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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