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Transcript of Kathleen King, Ph.D. Vice President SMART METERING WEST COAST 2007 CONFERENCE, Los Angeles,...
![Page 1: Kathleen King, Ph.D. Vice President SMART METERING WEST COAST 2007 CONFERENCE, Los Angeles, California August 21, 2007 The Importance of Demand Response.](https://reader036.fdocuments.net/reader036/viewer/2022062314/56649f165503460f94c2ca18/html5/thumbnails/1.jpg)
Kathleen King, Ph.D.
Vice President
SMART METERING WEST COAST 2007 CONFERENCE,Los Angeles, California
August 21, 2007
The Importance ofDemand Response to Electricity Markets
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2
Topics
1. Demand response is critical to the success of restructured power markets
2. But we didn’t include demand response in the design of restructured power markets!
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Topics
1. Demand response is critical to the success of restructured power markets
Divestiture
MarketsRetail
Markets
Restructuring
Demand Respons
e
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The Impetus for Restructuring Was Lower Costs
Commissions in states with high electricity rates believed that competition might lead to better investment decisions and lower prices
As Of Feb. 2001, Restructuring Was Underway In Half the States
AR
WA
OR
ID
MT
CA
NV
UT
WY
ND
MN
SD
NE
KS
OK
IA
MOCO
AZ
WI
IL
TX LA
MSAL
FL
GA
SC
NCTN
NY
MD
PA
OHIN
VA
WV
KY
DE
NJ
MI
VTNH
MSRI
CT
ME
NM
Restructuring Legislation EnactedComprehensive Regulatory Order IssuedCommission or Legislature Investigation OngoingNo Activity
Source: http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/restructuring.html
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Restructuring Required Divestiture
Restructuring required separation of generation, retail supply and T&D
– Divestiture
– Separate corporate entities
Impact of Divestiture on Generation Ownership(New England Capability)
Nonutility
Utility
25,000
20,000
15,000
10,000
5,000
088 89 90 91 92 93 94 95 96 97 98 99
Year
Meg
aw
atts
Source: http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/restructuring.html
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Divestiture Was Key to Development of Markets
Prior to divestiture, each utility’s generation was used to supply its own customers
Divestiture created the need for generators and retail suppliers to transact through markets
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Markets Start withSpot Markets
Spot markets
– Efficient production decisions
– Efficient consumption decisions
Requires both wholesale and retail markets with demand response
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Designing a Market with Demand Response Has Consequences
Customers make choices…
– About their consumption level
– About managing their risk of future prices
Exposes customers to cost of consumption
Source: Bloomberg.
Palo Verde On-Peak Spot Prices
0
100
200
300
400
500
600
1/97
7/97
1/98
7/98
1/99
7/99
1/00
7/00
1/01
7/01
1/02
7/02
1/03
7/03
1/04
7/04
1/05
7/05
1/06
7/06
1/07
7/07
$/M
Wh
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Spot Markets Are the Foundation of Other Markets
Customer choices create foundation for other markets
– Invest in DR technology
– Hedge against price volatility
Risk markets signal value of capacity
Investment decisions affect future spot markets
Markets for Investment
Risk Markets
Markets forDR Technology
Retail and WholesaleSpot Markets
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10
Topics
1. Demand response is critical to the success of restructured power markets
2. But we didn’t include demand response in the design of restructured power markets!
– The consequences
– Why we didn’t
– Why we should in the future
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11
Retail Markets Were Not Truly Deregulated
As Of Feb. 2001, Restructuring Was Underway In Half the States
AR
WA
OR
ID
MT
CA
NV
UT
WY
ND
MN
SD
NE
KS
OK
IA
MOCO
AZ
WI
IL
TX LA
MSAL
FL
GA
SC
NC
TN
NY
MD
PA
OHIN
VA
WV
KY
DE
NJ
MI
VTNH
MSRI
CT
ME
NM
Restructuring Legislation Enacted
Comprehensive Regulatory Order Issued
Commission or Legislature Investigation Ongoing
No Activity
Source: http://www.eia.doe.gov/cneaf/electricity/page/fact_sheets/restructuring.html
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Retail Markets Were Not Truly Deregulated
AR
WA
OR
ID
MT
CA
NV
UT
WY
ND
MN
SD
NE
KS
OK
IA
MOCO
AZ
WI
IL
TX LA
MSAL
FL
GA
SC
NC
TN
NY
MD
PA
OHIN
VA
WV
KY
DE
NJ
MI
VTNH
MSRI
CT
ME
NM
Restructuring Underway with Competitive Retail Markets
Retail Rates Capped
But Retail Rates Were Frozen
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Without Deregulated Retail Markets, Other Markets Have Suffered
Markets for Investment
Risk Markets
Markets forDR Technology
Retail and WholesaleSpot Markets
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Failure to DeregulateRetail Markets Contributed to “Lightening Rod” Events
California market events of 2000-01
Financial distress of the merchant energy industry
Calls for re-regulation
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Failure to DeregulateRetail Markets Contributed to “Lightening Rod” Events
Financial distress of the merchant energy industry
– Short positions + price spikes of 1998 and 1999
Losses
View that assets needed as backstop
Overinvestment
Collapsing spark spreads
Financial distress
Cinergy Prices (Spot, On Peak)1996 through 2000
0
500
1,000
1,500
2,000
2,500
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
$/M
Wh
Source: Bloomberg.
California market events of 2000-01
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16
Failure to DeregulateRetail Markets Contributed to “Lightening Rod” Events
Calls for re-regulation
– Multi-year below-market rate freezes
– Fuel price increases
California market events of 2000-01
Financial distress of the merchant energy industry
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The result:
– Retail rate increases as rate freezes end
Failure to DeregulateRetail Markets Contributed to “Lightening Rod” Events
DC: Pepco: 12%residential rate increase (RFP for ~550 MW)
MA: NSTAR: 34%residential rate increase (RFP for ~1,500 MW)
CT: CL&P: 22%residential rate increase (RFP for ~5,500 MW)
NJ: PSE&G: 12%residential rate increase (Auction for ~5,500 MW)
MD: BG&E: 72% (Phase-in)residential rate increase (RFP for ~8,000 MW)
DE: Delmarva: 59% (Phase-in)residential rate increase (RFP for ~850 MW)
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Why We Didn’t IncludeDemand Response
Hindsight is 20-20
Fear
1. That markets won’t work
2. That customers won’t respond
3. That there won’t be “enough” demand response
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To Each Fear, There Is an AnswerFear #1
1. That markets won’t work
Demand response is what makes markets work
Lack of demand response is key to extreme market events
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To Each Fear, There Is an AnswerFear #2
2. That customers won’t respond
The evidence is: Customers DO Respond
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The Evidence Is thatCustomers DO Respond
Economic Curtailment Programs
Critical Peak Pricing (CPP) Programs
Real-time Pricing (RTP) Programs
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Economic Curtailment Programs
DR programs enrolled over 24,900 MWs at 10 ISO/RTOs
PJM, August 2006– DR reduced wholesale prices over $300/MWh
NYISO, August 2006– DR reduced peak load almost 1,000 MW
ISO-NE, 2005– About 80% of demand in DR programs shed
– Real-time Price Response Program reduced load 31% of enrolled demand
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California’s CPP Pilot
2003-04 pilot, with 2500 customers, extended to 2005 Customers reduced usage, augmented by automated
demand response technology
Survey: 70 to 80 percent preferred CPP rate SCE, PG&E, SDG&E have filed CPP tariffs
Event Days Non-Event Days
2005 ADRS 43% 27%
2004 ADRS 51% 32%
2004 Pricing-Only 17% 12%
Percentage Usage Reduction by High Consumption Customers Relative to Control
Source: Rocky Mountain Institute, "Automated Demand Response System Pilot, Final Report, Vol. 2: Load Impact Results," 31 March 2006.
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Gulf Power’s CPP
Implemented in 2000
– Features advanced metering and home automation technology
– 8,500 participants currently
Customers reduced usage 40 to 60 percent during CPP events
Bill savings of 15 percent annually, energy savings of 3.8 percent
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RTP Programs
Earliest source of evidence that customers respond to dynamic pricing programs
– England and Wales, Pacific Gas & Electric, Southern California Edison, Niagara Mohawk, Georgia Power, others
Number of programs in US has grown from 16 in 1993 to 70 in 2004
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Georgia Power’s RTP
Largest RTP program
– 82 percent of eligible load and 43 percent of eligible customers (2004)
– Day-ahead and hour-ahead options
Largest load reduction: 750MW (1999)
– About 20 percent for DA at $1.50/kWh
– About 50 percent for HA at $6.50/kWh
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Illinois Residential RTP Program
Energy-Smart Pricing Plan by Community Energy Cooperative with ComEd
– Over 1,400 customers by 2005
– Pass-thru of PJM prices capped at $.50/kWh
– Automated notification if next-day prices over $.10/kWh
Customers did reduce demand
– Up to 20 percent on average in 2003, saving 11 percent
– 15 percent at 2005 summer peak, 3-4 percent usage reduction
– Smaller demand reduction in cool 2004 summer
Remote AC cycling in high-priced periods reduced demand
Being expanded to Ameren Illinois
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To Each Fear, There Is an AnswerFear #3
3. That there won’t be “enough” demand response
The amount of demand response needed at system peak is small
Substantial demand response is available
Advanced metering technologies and customer enabling technologies increase demand response and participation
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Why We Should IncludeDemand Response
DR is the foundation of markets
– “Lightening rod” market outcomes without demand response
DR programs are successful
– Customers DO respond
– Demand response can be sufficient to ameliorate price spikes and system stress
– Enabling technologies increase DR and broaden the spectrum of likely participants
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Contact Us
Kathleen King, Ph.D.
Vice PresidentNERA—Washington [email protected] 466 9269
© Copyright 2007National Economic Research Associates, Inc.
All rights reserved.