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Securing Alternative Supply:Securing Alternative Supply:Advanced Renewable Tariffs Advanced Renewable Tariffs
and Demand Responseand Demand Response
Bruce ChapmanChristensen Associates Energy
ConsultingOctober 3, 2012
Wisconsin Public Utility InstituteWisconsin Public Utility InstituteFundamental Course: Energy Utility BasicsFundamental Course: Energy Utility Basics
October 3, 2012 2
AgendaAgenda
Advanced Renewable Tariffs Demand Response
Advanced Renewable TariffsAdvanced Renewable Tariffs
October 3, 2012 4
Precursors to ARTsPrecursors 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 5
ART/“Feed-in” Tariff ComponentsART/“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 6
Status in U.S. of ARTs/FITsStatus in U.S. of ARTs/FITs
Source: NREL, A Policymaker’s Guide to Feed-In Tariff Policy Design, July 2010p. 20http://www.nrel.gov/docs/fy10osti/44849.pdf
October 3, 2012 7
Recent Trends in ARTs/FITsRecent 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 8
Illustrative FIT Prices ($US)Illustrative FIT Prices ($US)
Jurisdiction
Years $/kWh Years $/kWh Years $/kWh
Degression Years $/kWh Years $/kWh
North AmericaFlorida, Gainesville NA NA 20 $0.24 20 $0.32 NA NA NA NAIndiana (NIPSCO) 15 $0.10 15 $0.26 15 $0.30 15 $0.11 15 $0.12Vermont 20 $0.13 25 $0.30 20 $0.13 20 $0.13Wisconsin (Alliant-WPL) NA $0.09 10 $0.25 NA $0.09Wisconsin (Xcel Energy) 0.073 $0.07
Ontario 20 $0.13 20 $0.43 20 $0.69 20 $0.13 40 $0.12Nova Scotia 20 $0.13 NA NA NA NA 20 $0.17 20 $0.14
EuropeGermany 12.40 $0.12 20 $0.29 20 $0.39 -9% 20 $0.15 20 $0.11Spain 20 $0.12 25 $0.18 25 $0.38 -10% NA NA NA NAFranceGreat Britain 20 $0.15 25 $0.13 25 $0.58 20 $0.15 20 $0.07
Source: Paul Gipe http://www.wind-works.org
HydroSmall SolarWind Large Solar Biomass
• 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.
October 3, 2012 9
The German ExperienceThe 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 10
Current IssuesCurrent 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 11
ART vs. RPS 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 12
ARTs & RPSs World-WideARTs & RPSs World-Wide
N R T N R T N R THigh income 46 35 3 38 8 4 12 5 2 7Upper-Middle Income 36 20 0 20 5 0 5 2 0 2Lower-Middle Income 24 16 0 16 4 0 4 4 0 4Low Income 13 3 0 3 1 0 1 0 0 0Total 119 74 3 77 18 4 22 11 2 13
N: national; R: regional; T: total
Source: Renewables 2012 Global Status Report, pp. 70-72
No. of Countries
ART RPS Both
Use of ARTs continues to spread, but the rate of growth is slow.
Demand ResponseDemand Response
October 3, 2012 14
Demand Response – (Demand Response – (DRDR)) or, Price-Responsive Demand (or, Price-Responsive Demand (PRDPRD))
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 15
Why Important? Inefficient Markets Why Important? Inefficient Markets DisconnectDisconnect Between Wholesale and Retail Markets 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 16
Market Inefficiency / Lost Opportunities(Persistent differences between cost and price)
$0
$100
$200
$300
$400
$500
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Hours
$/M
Wh
PJM LMP Average price
Hourly wholesale costs
Retail price
Cost far exceeds price
Price exceeds market cost
October 3, 2012 17
DR Has a Role in Various DR Has a Role in Various Wholesale Electricity MarketsWholesale 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 18
How to Achieve How to Achieve Price-Responsive Demand (PRD)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 19
Do Customers Respond to Dynamic Do Customers Respond to Dynamic Pricing? Pricing? OverviewOverview
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 20
CPP for C&I Customers (> 200 kW)CPP for C&I Customers (> 200 kW)Recent California ExperienceRecent 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 21
Default CPP Load Impacts, Default CPP Load Impacts, SDG&ESDG&EAverage Event DayAverage Event Day
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Hour
Re
fere
nc
e a
nd
Ev
en
t-D
ay
Lo
ad
(k
W)
-10,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
Lo
ad
Imp
ac
ts (
kW
)
Reference
Event Day
Load Impacts
October 3, 2012 22
Distribution of C&I CPP Load Distribution of C&I CPP Load Impacts across CustomersImpacts 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 23
ConclusionsConclusions
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 24
Appendix: Types of Appendix: Types of Price-Responsive DemandPrice-Responsive Demand
Dynamic, time-varying pricing Utility programs
Direct load control Interruptible programs
ISO/RTO programs Economic response Reliability response
October 3, 2012 25
A. Dynamic, Time-Varying PricingA. 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 26
B. DR Programs – B. DR Programs – UtilitiesUtilities
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 27
C. DR Programs – C. DR Programs – ISO/RTOsISO/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