Clean power plans - the role of the smart grid

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Reaching Clean Power Plan Goals at No Cost:

Securing the Smart Grid’s Potential

Compliance Online Webcast

Wednesday, September 30, 1pm ET/10 am PT

Unleashing Latent Value in Distribution Utility Businesses

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Preview

The 3 Capabilities w/Significant GHG Reduction Potential

Estimating Smart Grid GHG Reduction Potential

How to Deploy the Smart Grid at no Cost to Customers

Challenges to Maximizing the Smart Grid’s GHG Potential

4 Optional Solutions to Addressing Smart Grid Challenges

Using the Smart Grid in All 3 Types of Clean Power Plans

EM&V of Smart Grid Capabilities’ Conservation Impact

Conclusions

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Wired Group Overview Consultants on electric distribution grids/utilities/businesses

DSM program development, marketing, evaluation

RPS compliance/PV Solar incentive program design

Optional rate development and marketing; riders

SMEs in rate cases, cost allocation, stranded assets

Smart Technology: distribution, metering, communications

Clients: Regulators, Advocates, Associations, Utilities, Suppliers

Comprehensive & objective performance evaluations of smart grids SmartGridCity™ for Xcel Energy Duke Energy Ohio for the Ohio PUC

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Smart Grid Capabilities w/Significant Energy Efficiency (GHG Reduction) Potential

Integrated Volt/VAr Optimization (Conservation Voltage Reduction, Volt/VAr Optimization, etc.)

Time-varying Rates (TOU, CPP, PTR, etc.) Prepayment

• How does each save energy/reduce GHGs?• What are the ‘ideal case’ requirements for each?• How much GHG reduction can each really deliver?

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Integrated Volt/VAr Optimization (Volt)How It Works Some types of customer

equipment use less energy at lower voltages.

IVVO reduces average voltage

Research: each 1% reduction in voltage delivers a 0.5-0.7% reduction in energy use (CVRf) on a typical distribution line¹

Ideal Case Requirements Use it 24 hours a day, 365 days a

year to maximize benefit

Target installation on high-load lines to reduce cost

95

100

105

110

115

120

125

130Voltage Before IVVO

Original Voltage

2) Voltage adjusted higher at start of line to accommodate

Start of Line End of Line

1) Routine variation causes voltage to drop below 110 at end of line

95

100

105

110

115

120

125

130 Voltage After IVVO

Original VoltageAdjusted VoltageIVVC Voltage

Start of Line End of Line

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Integrated Volt/VAr Optimization (VAr)How It Works Power Factor (VAr) is the measure

of electric voltage able to do work (power equipment)

As Power Factor improves, line losses (distribution = 4-6%) fall²

Research indicates that each 1% improvement in Power Factor reduces line losses 1%²

Ideal Case Requirements Use it 24 hours a day, 365 days a

year to maximize benefit

Target installation on high-load lines to reduce cost

Before After0

0.2

0.4

0.6

0.8

1

1.2

0.94 0.99

Impact of IVVO on Power Factor

Real Power Reactive Power

Pow

er F

acto

r

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Time-Varying Rates (TOU, CPP, PTR)How It Works Survey of studies (24) indicate

customers on a TVR reduce energy use through the year

Energy use reductions of -5% (increase) to +26% found

Average use reduction = 4%³

Ideal Case Requirements High Customer Participation

Low Recruiting Costs

Customer Behavior Change

Enabling Technologies

Off-Peak rate On-Peak rate Critical Peak rate$0.00

$0.05

$0.10

$0.15

$0.20

$0.25

$0.30

$0.35

$0.40

Typical Summer CPP Rate Schedule

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Prepayment How It Works Research indicates customers

who pay in advance reduce energy use

Energy use reductions of 11% and 12% found (OK; AZ)⁴

Works for natural gas too!

Ideal Case Requirements Customer Participation

No extra cost to participants

Engage Low-Income Advocates

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Estimating Smart Grid GHG PotentialCapability/Savings Calculation Reduction in Energy UseIVVO (Volt)

Voltage reduction % X CVRf5% voltage reduction X 0.6% CVRf

3.00%

IVVO (VAr)VAr improvement % X line loss %5% VAr improvement x 5% line loss

0.25%

Time-Varying RatesCustomer participation % X Usage Reduction %50% participation X 4% Usage Reduction

2.00%

PrepaymentCustomer participation % X Usage Reduction %10% participation X 10% Usage Reduction

1.00%

TOTALCaveat: CO2/kWh likely to fall over time

6.25%

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How to Reduce GHG at No Cost: IVVO NPV of cost to install & maintain IVVO on one circuit over 10

years: $316,000 NPV of energy benefits, ideal case, voltage: $349,000

(5% V reduction; 0.6 CVRf; 20,000 MWh/circuit/yr; $0.06/kWh)

NPV of energy benefits, ideal case, VAr: $29,000(5% VAr improvement, 5% line loss, same MWh/circuit/yr & $/kWh)

Estimated Benefit to Cost ratio, ideal case: 1.2 to 1*

Note: NPV calculated using 3% Discount Rate and 3% Inflation Rate* Does not include economic, environmental benefits from increased DG accommodation

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How to Reduce GHG at No Cost: TVR & Prepay NPV of cost to install and maintain smart meters per 1,000

customers, 10% w/prepay displays, 10 years: $301,000 NPV of energy benefits, ideal case, TVR: $140,000

(1,000 customers, 50% participation, 12 MWh/cust/yr, 4% conservation, $0.06/kWh)

NPV of capacity benefits, ideal case, TVR: $121,000(1,000 customers; 50% participation; 2.5 peak kW/customer; 20% reduction; $50/MW day)

NPV of energy benefits, ideal case, Prepay: $47,000*(1,0000 customers; 10% participation; 8 MWh/cust/yr; 10% conservation; $0.06/kWh)

Estimated Benefit to Cost ratio, ideal case: 1 to 1

Note: NPV calculated using 3% Discount Rate and 3% Inflation Rate* Does not include reductions in cost of bad debt, working capital, or peak demand

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The Biggest Challenge to Securing Smart Grid GHG Potential: “The Throughput Incentive”

Ratemaking 101 Utility Distribution Costs = $100 Million per year* kWh Sales = 2 Billion per year Distribution Price/kWh = 5.0¢

What happens if kWh sales are only 1.9 Billion? What happens if kWh sales are 2.1 Billion?

* If an Investor-Owned Utility, this figure includes authorized profits on capital

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4 Potential Solutions to Throughput Incentive

Make a one-time distribution rate adjustment to account for anticipated sales volume reductions

Allow utilities to count smart grid-related use reductions towards energy efficiency goals and incentives (goal increases required, of course)

Use “decoupling” to set distribution rates* Transition to performance-based ratemaking

(UK, New York)* Regulators use decoupled ratemaking for electric IOUs in 16 states and DC;

a handful of non-profit utilities also calculate distribution rates in this manner

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Using the Smart Grid in Clean Power Plans

In Rate-Based (CO2 lbs./kWh) Clean Power Plans In Mass-Based (CO2 lbs.) Clean Power Plans In Emissions Allowance Trading Clean Power

Plans

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Using the Smart Grid in Rate-Based CPPs

Adjust carbon intensity by adding MWh of electricity saved at 0 lbs/MWh to CO2lbs./MWh calculation

Actual Carbon

Intensity, Year Y

Electricity Saved @ 0 lbs. CO2 per MWh

Adjusted Carbon

Intensity, Year Y

+ =

+ =1,300 million lbs.

1 million MWh

0 lbs.

50,000* MWh

1,238 lbs.

MWh

* How do we know electricity saved was 50,000 MWh? EM&V!

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Using the Smart Grid in Mass-Based CPPs1. Starting with actual dispatch

record for year Y, add kWh savings profile by hour (8,760 hours in a year)

2. Re-run dispatch software, identifying how plant dispatch would have been different without the energy efficiency savings

3. The difference in GHG emissions from generating plants on the system between actual dispatch and hypothetical dispatch represents reductions due to energy efficiency/smart grid efforts.

How do we know the size of the red area? EM&V!

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Using the Smart Grid in Allowance Trading CPPs

Issue Emission Reduction Credits to distribution utilities based on: the Rate-Based calculation approach or the Mass-Based calculation approach

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EM&V: How Much Actual Conservation? Every state CPP must include EM&V plans EM&V reports 2022-2030 must measure actual

conservation as specified in the EM&V plan EM&V should utilize best practices that:

Establish a baseline for comparative purposes Show results independent of outside factors

(weather, economic conditions, etc.) Take permanence (or lack thereof) into account

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IVVO EM&V: How Much Actual Conservation? Establish an annual average voltage and VAr

baseline for each distribution line (before IVVO) Measure actual average voltage and VAr over year

“x” (2022-2030) for each distribution line (after IVVO) Multiply for each distribution line, then sum up all:

(Change in Voltageₓ) X (MWh distributedₓ) X (CVRf*) (Change in VArₓ) X (MWh distributedₓ) X (Line Loss %*)

Conduct random audits of utility data, equipment * What the EPA will require for these values is not known; national estimates my suffice

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TVR & Prepay EM&V: How Much Actual Conservation?“Difference in Differences” Approach

Baseline Post Intervention Year X % Change

Non-participants 10.2 GWh 10.9 GWh + 6.8%Participants 75.0 GWh 78.8 GWh + 5.0%

Conservation Impact

Change in non Participants Over Time

Change in Participants Over Time

= --

Conservation Impact

Participant GWh

GWh ConservedX =

1.8% 78.8 GWh 1.42 GWhX =

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Conclusions In ideal cases, the smart grid can achieve as much as 1/5 of

GHG goals through conservation* at no cost to consumers IVVO (3.25% conservation if utilized 24 x 365) Time-based rates (2% conservation at 50% participation) Prepayment (1% conservation at 10% participation)

Without regulatory and ratemaking changes, ideal case achievement is highly unlikely as conservation economically penalizes almost all distribution utilities

Several regulatory and ratemaking solutions are available to address the throughput incentive/conservation penalties

With rigorous EM&V, smart grid capabilities are appropriate for use in all types of Clean Power Plans

* Does not reflect changes in CO2/kWh intensity over time

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Questions?

Paul Alvarez, President

303-997-0317, x-801

[email protected]

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Bibliography1. Integrated Volt/VAr Optimization (Voltage)

Proess, R.G. and Warnock, V. J. “Impact of Voltage Reduction on Energy and Demand”. IEEE Transactions on Power Systems, volume PAS-97, number 5, pages 1665-71. Sept./Oct., 1978

Kennedy, B.W. and Fletcher, RH. “CVR at Snohomish County PUD”. IEEE Transactions on Power Systems, volume 6, number 3, pages 986-998. August, 1991.

Wilson, T.L. “Energy Conservation with Voltage Reduction – Fact or Fantasy”. PCS UtilitData. April 4, 2004.

Leidos. “Distribution Efficiency Initiative Project Final Report”. Northwest Energy Efficiency Alliance. Page 7. December, 2007

Schneider et al. “Evaluation of Conservation Voltage Reduction on a National Level”. Pacific Northwest National Labs, pages 30 & 33. July, 2010

Alvarez, et al. “SmarGridCity® Demonstration Project Evaluation and Summary”. Report to the Colorado Public Utilities Commission in Case 11A-1001E, Exhibit MGL-1, Pages 61, 62. December 14, 2011.

Wakefield, M and Horst, G. “Smart Grid Demonstration Initiative 5-year Update”. Electric Power Research Institute. Page 5. Undated.

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Bibliography (Continued)2. Integrated Volt/VAr Optimization (VAr)

The US Energy Information Administration estimates T&D line losses in the US average 6% annually

The International Energy Agency estimates T&D line losses in the US average 6% annually

The Industrial Power Factor Analysis Guidebook (Bonneville Power Administration, 1995) concludes that distributing capacitors throughout and industrial facility can reduce facility electric demand from 0.5% to 1.5%

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Bibliography (Continued)3. Time-Varying Rates

King, C. and Delurey, D. Efficiency and Demand Response: Twins, Siblings, or Cousins? Public Utilities Fortnightly. March, 2005. Pages 54-61

Faruqui, A and Palmer, J. The Discovery of Price Responsiveness -- A survey of Experiments Involving Dynamic Pricing of Electricity. March 14, 2012. Available from the Social Science Research Network at www.papers.ssrn.com.

4. Prepayment Ozog, M, “The Effect of Prepayment on Energy Use.” Integral Analytics, Inc.

research commissioned by the DEFG Prepayment Working Group. March, 2013.

“Salt River Project: Delivering Leadership on Smarter Technology and Rates”. Institute for Energy and the Environment, Vermont Law School. June, 2012. Page 18.