Daniel Burillo April 27, 2011

S11-18875: S11-Engineering and Economics of Electric Energy Systems

REAL-TIME DEMAND RESPONSE Objectives, implementation, technical and economic issues

Objectives – ORNL’s Definitions

Source: ORNL 2006. Demand Response For Power System Reliability: FAQ.

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FERC’s Definitions

¨  Demand response, whereby customers reduce electricity consumption from normal usage levels in response to price signals, can generally occur in two ways: ¤  (1) customers reduce demand by responding to retail

rates that are based on wholesale prices (sometimes called “price-responsive demand”); and

¤  (2) customers provide demand response that acts as a resource in organized wholesale energy markets to balance supply and demand.

Implementation – FERC’s Terms...

FERC 2010. Demand Response/Time-Based Rate Programs and Advanced Metering

Implementation – PJM’s Terms

Economic  Load  Response   Load  responding  to  price,  voluntary,  no  capacity  payment  Emergency  Load  Response,  Energy  Only  

Load  responding  to  a  PJM  Emergency,  voluntary,  no  capacity  payment  

Emergency  Load  Response,  Capacity  Only  

Load  responding  to  a  PJM  Emergency,  Mandatory,  no  energy  payment  

Emergency  Load  Response,    Full  Emergency  

Load  responding  to  a  PJM  Emergency,  Mandatory,  energy  and  capacity  payments  

Load  Management   Formerly  known  as  ALM.  A  term  used  to  describe  load  designated    as  a  capacity  resource  in  PJM.  

BRA   Base  Residual  AucCon.  An  aucCon  in  the  Reliability  Pricing  Model  

DR   Demand  Response.  Load  Management  that  parCcipates  directly  in  the  BRA.  

ILR   InterrupCble  Load  Response.  Load  Management  that  does  not  parCcipate  in  the  BRA  but  rather  cerCfies  prior  to  the  Delivery  Year.  

GLD   Guaranteed  Load  Drop  –  a  Load  Management  type  FSL   Firm  Service  Level  –  a  Load  Management  type  DLC   Direct  Load  Control  –  a  Load  Management  type  CSP   Curtailment  Service  Provider.  The  enCty  that  interfaces  with  PJM  

LSE   Load  Serving  EnCty.  The  party  that  is  contractually  obligated  for  retail  energy  supply.  

Issues

Implementation – Examples

¨  PG&E’s SmartAC ¤ No cost, participants receive $25 once

¨  Wisconsin Public Service ¤ Contracted DLC of AC and water heaters ¤ Participants pay $6 to $28 monthly for I&M ¤ Benefit $4.35/kWh to $6.50/kWh

Real-time pricing is NOT real-time DR

¨  Market friction ¨  Behavioral economics ¨  US & EU price elasticity

(-0.21 to -0.18)

Source: Azevedo 2010. US and EU residential electricity consumptions: can electricity price, household income or weather explain regional differences?

Technical Issues

¨  Mostly systems design & programming problems

¨  Switching individual loads is mostly an ECE issue ¤  Phase, communications reliability, communications security

¨  Switching aggregated loads are ECE and Econ issues ¤ Also: step functions, servers, transmission, congestion

¨  “Metadata” info. or self-awareness is missing or inaccurate

¨  Dispatching services at the ISO/RTO are Econ issues

Economic Issues

¨  Local to Aggregator ¤  Return on investment, scalability, participant incentives ¤  Structure: time per hour, day year? ¤ Devices connected: HVAC, water heater, other? ¤ Who has control, and what are the penalties?

¨  Aggregator to Transmission Operator ¤ What are we measuring? (KW, KWh, KWh/t) ¤ How? and relative to what? ¤ How and when are bids placed?

n  Remember: the whole reason we’re doing this is because we CAN’T predict the load any better!

Economic issues – Business Analysis

¨  Remember: Policy issues = business issues ¤ When are Markets Best?

(externalities?, competition?, good information?) n GHGs, intermittent generation n  Incumbent reliability services, monopolistic markets n Market transparency?

¤  Iron Law of Government: winners & losers n Winners: Program participants, CSPs, some utilities, switch

manufacturers, local jobs, solar & wind, society/environment n  Losers: Incumbent generators, NG industry, some utilities

¤ Regulation: Command & Control v Market Incentives

Economic Issues – FERC’s Order

¨  March 15, 2011 – DR in wholesale market with RTO/ISO that can balance supply and demand instead of generation resources:

¨  To be compensated at the LMP ¤  If it’s “cost-effective” ¤ DR must pass “net benefits test”

n Concern over “billing unit effect”

Economic Issues – Billing unit effect

? ? ?

¨  êΔD = éΔP ¨  What’s wrong with this thinking? ¨  Not a free market! ¨  Supply MUST = Demand!

¨  So, what happens when êΔD ? ¤ êmarginal gen. ¤ êcongestion ¤ Who wins/loses?

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Economic Issues – FERC’s Order contd...

¨  By July 22, 2011 – ISOs/RTOs must file ¤ Net benefits test ¤ Measurement and verification explanation ¤ Proposed policy changes ¤ Cost allocation mechanism

¨  By Sept 21, 2012 – ISOs/RTOs must file ¤ Requirements and impacts to modify the dispatch

algorithm and implement a “dynamic approach.”

Summary

¨  Real Time DR = Automated DR = Direct load control ¨  No standard exists yet, but we’re working on it

¨  Wholesale economic issues are more traditional economic issues ¤  Prices will be based on energy and the LMP.

¨  Retail economic issues are more behavioral economic issues

¤  Best programs will consider consumers’ values and indirect costs ¤  Standardized contracts through local aggregators such as utilities and

CSPs will probably become the norm

¨  Technical implementation issues are solvable – for a price ¤  Economies of scale are not currently very attractive for most residential

¨  Need modification of ISO/RTO dispatch algorithms to cross the chasm

References

¨  ORNL 2006. Demand Response For Power System Reliability: FAQ.http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.154.3320&rep=rep1&type=pdf

¨  FERC 2011. Demand Response Compensation in Organized Wholesale Energy Marketshttp://www.ferc.gov/EventCalendar/Files/20110315105757-RM10-17-000.pdf

¨  FERC 2010. DRIVE Model http://www.ferc.gov/industries/electric/indus-act/demand-response/dr-potential/action-plan.asp

¨  FERC 2010. Demand Response/Time-Based Rate Programs and Advanced Metering http://www.ferc.gov/industries/electric/indus-act/demand-response/2010/instructions.pdf

¨  PJM http://www.pjm.com

¨  PG&E SmartAC program http://www.pge-smartac.com/freesmartac/

¨  Wisconsin DLC program http://www.wisconsinpublicservice.com/business/cdlc.aspx