Embed Size (px)
Citation preview
The Cost-Effectiveness Premium for Conservation
Michael SchilmoellerThursday May 19, 2011
SAAC
2
Outline
• The construction of conservation supply curves
• Fifth Power Plan findings• Sources of premium value• Sixth Power Plan findings
3
Construction and Representation
• Construction of Supply Curves– Lost opportunity– Discretionary
• Implementing the Supply Curves
4
Discretionary Conservation“Raw” Values, Sixth Power Plan Final
0
500
1000
1500
2000
2500
3000
3500
4000
0 10
20
30
40
50
60
70
80
90
10
0
11
0
12
0
13
0
14
0
15
0
16
0
17
0
18
0
19
0
20
0
MW
a by
202
9
2006 $/MWh
5
Discretionary ConservationSampled Values, Sixth Power Plan Final
0
500
1000
1500
2000
2500
3000
3500
4000
0.0 50.0 100.0 150.0 200.0 250.0
Qu
anti
ty (
MW
a)
Price (RL $2006/MWh)
New Discretionary Supply Curve200 Trials of 40 MWa Samples
6
Sampling the Discretionary Conservation
• Conservation Premium\Olivia Conservation 090421.xls
7
Lost Opportunity ConservationSixth Power Plan Final
0.0
50.0
100.0
150.0
200.0
250.0
0 50 100 150 200 250
MW
a
Price RL $2006/MWh
Supply curve data and linear interpolation
2010i 2011i
2012i 2013i
2014i 2015i
2016i 2017i
2018i 2019i
2020i 2021i
2022i 2023i
2024i 2025i
2026i 2027i
2028i 2029i
2010 2011
2012 2013
2014 2015
2016 2017
2018 2019
2020 2021
2022 2023
2024 2025
2026 2027
2028 2029
8
Accessing the Supply Curves
Cost Assuming No Producers' SurplusSupply Curve
0.0
20.0
40.0
60.0
80.0
100.0
120.0
0 10 20 30 40 50 60 70 80 90
MWa Available Annually
Le
ve
liz
ed
Co
st
(20
04
$/M
Wh
)
Hydro Supply Curve
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MW-mo)
Ma
rke
t P
ric
e (
20
04
$/M
Wh
)
Lost opportunity
Discretionary
9
Accessing the Supply Curves
10
Sources of Value
• It is well-understood that much of the value of energy efficiency stems from its below-market cost. In the Sixth Power Plan, for example, the Council estimates the availability of over 2200 MWa of conservation in the Region at or below $30/MWh.
C:\Backup\Plan 5\Portfolio Work\Olivia\SAAC 2010\110519 SAAC Meeting\Conservation Premium\The sources of premium value 101206 1600.lnk
11
0
10
20
30
40
50
60
70
0 5 10 15 20 25 30 35 40 45 50 55 60 65 70
Quantity of Energy (MWa)
Mar
ket
Pri
ce
Long-term equilibrium market price
The Premium
δ
12
AnalysisThe Effect of
Additional Conservation
36900
37000
37100
37200
37300
37400
37500
23600 23650 23700 23750 23800 23850 23900
Cost (NPV $M 2004)
Ris
k (T
ailV
@R
90 N
PV
$M
200
4)
.
0-LO/0-DS
10-LO/5-DS
plan 1141, "Base case plan"
plan 4326, "Plan withenhanced conservation"
13
Components of Cost Reduction
Additional conservation at $50/MWh
Total System Costs
SCCT deferral
Reduced market prices
14
Price-takers Still See Benefits
Additional conservation at $50/MWh
Total System Costs
SCCT deferral
15
SCCT Deferral
• Why does conservation defer single cycle combustion turbines?– Low-capital cost resources are the traditional
solution for risk management– SCCT have low capital cost– Conservation has high capital cost
• Under what conditions does conservation hold an advantage over SCCTs?
16
SCCT Deferral$Net Benefit per $Expense
0
2000
4000
6000
8000
10000
12000
14000
16000
18000-1
-0.8
-0.6
-0.4
-0.2 0
0.2
0.4
0.6
0.8 1
1.2
1.4
1.6
1.8 2
2.2
2.4
2.6
2.8
Ratio ($Net Benefit\$Expense)
Fre
qu
ency
SCCT discretionary conservation lost opportunity conservation
17
Value of Capacity
• Operate under circumstances of relatively lower electricity market prices and volatility– This is the consequence of having the
additional resources that give us protection against uncertainty
• Do not even pay for themselves– If we want to reduce risk, we have to pay the
insurance premium of extra capacity that may not be used frequently enough to cover costs.
From the previous slide, it is evident that in this plan SCCT and conservation
18
Value of Capacity• Conservation performs better than SCCT
under these circumstances, because it gives value under low market prices.
• Additionally– The quality of capacity is better than
conventional resources, because it is not subject to forced outages
– In particular, the quality of conservation capacity is better than wind, the “other” resource candidate without fuel cost
19
Sources of Premium Value
• Capacity deferral• Protection from fuel and electricity price
excursions, in particular due to carbon risk• Short-term price reduction• Purchases at below-average prices
(“dollar-cost averaging”)• Opportunity to develop and resell
conservation energyC:\Backup\Plan 5\Portfolio Work\Olivia\SAAC 2010\110519 SAAC Meeting\Conservation Premium\The sources of premium value 101206 1600.lnk
20
Capacity Deferral– If a utility anticipates capacity requirements
for energy or for risk mitigation (reserves), conservation capacity has value
– Shape of conservation: the greater the on-peak conservation contribution, the greater the deferral on a per-MWh or average MW energy basis. Because energy efficiency tends to have greatest effect when requirements are large, it tends to have more reduction on-peak than off-peak
21
Capacity Deferral– Conservation recovers its value at all price levels. In
futures with anticipated low price, due perhaps to RPS legislation or technology innovation, dispatchable resources would dispatch very infrequently and have less opportunity to cover their fixed cost. (More generally, see the next bullet.)
– The high-risk futures for the region are those with high load requirements/high prices for electricity and low requirements/low prices. Neither of these makes high-heat rate dispatchable resources (SCCTs) attractive as a risk-mitigation measure, regardless of their “expected” capacity factor.
22
Operating Value Excursions
– The fixed cost of conservation protects utilities short of resources* from electricity price risk
– An uncertain future carbon penalty, which would only increase these prices, contributes significantly to this value
– All utilities subject to fuel price volatility benefit
* Electricity price risk mitigation can shrinks, disappear, or actually increase if the amount of conservation (or other non-dispatchable resource) exceeds a utility’s minimum load requirement.
23
Short-term power price reduction
– Even in a market, such as that in the PNW, that is surplus most of the time, reducing prices can reduce costs• The net cost is determined by the timing of sales
and purchases relative to market prices. If the PNW sells off-peak in the spring – at low prices – and buys on-peak in the winter – at high prices, it is more likely to see these effects
• Off-peak sale prices are constrained below by zero, while on-peak purchase prices are unconstrained
24
Conservation acquisition at below-average prices
– If the supply curve for conservation is convex, rather than linear, there is a “constant dollar averaging” effect.
– A premium minimizes our foregoing acquisition of inexpensive conservation during periods of low wholesale market prices for electricity
– This effect is especially important to lost opportunity conservation
*If the supply curve were to have an exponential shape (p=eq), the effect would be exactly constant dollar averaging.
25
Opportunity to develop and resell conservation energy
– Many utilities maintain that their avoided cost is much lower than the wholesale market for electricity, and consequently, there is little incentive for them to develop their conservation up to wholesale market prices
– Given that other utilities seek energy at market (or at a premium over market), a resell opportunity may exist. Sales to other utilities reduce total cost.
– There is anecdotal evidence that even full-requirements customers of BPA can enjoy benefits from developing conservation in their service territory for use by other utilities
26
Conclusion• Above-market conservation provides
more cost-effective risk mitigation than alternative resources
• For low-risk plans, cost effectiveness of conservation may be higher than long-term view of average wholesale market price for electricity
27
Outline
• The construction of conservation supply curves
• Fifth Power Plan findings• Sources of premium value• Sixth Power Plan findings
28
Effect of Premium on Conservation Energy and Cost
29
End
