economic demand response sheldon fulton executive director, ipcaa november 4, 2008

Economic Demand Response

Sheldon FultonExecutive Director, IPCAA

November 4, 2008

Outline

1. What is Economic Demand Response (DR)?

2. How is the Alberta electricity market unique?

3. What is the value of Economic DR?

4. What are the proposed objectives and activities of the Economic DR working group?

Overview of DRWhat is Demand Response (DR)?

DR is a mechanism to reduce demand in response to certain conditions

Why DR? To hedge against high market prices To avoid significantly higher costs and waiting time required

for additional generation investment To provide “safety cushions” for system supply To deal with reliability issues

Who administers DR? Generally administered by ISOs or other entities such as

utilities, planning agencies and/or commercial corporations

Economic DRWhat is Demand Response (DR)?

DR is a mechanism to reduce demand in response to certain conditions

Why DR? To hedge against high market prices To avoid significantly higher costs and waiting time required

for additional generation investment To provide “safety cushions” for system supply To deal with reliability issues

Who administers DR? Generally administered by ISOs or other entities such as

utilities, planning agencies and/or commercial corporations

Economic DR Objectives1. Reliably predict uptake (MW) by hour

2. Compensate curtailment in an appropriate manner

3. Standardized and efficient measurement and verification

4. Full understanding and management of feed-back loops

5. A series of complementary DR Programs targeted at the various categories of Economic DR

Categories of DR

1.Load Shedding

2.Load Shifting

3.Distributed Generation

Voluntary DRParticipants are notified of need for demand

curtailment and can select whether or not to curtail without commitment in advance

Participants are notified of the need for demand curtailment and must offer in specified curtailment proposals. Once offers are accepted, participants are obligated to curtail demand as proposed.

Contractual DR

Once participants have qualified for the DR Program they are obligated to curtail their demand on execution of the trigger signal.

Participants receive an “availability” payment for committed MWs and hours; must be consuming in order to receive payments

The AESO Hourly Market

An energy offer is assumed to represent the marginal energy cost for a generator at a specific level of output

Balances demand level by stacking up supply offers

All generators in the offer stack receive a uniform market clearing price

DemandPrice

Market Clearing Price

MWh

Zero bid offers

Market Scale Mismatch

Quantity

Demand

Supply

Market is the interactions between groups of buyers (the demand side) and sellers (the supply side)

Price

Cost

SELLER

250

200

150

100

0

BUYER

Value

1000

900

800

700

600

DR Value Considerations

Reliability

Notice Period

Day-ahead

Automatic

Voluntary

Mandatory

DR Load Segment

Intermediate Peak

Alberta Electricity Market

13

Comparative Markets 2005

Alberta 2005 - Price vs Load

0

3000

6000

9000

12000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2005 Alberta Load

2005 Alberta Spot Price

Alberta 2005

Ontario 2005 - Price vs Load

0

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2005 Ontario Load

2005 Ontario Spot Price

Ontario 2005

14

Alberta 2006 - Price vs Load

0

3000

6000

9000

12000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2006 Alberta Load

2006 Alberta Spot Price

Alberta 2006

Ontario 2006 - Price vs Load

0

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2006 Ontario Load

2006 Ontario Spot Price

Ontario 2006

Comparative Markets 2006

15

Alberta 2007 - Price vs Load

0

3000

6000

9000

12000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2007 Alberta Load

2007 Alberta Spot Price

Alberta 2007

Ontario 2007 - Price vs Load

0

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2007 Ontario Load

2007 Ontario Spot Price

Ontario 2007

Comparative Markets 2007

16

Alberta 2008 (Jan to Sep)

0

3000

6000

9000

12000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

h]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2008 Alberta Load

2008 Alberta Spot Price

Alberta 2008 (Jan to Sep)

0

3000

6000

9000

12000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

h]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2008 Alberta Load

2008 Alberta Spot Price

Ontario 2008 (Jan to Sep)

0

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

h]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2008 Ontario Load2008 Ontario Spot Price

Ontario 2008 (Jan to Sep)

0

3000

6000

9000

12000

15000

18000

21000

24000

27000

30000

100% 90% 80% 70% 60% 50% 40% 30% 20% 10%

[MW

h]

0

100

200

300

400

500

600

700

800

900

1000

[$/M

Wh

]

2008 Ontario Load2008 Ontario Spot Price

Comparative Markets 2008

Increasing High Prices

Value of Economic DR

Value by 5% Increment - 2006

Value by 5% Increment - 2007

Value by 5% Increment - 2008

Ontario & Alberta - 2006Value = (Hourly Price * Hourly Demand)

0%

5%

10%

15%

20%

25%

30%

35%

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5

% of total value in each 5% interval of hours

Alberta 2006 % Value

Ontario 2006 % Value

Ontario & Alberta - 2005Value = (Hourly Price * Hourly Demand)

0%

5%

10%

15%

20%

25%

30%

35%

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5

% of total value in each 5% interval of hours

Alberta 2005 % Value

Ontario 2005 % Value

Ontario & Alberta 2008 (Jan to Sep) Value=(Hourly Price * Hourly Demand)

0%

5%

10%

15%

20%

25%

30%

35%

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5

% of total value in each 5% Interval of Hours

Alberta 2008 % ValueOntario 2008 % Value

Ontario & Alberta - 2007Value = (Hourly Price * Hourly Demand)

0%

5%

10%

15%

20%

25%

30%

35%

100 95 90 85 80 75 70 65 60 55 50 45 40 35 30 25 20 15 10 5

% of total value in each 5% interval of hours

Alberta 2007 % Value

Ontario 2007 % Value

Alberta’s Price SignalAESO Alberta Hourly Electricity Pricing Apr 1-20 2008

4000

4500

5000

5500

6000

6500

7000

7500

8000

8500

Lo

ad

(M

W)

$0

$100$200

$300

$400$500

$600

$700

$800$900

$1,000

AE

SO

$/M

Wh

Load Price

AESO Alberta Hourly Electricity Pricing Apr 8-9 2008

6000

6500

7000

7500

8000

8500

Lo

ad

(M

W)

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

AE

SO

$/M

Wh

Load Price

April 9 2008 System Demand & Prices

0

100

200

300

400

500

600

700

800

900

1000

04/09/2008 01 04/09/2008 04 04/09/2008 07 04/09/2008 10 04/09/2008 13 04/09/2008 16 04/09/2008 19 04/09/2008 22

6000

6300

6600

6900

7200

7500

7800

8100

8400

8700

9000

Price ($) System Demand (MW)

April 9 10:00AM:Demand: 8137MWsPrice: $990.00

A Closer Look (April 9th, 2008)

AESO Merit Order Offer Stack For 10:00am April 9 2008

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Generation Offered (MW)

Pri

ce

Price

7848 $114

7962 $281

8029 $465

8125 $700

8220 $800

8300 $1,000

8239 $990

Δ 80 MW $200

Δ 175 MW $300

Δ 270 MW $535

Δ 338 MW $719

Δ 452 MW $886

Sub-Group on

Economic DR

Scope of WorkConduct market analysis to determine the value

and appropriate timing and quantity of Economic DR; and

Conduct a consultation to develop product design alternatives, including design work on: contracts, pricing mechanism, and rules governing contract performance and pricing elements.

Design work would be completed as part of a comprehensive DR plan for the Alberta Market, giving consideration to costs to implement, benefits and impacts.

Sub-group Structure

Entity Individual

IPCAASheldon Fulton

Vittoria Bellissimo

ADC Colette Kearl

UCA Ron Henderson

PICA Raj Retnanandan

AESO Laura Letourneau

IPPSA Evan Bahry

Generator TBD

Pricing OptionsHow would DR be priced?

Availability payments?Utilization payments?

How does the remainder of load compensate the curtailed load?

Exercisable option contracts?Price Insurance?System benefit charge?Alternatives?

Product Design

What would DR products look like?Voluntary/Contractual?Seasonality?On-peak/Off-peak?

How is the value relationship between Economic DR and Reliability DR defined?Product design work needs to occur in parallel

Key Factors for Commercial DR Product Design

1. Contract – Product to be transacted• What is being traded?• Who are the buyers and sellers?• Buyer’s & seller’ rights & obligations• Terms & conditions

2. Pricing Mechanism – How is price determined?• How do buyers & sellers interact?• What is the “purpose” of the price signal?• How is pricing to be done?• Interactive bid-offer, auctions, competitive RFOs• What are the key pricing fundamentals?• What is the life time of the product being traded?

- Economic - Physical

3. Rules governing contracts & pricing• What are the “rights” and “obligations”

- Of buyers - Of sellers• How is “delivery” achieved?• What constitutes “title transfer”?• What is the mechanism for measurement and verification?• Performance assurance• Transparency and disclosure of pricing

Questions?

Please feel free to contact IPCAA at:

Sheldon.Fulton@IPCAA.ca / 403 966 2300

Vittoria.Bellissimo@IPCAA.ca / 403 966 2700