Global Warming: Who Cares About a Few Degrees

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Price Responsive Load Programs Framing Paper 1
Charles Goldman E. O. Lawrence Berkeley National
Laboratory CAGoldman_at_lbl.gov NEDRI
Meeting Boston, MA April 2, 2002
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Outline of Presentation

• Benefits (and Costs) of PRL Programs
• Summary of Recent Experience with PRL programs
• Innovative PRL programs offered by LSEs
• Potential Actual Market Response
• ISO experience and program design
• Types of Wholesale Market DR Programs
• Overview of Key Policy Issues

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Benefits of PRL Programs
Price
Price
2
3
P2
P2
Collateral Savings
Participants Demand
?P
4
PL
P1
P1
1
Supply
Load
Load
Q0
Q2
Q1
Q2
Q1
1
Demand (Q1) at Retail rate (P1)
Retail demand supplied at higher wholesale price
(P2)
2
Reduction in participants demand due to higher
price
3
LBMP after scheduled load reduction Source
Neenan Associates, NYISO PRL Evaluation
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4
Costs and Benefits of NYISO Programs Summer 2001
Results

• Estimated market benefits to all consumers are
  large relative to incentive costs
• Need standardized methods to evaluate market
  benefits
• Source Neenan Associates, NYISO PRL Evaluation,
  2001

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Characteristics of Innovative LSE PRL Programs

• Substantial customer response at high offer
  prices
• Multiple program options features offered under
  a single brand
• LSE/customer share benefits (often not
  transparent to customer)
• Lots of customer care education
• Use of customer-specific baselines
• Variety of forward contracting options
• Motivated or incented LSEs

6
Portland General Electrics Demand Buy Back
Program

• Successful Demand Bidding Program with three
  variants day-ahead, week-ahead, and term events
  (i.e., demand buy-back)
• Eligible to customers with gt250 kW demand and
  interval meters
• Participation in 2001 26 customers, 230 MW
  potential load reduction
• Prior to FERC price caps 122 events (July 2000
  May 2001), 162 MW average load reduction
• After FERC price caps No more day ahead bidding
  75 MW through term events procured prior to caps

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Portland General Electrics Demand Buy Back
Program (cont.)

• High level of demand response to market
  opportunities
• 230 MW (gt50 of participants summer peak demand)
  reduced at 300/MWh incentive
• Minimum incentive level for customer response was
  70/MWh
• Worked with each customer to identify load
  reduction goal and specific load reduction
  strategies
• E.g., cross-referenced maintenance schedules with
  facility meter data to determine MW reduction for
  specific processes, machinery

8
Cinergys PowerShare Pricing Program

• Broad Menu of DR offerings under 1 Umbrella
• CallOption (three strike prices, two payment
  plans, four options to reduce Summer usage)
• QuoteOption (day-of program no risk all year)
• Utility Motivation Role
• Financial hedge against wholesale price
  volatility physical hedge against supply
  uncertainty
• Advisor for every customer
• Programs require significant upfront investment
  in E-commerce

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Cinergys Power Share Pricing Program (cont.)

• High Market Penetration
• over 90 of large C/I loads (gt500 kW) enrolled in
  2000
• 300 small and medium customers enrolled in 2001
• Market response
• Large C/I Load 2500 MW
• Year 2000 440-600 MW of potential curtailable
  load with high prices (but mild summer no
  operations)
• Year 1999 200 MW of actual load reductions with
  prices as high as 850/MWh

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Market Activity of PRL Programs Summer 2001

• Areas with most active PRL Programs Pac NW,NY
• Market activity is relatively low with notable
  exceptions

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Actual Performance of PRL Programs Summer 2001

• Several programs successfully enrolled 300-400
  MW
• Most PRL programs achieved modest actual
  reductions (Average 19 MW)

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Eligibility and Potential Use of Backup
Generators (BUGs) in PRL Programs

• Diesel-fired BUGs precluded or limited in some
  PRL programs/areas
• In emergency DR programs, BUGs account for 31
  of subscribed load (not shown)

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Types of Wholesale Market PRL Programs

• Program Types
• Day Ahead Price-Capped Load Bidding
• Load Reduction Bidding as Generation
• Transitional Load Reduction Pricing
• Voluntary Response to Market Price
• Discuss merits relative to criteria and goals
• Program Types are not mutually exclusive can be
  complementary

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Day Ahead Price-Capped Load Bidding (1)

• A basic structural feature likely to be included
  in SMD for day-ahead energy market (DAM)
• LSEs bid price points at which specific MW would
  be reduced i.e., they bid a demand curve
• No program or base case approach
• Pros fully integrated into DAM no additional
  ISO uplift charges no need for customer baseline
  load (CBL) estimate
• Cons small DR market impact participation
  limited to LSEs

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Load Reduction Bidding as Generation (2)

• Separate load reduction product that can
  compete with generation in the day ahead energy
  market e.g., NYISO DADRP
• Potential to fully incorporate load reduction
  bids into ISO scheduling and settlement processes
• Payments and penalties based on difference
  between CBL and metered load
• Pros potential for significant DR impact can be
  fully integrated into wholesale market non-LSEs
  or customers can participate directly
• Cons increased ISO uplift additional admin.
  transaction costs CBL

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Transitional Load Reduction Pricing (3)

• Incentives decoupled from wholesale market
• Provides opportunity for simpler program
  structure and more predictable incentives
• Can be achieved through any number of specific
  program designs - e.g., load bids with price
  floors, call-option programs with reservation
  payments, etc.
• Pros potential for significant DR impact from
  risk averse customers
• Cons less direct impact on market than Options 1
  and 2 additional uplift charges seen as
  preferential to loads

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Voluntary Response to Market Price (4)

• Customers are paid the real time market clearing
  price for voluntary curtailments
• Based on ISO-NE Price Response Program
• Customers must be able to respond without knowing
  where the price will settle
• No penalties
• Load reductions not integrated into ISO
  scheduling
• Pros few risks to customers may provide
  potential for additional load reductions to DAM
• Cons less direct impact on market no price
  certainty for customers difficult to predict
  response

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Comparing Alternatives Factors and Criteria to
Consider
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Key Policy Questions

• What market mechanisms are needed or desired by
  end users and other market participants in the
  PRL area?
• Should PRL programs be administered and supported
  by ISOs or only at the state PUC/retail level?
• Under what conditions are ISO-supported PRL
  programs appropriate e.g., are PRL programs
  necessary if RTP was widespread?
• Relative magnitude of demand response resources
  (DRR) needed to ensure efficient wholesale
  markets?
• Will PCLB provide sufficient DRR resources or
  will other types of PRL programs be necessary?

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Key Policy Questions (cont)

• How do you pay for the enabling DR technology
  infrastructure necessary to capture consumer
  market benefits of PRL?
• Is the provision of demand response resources an
  attractive business opportunity for load
  aggregators?
• Is it a viable stand-alone business?
• Are there disincentives that limit interest of
  potential load aggregators?
• What types of DRR should be eligible to
  participate in PRL programs
• Role of and/or limits on use of diesel-fired BUGs

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Program Design Issues

• ISO/End User relationship and eligible entities
• Financial Incentives for PRL Programs
• Methods for estimating Customer Baseline Loads
  (CBL)
• Relationship between Emergency DR Programs and
  PRL Programs