The Economics of Commercial Demand Response for Spinning Reserve Michael Fisher, Jay Apt, Fallaw...

The Economics of Commercial Demand Response for Spinning Reserve

Michael Fisher, Jay Apt, Fallaw Sowell

USAEE North American Conference

October 26, 2015

What Does Reserve Do?

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Returns frequency to nominal in the case of a contingency

Source: Kirby 2003

What Drives the Cost of Reserve?

• Extra power plants kept online for idle generation

Also:• Part-load efficiency penalty• Increased maintenance costs

3 Figures adapted from Hummon et al. (2013)

Lower cost units backed down to allow higher cost peaker units to run part-loaded and provide reserve

CAISO Ancillary Services Spending

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Source: CAISO 2013 Annual Report on Market Issues and Performance

Demand Response (DR) in California

• FERC Order 719 (2008) mandates that ISOs allow direct participation by retail customers in energy and ancillary service markets

• WECC still does not allow DR to participate in spinning reserve, only non-spinning reserve and regulation– ERCOT, PJM, NYISO, MISO, ISO-NE (2017) all allow it

• Commercial load ~50% of CAISO load

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But, Can The Business Case Be Made?

Study Customer Segment

Services End-Uses

Consider Actual Costs?

Matched Time-Varying Resource with Market Prices?

Kirby (2003) Res regulationreserve

A/C Yes No

Mathieu/Callaway et al. (2009-2014)

Res energyregulation

A/C No No

PG&E Pilot (2009)

C&I reserve HVACProcess

Yes Yes(#Participants = 3)

Rubinstein et al. (2010)

C&I regulationreserve

Lighting No No

MacDonald et al. (2014)

C&I reserveregulation

HVACLighting

No No

Hummon et al. (2013)

Various All Various No Yes

Hao et al. (2014) C&I regulation HVAC No No

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Research Questions

• In the absence of incentives, can commercial DR participants make money in spinning reserve in California if regulatory barriers are removed?

• Are certain end-uses, building segments, or geographical regions better positioned to make money?

• Should California subsidize the equipment necessary for DR to participate in spinning reserve?

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Automated DR Cost Data

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• Telemetry cost ~$50/kW for large commercial (Kiliccote 2014)• Customer incentives discussed later…

Note: AutoDR incentive data includes industrial customers

Resource Availability

• Assume DR resource availability is proportional to load

• California Commercial End-Use Survey (CEUS) provides load profiles

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Zones(12)

Building Segments

(12)

End-Uses(13)

1,872 unique hourly profiles

Disaggregation

End-Use Profile Adjustments

• Removed end-uses inappropriate for reserve– e.g. exterior lighting (code issues)

• Converted standardized load profiles to 2011-2013 profiles to match market prices– Weather-dependent end-uses regression model– Non-weather dependent end-uses day matching

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Steady End-Uses are Best

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The Business Case is Marginal

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Incentives for participation would push average paybacks past business thresholds, but…

South CA, Lodging, Int. Lighting

Niche Applications Can Still Make Money

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0.15

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Policy Implications

• Market prices do not include damages from emissions

Does the dispatch of reserve increase emissions? If so, do the associated damages justify incentives to

enable spinning reserve capability for DR?

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First-Order Damage Estimate• Only consider carbon damages

• Conservatively assume natural gas serves the margin and base load

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𝐴𝑛𝑛𝑢𝑎𝑙𝐶𝑂2𝑆𝑎𝑣𝑖𝑛𝑔𝑠=𝑅𝑒𝑠𝑒𝑟𝑣𝑒𝑂𝑓𝑓𝑠𝑒𝑡𝐼𝑑𝑙𝑒𝐺𝑒𝑛𝑒𝑟𝑎𝑡𝑖𝑜𝑛

∗𝐶𝑎𝑟𝑏𝑜𝑛𝑛𝑜𝑙𝑜𝑎𝑑∗%𝑅𝑒𝑠𝑒𝑟𝑣𝑒∗8,760

Figure adapted from Katzenstein 2010

% of annual hours that plants are held online for reserve

# power plants shutdown

savings

Combined-Cycle Emissions Profile

Unload marginal reserve generator

Re-load base load generator

Carbon Damages May Justify Telemetry Incentives

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SCC = Social Cost of CarbonAB32 refers to California’s cap-and-trade programTelemetry cost calculated at $50/kW

Annual CO2 Savings ≈ 1 million tonnes (0.2M – 2.8M)

Telemetry Incentive Improves Economics

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Conclusions

• WECC should fully integrate DR into ancillary services • Absent IOU incentives, an aggregator can still make

money implementing AutoDR for spinning reserve in niche applications

• Constant loads are better for spinning reserve than seasonal loads (e.g., lighting vs cooling)

• Carbon emission damages may justify additional incentives for telemetry

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Acknowledgments

We thank the Carnegie Mellon Electricity Industry Center for its support

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