10/31/2015 1 1 economic value of stabilizing regional conservation investments changes to analytical...
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Economic Value of Economic Value of Stabilizing RegionalStabilizing Regional
Conservation Investments Conservation Investments
Changes to Analytical Changes to Analytical Approach and Updated Approach and Updated
ResultsResults
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Goal of the Analysis
Determine whether there is a net economic Determine whether there is a net economic value to the region’s power system that could value to the region’s power system that could result from stabilizing the annual level of result from stabilizing the annual level of conservation resource acquisitionconservation resource acquisition
Identify and evaluate conservation Identify and evaluate conservation deployment strategies that provide the best deployment strategies that provide the best net economic value to the regional power net economic value to the regional power system considering practical limitations on system considering practical limitations on program ramp rates and market volatilityprogram ramp rates and market volatility
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Analytical Approach SelectedAnalytical Approach Selected
Use Use ConSODConSOD model to simulate two model to simulate two responses to variations in future market responses to variations in future market prices:prices:
““Sustained Orderly Development” (SOD)Sustained Orderly Development” (SOD) - - Conservation acquisitions are deployed in Conservation acquisitions are deployed in uniform annual increments based on long-uniform annual increments based on long-run avoided costsrun avoided costs
““Market Price Response” (MPR)Market Price Response” (MPR) - - Conservation acquisitions are deployed Conservation acquisitions are deployed based on rolling average of short-term based on rolling average of short-term market pricesmarket prices
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Analytical Issues – Required Data and Assumptions
Major AssumptionsMajor Assumptions– Relationship between “rolling average” Relationship between “rolling average”
Market PricesMarket Prices and and AnnualAnnual Level Level of of conservation acquisitionconservation acquisition
– Relationship between Relationship between Ramp RateRamp Rate and and Total Total Resource Cost Resource Cost of conservation of conservation acquisitionsacquisitions
– Rate at which conservation acquisitions Rate at which conservation acquisitions can be can be Ramped Ramped Up Up and and DownDown
– AmplitudeAmplitude and and FrequencyFrequency andand DurationDuration of of wholesale market price spikeswholesale market price spikes
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What’s Changed?
PriorPrior analysis based on “Regional” historical relationships between:–Annual Expenditures and Total
Acquisitions– Level of Annual acquisitions and
Cost/aMW–Changes in Acquisition Levels and
Changes in Cost/aMW–Acquisition Levels and Market Prices
UpdatedUpdated analysis based on historical experience of 10 individual PNW utilities
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Is There A Relationship Between Is There A Relationship Between Market Market PricesPrices and and AnnualAnnual Level Level of Conservation of Conservation Acquisition? – Regional DataAcquisition? – Regional Data
0
20
40
60
80
100
120
140
1996 1997 1998 1999 2000 2001 2002(Proj.)
Ave
rag
e P
rice
($/
MW
h)
0
40
80
120
160
200
Uti
lity
In
vest
men
ts (
Mil
lio
ns$
)
Average Mid-C Market Price ($/MWh)
Utility Investments (Millions$)
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Is There A Relationship Between Is There A Relationship Between Market Market PricesPrices and the and the AnnualAnnual Level Level Conservation Conservation Acquisitions? – Utility DataAcquisitions? – Utility Data
$0
$20
$40
$60
$80
$100
$120
$140
1996 1997 1998 1999 2000 2001 2002(Proj.)
An
nu
al A
ve
rag
e M
ark
et
Pri
ce
(Millio
n 2
00
0$
/aM
W)
0
3
6
9
12
15
18
21
An
nu
al A
cq
uis
itio
ns
(a
MW
)
Avg. Market Price (2000$/MWh) EWEB IPCNWEnergy PACorp PGE
PSE SCL SnPUDTP Avista
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Annual Conservation Acquisitions are NegativelyNegatively Correlated to “Same-Year’s” Market Prices – Regional Data
R2 = 0.26
$0
$50
$100
$150
$200
$250
30 40 50 60 70 80Conservation Acquisitions (aMW)
Ave
rag
e A
nn
ual
Mar
ket
Pri
ce (
2000
$/aM
W)
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Annual Conservation Acquisitions Annual Conservation Acquisitions Appear Appear To To Be Be Very WeaklyVery Weakly but but Positively Positively CorrelatedCorrelated to to “Current Year’s” Market Prices – Utility Data“Current Year’s” Market Prices – Utility Data
R2 = 0.14
$0
$20
$40
$60
$80
$100
$120
$140
0 5 10 15 20 25Conservation Acquisitions (aMW/yr)
Ave
rag
e M
arke
t P
rice
(M
illio
n 2
000$
/aM
W)
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Annual Conservation Acquisitions are Strongly and Positively Correlated to “Last-Year’s” Market Prices – Regional Data
R2 = 0.66
$0
$25$50
$75$100
$125$150
$175$200
$225
25 35 45 55 65 75
Current Year's Conservation Acquisitions (aMW)
Pri
or
Ye
ars
Av
era
ge
Ma
rke
t P
ric
es
(2
00
0$
/aM
W0
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Annual Conservation Acquisitions Annual Conservation Acquisitions Appear Appear To To Be Be WeaklyWeakly and and Positively Positively CorrelatedCorrelated to “Last- to “Last-Year’s” Market Prices – Utility DataYear’s” Market Prices – Utility Data
R2 = 0.24
$0
$20
$40
$60
$80
$100
$120
$140
0 5 10 15 20 25Conservation Acquisitions (aMW/yr)
Ave
rag
e M
arke
t P
rice
(M
illio
n 2
000$
/aM
W)
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However - If we exclude 2000-01 However - If we exclude 2000-01 They’re They’re NOTNOT
R2 = 0.00
$0
$10
$20
$30
0 2 4 6 8 10
Current Year's Conservation Acquisitions (aMW)
Pri
or
Yea
rs A
vera
ge
Mar
ket
Pri
ces
(200
0$/a
MW
0
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Changes in Annual Conservation Acquisition Are Strongly Correlated to Changes in Prior Year’s Market Prices – Regional Data
R2 = 0.99
-100%
0%
100%
200%
300%
400%
500%
600%
700%
-20 0 20 40 60Change in Acquisitions (aMW)
Pri
or
Yea
rs C
han
ge
in
Mar
ket
Pri
ce (
Mil
lio
ns-
2000
$/aM
W)
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Excluding 2000-01, Changes in Annual Conservation Acquisition Are Weakly Correlated to Changes in Prior Year’s Market Prices – Regional Data
R2 = 0.27
0%5%
10%15%20%25%30%35%40%45%50%
-15 -10 -5 0Change in Acquisitions (aMW)
Pri
or
Yea
rs C
han
ge
in
Mar
ket
Pri
ce (
Mil
lio
ns-
2000
$/aM
W)
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Changes in Annual Conservation Acquisition Are Not Correlated to Changes in Prior Year’s Market Prices – Utility Data
R2 = 0.02
-200%
-100%
0%
100%
200%
300%
400%
500%
-20 -10 0 10 20
Change in Acquisitions (aMW)
Ch
ang
e in
Mar
ket
Pri
ce (
%)
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Relationship Between Relationship Between Market PricesMarket Prices and and Changes in theChanges in the AnnualAnnual Level Level of of Conservation AcquisitionConservation Acquisition
Conclusion – Historical evidence Conclusion – Historical evidence does notdoes not indicate a indicate a statistically significantstatistically significant relationship between relationship between Conservation Acquisitions and Market PricesConservation Acquisitions and Market Prices
However, changes in acquisition levels appear to lag However, changes in acquisition levels appear to lag market prices due to the inertia intrinsic inmarket prices due to the inertia intrinsic in
» Budget cyclesBudget cycles
» Infrastructure responseInfrastructure response
» Project/Program lead timesProject/Program lead times
– Assumption – Ramp ups in conservation Assumption – Ramp ups in conservation acquisitions lag the “rolling average” monthly acquisitions lag the “rolling average” monthly market price changes by market price changes by 0 – 18 months0 – 18 months, with a , with a “expected value” lag of“expected value” lag of 6 months6 months
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Is There A Relationship Between Is There A Relationship Between Ramp RateRamp Rate and and Total Resource Cost Total Resource Cost of Conservation Acquisitions?of Conservation Acquisitions?
STILL NO DATA on STILL NO DATA on TRCTRC
Used Utility Cost Used Utility Cost (Again)(Again)
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Regional Utility Annual Regional Utility Annual Conservation Acquisition Levels Conservation Acquisition Levels Have Varied SignificantlyHave Varied Significantly
0
5
10
15
20
25
30
2 4 6 8 10 12 14 16 18 20 22 24 26 28
Annual Conservation Acquisitions (aMW)
Fre
qu
en
cy
of
Ob
se
rva
tio
ns
0%
20%
40%
60%
80%
100%
120%
Cu
mu
lati
ve
Pe
rce
nt
of
Ob
se
rva
tio
ns
Average – 6.7 aMW/yrAverage – 6.7 aMW/yr
Standard Deviation – 6.2 aMW/yrStandard Deviation – 6.2 aMW/yr
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Regional Conservation Acquisition Regional Conservation Acquisition Costs Have Varied SignificantlyCosts Have Varied Significantly
0
5
10
15
20
25
$0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 $5.5 $6.0
Cost/aMW (Million 2000$)
Fre
qu
en
cy
0%
20%
40%
60%
80%
100%
Cu
mu
lati
ve
Pe
rce
nt
of
Ob
se
rva
tio
ns
Average - $2.22 Average - $2.22 million/aMWmillion/aMW
Standard Deviation - $1.13 Standard Deviation - $1.13 million/aMWmillion/aMW
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Utility Conservation Acquisition Utility Conservation Acquisition Levels Have Varied Significantly Levels Have Varied Significantly Over TimeOver Time
0
5
10
15
20
25
30
1990 1992 1994 1996 1998 2000 2002
An
nu
al A
cq
usit
ion
s (
aM
W)
EWEB IPC NrthWE PAC PGE PSE SCL SnPUD TP Avista
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Utility Conservation Acquisition Utility Conservation Acquisition Costs Have Varied Significantly Costs Have Varied Significantly Over TimeOver Time
$0
$2
$4
$6
$8
$10
$12
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Acq
usi
tio
n C
ost
(M
illio
n 2
000$
/aM
W)
BPA EWEB IPC NrthWE PaCorp PGE
PSE SCL SnPUD TP Avista Average
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Total Utility Conservation Expenditures Are StronglyStrongly Correlated to Annual Acquisition Levels
R2 = 0.61
$0
$10
$20
$30
$40
$50
$60
0 10 20 30 40
Total Annual Acquisitions (aMW)
To
tal
Exp
en
dit
ure
s
(M
illi
on
2000$)
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Changes in Utility Conservation Expenditures are Strongly CorrelatedStrongly Correlated to Changes in Conservation Acquisitions
R2 = 0.58
($40)
($30)
($20)
($10)
$0
$10
$20
$30
-20 -15 -10 -5 0 5 10 15 20Change in Conservation Acquisitions (aMW)
Ch
ang
e in
Co
nse
rvat
ion
E
xpen
dit
ure
s (
Mill
ion
200
0$)
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Cost/aMW and Magnitude of Annual Conservation Acquisitions Are Weakly Correlated – Regional Data
R2 = 0.36
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0 50 100 150
Annual Conservation Acquisitions (aMW)
Co
st/
aM
W (
2000$)
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Utility Cost/aMW Are NotNot Correlated to Annual Acquisition Levels
R2 = 0.09
$0
$2
$4
$6
$8
$10
0 10 20 30 40
Total Annual Acquisitions (aMW)
Co
st/
aM
W (
Mil
lio
n 2
000$)
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Changes in Conservation Acquisitions Are Weakly Correlated and Inversely Related to Utility Acquisition Costs
R2 = 0.14
-$8.00-$6.00-$4.00-$2.00$0.00$2.00$4.00$6.00$8.00
$10.00
-20 -10 0 10 20Change in Aquisitions (aMW)
Ch
an
ge
in
Co
st
(Mil
lio
n 2
00
0$
/aM
W)
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Relationship between Relationship between Ramp RateRamp Rate and and Utility Cost Utility Cost of conservation of conservation acquisitionsacquisitions
Conclusion - There is only a weak Conclusion - There is only a weak relationship between ramp rates (up or down) relationship between ramp rates (up or down) and utility conservationand utility conservation acquisition costs.acquisition costs.
Utility conservation acquisition costs ($/aMW) Utility conservation acquisition costs ($/aMW) are are lowerlower when ramping up than when when ramping up than when ramping down.ramping down.
Assumption –Assumption –
– Assume 10% higher cost/aMW during ramp Assume 10% higher cost/aMW during ramp down than ramp up.down than ramp up.
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Utility Conservation Acquisition “Ramp Rates” Vary Over A Wide Range
0
5
10
15
20
Change in Acquisitions (aMW)
Fre
qu
en
cy
of
Ob
se
rva
tio
ns Average - .2 aMWAverage - .2 aMW
Standard Deviation – 4.3 aMWStandard Deviation – 4.3 aMW
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Rate at which conservation Rate at which conservation acquisitions can be acquisitions can be RampedRamped Up Up and and RampedRamped DownDown
Conclusion - Conservation has been ramped up and down within a range of +/- 10 aMW
Assumption – Constrain ramp rate to Assumption – Constrain ramp rate to “monthly” availability” of each conservation “monthly” availability” of each conservation cost block (e.g. maximum annual change = cost block (e.g. maximum annual change = 12x monthly availability).12x monthly availability).
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AmplitudeAmplitude, , DurationDuration and and FrequencyFrequency of wholesale market of wholesale market price spikesprice spikes
Wholesale market prices will fluctuate as a result of:–Over/Under building–Extreme weather events (hot or cold)–Hydro-system availability–Short-run economic/business cycles
Assumption:“Randomize” the forecast of future Assumption:“Randomize” the forecast of future “price spikes” in response to hydro-system “price spikes” in response to hydro-system availability, ignore “short-run” weather & availability, ignore “short-run” weather & business cyclesbusiness cycles