand response to market

opportunities- 230 MW (>50% of participants’ summer peak

demand) reduced at $300/MWh incentive

- Minimum incentive level for customer response was ~ $70/MWh

• Worked with each customer to identify load reduction goal and specific load reduction strategies

- E.g., cross-referenced maintenance schedules with facility meter data to determine MW reduction for specific processes, machinery

Energy Analysis Department

Cinergy’s PowerShare Pricing Cinergy’s PowerShare Pricing ProgramProgram• Broad Menu of DR offerings under 1 Umbrella

- CallOption (three strike prices, two payment plans, four options to reduce Summer usage)

- QuoteOption (day-of program; no risk; all year)

• Utility Motivation & Role- Financial hedge against wholesale price volatility &

physical hedge against supply uncertainty

- Advisor for every customer

- Programs require significant upfront investment in E-commerce

Energy Analysis Department

Cinergy’sCinergy’s Power Share Pricing Power Share Pricing Program (cont.)Program (cont.)• High Market Penetration:

- over 90% of large C/I loads (>500 kW) enrolled in 2000

- ~300 small and medium customers enrolled in 2001

• Market response- Large C/I Load: ~2500 MW

- Year 2000: ~440-600 MW of potential curtailable load with high prices (but mild summer; no operations)

- Year 1999: 200 MW of actual load reductions with prices as high as $850/MWh

Energy Analysis Department

Market Activity of PRL Programs: Market Activity of PRL Programs: Summer 2001Summer 2001

0

10

20

30

ISO

-NE

LR

P –

Cla

ss 2

NY

ISO

DA

DR

PP

JM IS

O L

RP

– E

cono

mic

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&E

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P –

Opt

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omIn

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inia

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orp

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ada/

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rra

Pac

ific

Pow

erA

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New

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rgy

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ergy

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KC

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LRP

WV

PAN

umbe

r of D

ays

that

pa

rtic

ipan

ts c

urta

iled

load

s Almost DailyAlmost Daily

NE/NY/Mid-Atlantic West Midwest

• Areas with most active PRL Programs: Pac NW,NY

• Market activity is relatively low with notable exceptions

Energy Analysis Department

Actual Performance of PRL Programs: Actual Performance of PRL Programs: Summer 2001Summer 2001

0

100

200

300

400

500IS

O-N

ELR

P –

Cla

ss 2

NYI

SO

DA

DR

P

PJM

ISO

LRP

–E

cono

mic

AE

SN

ewE

nerg

y

BG

&E

LR

P–

Opt

ion

1

BP

A

Dom

Inio

nV

irgin

iaE

LCP

Pac

ifiC

orp

PG

E

MW

Subscribed LoadActual Average Curtailed Load

• Several programs successfully enrolled ~300-400 MW

• Most PRL programs achieved modest actual reductions (Average = 19 MW)

Energy Analysis Department

Eligibility and Potential Use of Backup Eligibility and Potential Use of Backup Generators (BUGs) in PRL ProgramsGenerators (BUGs) in PRL Programs

0

100

200

300

400

500

600

700N

YIS

OD

AD

RP

PJM

ISO

LR

P–

Eco

nom

ic

BG

&E

LR

P –

Opt

ion

1 BP

A

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ergy

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ower

Dom

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irgin

ia E

LCP

Subs

crib

ed L

oad

(MW

) Non BUGBUG BUGs are 12% of

subscribed load

• Diesel-fired BUGs precluded or limited in some PRL programs/areas

• In “emergency” DR programs, BUGs account for 31% of subscribed load (not shown)

Energy Analysis Department

Types of Wholesale Market PRL Types of Wholesale Market PRL ProgramsPrograms• Program Types:

(1) Day Ahead Price-Capped Load Bidding

(2) Load Reduction Bidding as Generation

(3) Transitional Load Reduction Pricing

(4) Voluntary Response to Market Price

• Discuss merits relative to criteria and goals

• Program Types are not mutually exclusive; can be complementary

Energy Analysis Department

Day Ahead Price-Capped Load Day Ahead Price-Capped Load Bidding (#1)Bidding (#1)• A basic structural feature likely to be included

in SMD for day-ahead energy market (DAM)

• LSEs bid price points at which specific MW would be reduced – i.e., they bid a “demand curve”

• “No program” or “base case” approach

• Pros: fully integrated into DAM; no additional ISO uplift charges; no need for customer baseline load (CBL) estimate

• Cons: small DR market impact; participation limited to LSEs

Energy Analysis Department

Load Reduction Bidding as Load Reduction Bidding as Generation (#2)Generation (#2)• Separate load reduction “product” that can

compete with generation in the day ahead energy market – e.g., NYISO DADRP

- Potential to fully incorporate load reduction bids into ISO scheduling and settlement processes

- Payments and penalties based on difference between CBL and metered load

• Pros: potential for significant DR impact; can be fully integrated into wholesale market; non-LSEs or customers can participate directly

• Cons: increased ISO uplift; additional admin. & transaction costs; CBL

Energy Analysis Department

Transitional Load Reduction Pricing Transitional Load Reduction Pricing (#3)(#3)• Incentives decoupled from wholesale market• Provides opportunity for simpler program

structure and more predictable incentives• Can be achieved through any number of

specific program designs - e.g., load bids with price floors, call-option programs with reservation payments, etc.

• Pros: potential for significant DR impact from risk averse customers

• Cons: less direct impact on market than Options 1 and 2; additional uplift charges; seen as “preferential” to loads

Energy Analysis Department

Voluntary Response to Market Price Voluntary Response to Market Price (#4)(#4)• Customers are paid the real time market

clearing price for voluntary curtailments- Based on ISO-NE Price Response Program- Customers must be able to respond without knowing

where the price will settle - No penalties- Load reductions not integrated into ISO scheduling

• Pros: few risks to customers; may provide potential for additional load reductions to DAM

• Cons: less direct impact on market; no price certainty for customers; difficult to predict response

Energy Analysis Department

Comparing Alternatives: Factors and Comparing Alternatives: Factors and Criteria to Consider Criteria to Consider

PCLB(#1)

LRB(#2)

TLRP(#3)

VRMP(4)

DR Customer Response& Market Potential

Low Med/High High Low/Med

Opportunities for NewEntrants (CSP, RES)

No Yes Maybe Yes

Degree of integration intoISO scheduling andSettlement

High High Low Low

Impact on Uplift charges No Yes Yes Yes

CBL & ISO risk Low/None Medium High Varies

ISO Implementationfeasibility & incrementalcost

Easy (None) Mostwork(Yes)

Somework(Yes)

Easy

Program complexity –participants and ISO

Energy Analysis Department

Key Policy QuestionsKey Policy Questions

• What market mechanisms are needed or desired by end users and other market participants in the PRL area?

• Should PRL programs be administered and supported by ISOs or only at the state PUC/retail level?

• Under what conditions are ISO-supported PRL programs appropriate – e.g., are PRL programs necessary if RTP was widespread?

• Relative magnitude of demand response resources (DRR) needed to ensure efficient wholesale markets?

- Will PCLB provide sufficient DRR resources or will other types of PRL programs be necessary?

Energy Analysis Department

Key Policy Questions (cont)Key Policy Questions (cont)

• How do you pay for the enabling DR technology infrastructure necessary to capture consumer market benefits of PRL?

• Is the provision of demand response resources an attractive business opportunity for load aggregators?

- Is it a viable “stand-alone” business”?- Are there disincentives that limit interest of

potential load aggregators?

• What types of DRR should be eligible to participate in PRL programs

- Role of and/or limits on use of diesel-fired BUGs

Energy Analysis Department

Program Design IssuesProgram Design Issues

(1) ISO/End User relationship and eligible entities

(2) Financial Incentives for PRL Programs

(3) Methods for estimating Customer Baseline Loads (CBL)

(4) Relationship between Emergency DR Programs and PRL Programs