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

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fere

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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

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90,000

Lo

ad

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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