demand response electricity markets dallon kay diamond energy group 20111101

© Diamond Energy Group 2011All Rights Reserved

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Demand Response in Electricity Markets

Singapore Electricity Roundtable 2011Suntec Singapore International Convention & Exhibition Centre

1st November 2011


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Presentation Outline

� What is Demand Response?

� Types of Demand Response Programs

� Demand Response in the National Electricity Market of Singapore

� Outlook for Demand Response and Forward Plan


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National Electricity Market of Singapore (“NEMS”)� Merchant market for electricity established in 2003� Gross energy only pool with co-optimization of energy and reserve� Value of products traded in 2010 was ~ S$ 7.99 billionMarket Annual Turnover

(%)Annual Turnover

(S$ Million)Energy 98.5 7,870Reserve 0.8 64Regulation 0.7 56Total 100 7,990

Source: Derived from Energy Market Company, Market Report 2010


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What is Demand Response?� Action taken by a consumer of electricity to adjust their demand in

response to conditions in the physical power system and/or pricesignals to realize economic benefit

� Consumers that are able to adjust their electricity consumption at short notice are ideal candidates for Demand Response

� Effective Demand Response requires not only having a mechanism to control demand but also there being an appropriate incentive for the Consumer to participate


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Types of Demand Response Programs

Price Response Programs

Ancillary Service Programs


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Price Response Programs� Respond to price signals in the spot market

� End-users reduce their consumption and receive the spot market price for the avoided electricity they provide through their demand reduction

� In these type of programs Demand Response is scheduled and centrally dispatched as part of the merit order for Energy in the same way as a power plant

� The Demand Response resource sets their offer price at the level it is willing to curtain their demand

� Responding to price signals requires forward visibility into the market which requires real time information flow and the availability of data


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Ancillary Service Programs� Respond to the frequency condition of the power system

� End users are paid the option premium associated with being able to reduce their consumption regardless of being called upon to do so

� In these types of programs Demand Response is scheduled and centrally dispatched as part of the merit order for Reserve the same way as a power plant

� The Demand Response resource typically acts as a price taker

� Responding to the needs of the power system requires forward visibility into the market which requires real time information flow and the availability of data


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Why participate in Demand Response?� Demand Response is deployed to realize a new

source of revenue

� Demand Response is deployed to reduce or mitigate costs that would otherwise be incurred

RevenueCreation

CostAvoidance

Make Money!

Save Money!


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Current Demand Response Landscape in NEMS� Interruptible Load was introduced in the Reserve

Spot Market in 2004� 2 Active Market Participants

� No Demand Side Bidding in the Energy Spot market� 2011/2012 Rules Change Panel Work Plan includes a

Demand Side Bidding in the Energy Market initiative� This initiative is being led by the EMC’s Market

Administration Team in consultation with the Energy Market Authority and work has already commenced

ReserveMarket

EnergyMarket

Ancillary Service Program

Price Response Program


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Demand Response in the NEMS Reserve Market

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Reserve Market� The power system requires reserves to cater for contingency events

� Reserves can be provided in two ways� Surplus capacity from an operational generator “spinning reserve”� Deactivation of an electrical load

� Payment is made when the provider is scheduled even without being activated or called upon to provide reserve


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Reserve Classes

Class Response Time

Primary 8 SecondsSecondary 30 SecondsContingency 10 Minutes


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Participation

� Requires a license from the Energy Market Authority

� Requires registration as a market participant with the EMC

� Minimum 0.1 MW load is required

� Flexibility to participate in all three reserve classes simultaneously or an individual reserve class if desired


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Technical Requirements

Class Mode of Activation

Activation Trigger System Limit on Interruptible Load

Primary Under Frequency

RelaySystem frequency < 49.4 Hz 20% of Reserve

Requirement1

Secondary Under Frequency

RelaySystem frequency ≤ 49.7 Hz

for 30 sequential seconds20% of Reserve

Requirement

Contingency Manual Within 10 minutes of receiving Activation

Instruction30% of Reserve

RequirementSource: System Operation Manual

1 10% when the power system is isolated


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Market & System Requirements� Continuous near real time pre-activation reporting

� Trading systems to enable offer submission

� Software and electrical systems to enable the Interruptible Load

� Compliance with obligations contained within the Market Rules, System Operation Manual, etc.

� Submission of post-activation reports within 24 hours of an activation

� 24 x 7 operational capability


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Interruptible Load Illustration

Source: Based on Energy Market Company, RCP Concept Paper, 4th September 2007

ContingencyEvent

49.4

49.7

Primary reserve activation

Secondary reserve activation


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Demand Response Participation in Reserve MarketCurrent Situation

DemandResponse

Model

NEMS Market Participation

RevenueCreation

CostAvoidance

YesNo

Interruptible Load � There are currently two active Demand Response participants in the Reserve Market

� Diamond Energy is a Demand Response Aggregator providing services to third parties

Not Applic

able


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Demand Response Participation in Reserve MarketPossible Future Scenario

DemandResponse

Model


RevenueCreation

CostAvoidance

YesNo

Interruptible Load � Generators ≥ 10 MW are allocated a portion of the total reserve cost according to their position in the runway

� Embedded Generators ≥ 10 MW due to technical and operational considerations typically do not participate in the reserve market as a provider of reserve

� Related loads of these Embedded Generators that are capable of providing Interruptible Load may elect to do so as an option to hedge the reserve cost exposure of their Embedded Generator

Interruptible Load

Not Applic

able

Related Loads ofLarge Embedded

Generators


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NEMS Example

Ancillary Service Program“Interruptible Load”


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Reserve Prices (All Classes)� The chart below represents the reserve price duration curve for all three classes of reserve combined from 1st

January 2011 to 30th September 2011� The maximum price occurred on 15th August 2011 (period 28) at S$ 4,661.98 per MWh� The average price over the selected time period was S$ 22.36 per MWh

Source: www.nemsview.com.sg

Average Price S$ 22.36 per MWh


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Annual Revenue Potential

Description Price(S$ per MWh)1

Participation(MW)

Gross Revenue (S$)2

Flat Average Reserve Price(All Classes) 22.36

1 195,8745 979,368

10 1,958,736Source: Estimate (rounded to nearest S$)

1 1st January through 30th September 2011

2 Prior to Adjustment for Reserve Effectiveness Factor

� Demand Response participation in the existing Interruptible Load scheme represents significant revenue potential for qualifying loads that meet the technical requirements


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Effective Energy Spot Price� The effective energy spot price can be defined as (USEP x (1 – VHP)) + (VPRP x VHP)� The chart below represents the effective energy spot price duration curve from 1st January 2011 to 30th September 2011� The average effective energy spot price over the selected time period was S$ 208.30 per MWh


Average Price S$ 208.30 per MWh


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Annual Energy Spend

Description Price(S$ per MWh)1

Demand(MW)

Energy Spend (S$)2

Flat Average Effective Energy Spot Price 208.30

1 1,824,7985 9,123,540


1 1st January through 30th September 2011

2 Excludes expenditure on non “Energy” charges such as Grid Use of System, Grid Contracted Capacity, etc.


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Revenue Potential in PerspectiveDescription Demand

(MW)Energy Spend

(S$)1

Annual Energy Spend 1 1,824,7985 9,123,540


1 Excludes expenditure on non “Energy” charges such as Grid Use of System, Grid Contracted Capacity, etc.

Description Participation(MW)

Gross Revenue (S$)1

Energy Savings Equivalent (%)

Annual Interruptible Load Revenue

1 195,87410.7%5 979,368


1 Prior to Adjustment for Reserve Effectiveness Factor

�


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Demand Response in the NEMS Energy Market

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Demand Response Participation in Energy MarketCurrent Situation

DemandResponse

Model


RevenueCreation

CostAvoidance

YesNo

Managed Curtailment & Load Shifting

� A direct Demand Response participation scheme does not currently exist in the energy market

� According to EMA data for June 2011 there were 2,195 contestable customers being supplied by SP Services at the spot price (effective energy spot price)

� This segment represents approx. 7% of total contestable demand

� While the majority of these customers do not proactively monitor the spot price and respond when prices are high, Singapore District Cooling is an example of a company that has implemented a proactive load shifting program to mitigate exposure to high spot market prices

Not Applic

able


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Contestable Customer Breakdown� According to EMA data for June 2011 there were 7,839 contestable

accounts� 2,195 contestable consumers were buying from MSSL � 5,644 contestable consumers were buying from Retailers

� An MSSL Consumer is a contestable customer that purchases electricity from SP Services at the spot price� Under this arrangement the customer pays the Effective Energy Spot Price for their power


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Demand Response Participation in Energy MarketPossible Future Scenario

DemandResponse

Model


RevenueCreation

CostAvoidance

YesNo

Managed Curtailment &Load Shifting

� With enhanced information flow and greater Demand Response awareness the Small MSSL Consumers may introduce managed load shifting programs

� A Demand Side Bidding scheme in the Energy Market represents the greatest potential for large consumers to gain through active participation

� Phase 2 of the EMA’s Intelligent Energy System Pilot Project is an opportunity for electricity consumers of various sizes to participate in Demand Response without participating directly or indirectly in the NEMS

Demand Side BiddingIn Energy Market

Intelligent EnergySystem Phase 2

Demand Response Pilot

Demand Side BiddingIn Energy Market

Small MSSL Consumers Large MSSL Consumers

Large Retail Consumerson Fixed PriceConsumers of Various

Sizes


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NEMS Example

Price Response Program“Demand Side Bidding in Energy Market

Targeting High Demand Periods”


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Targeted Demand Response During 2% of Highest Demand Periods for August 2011


� The maximum forecast demand of 6,234 MW was observed on 2nd August during trading period 28 (1/2 hour trading period commencing 1330 hrs)� A “Look Back” for the month of August determined there were 58 instances (approximately 4% of the time) when the prevailing ½ hour forecast demand exceeded 98% of the maximum forecast demand� With 125 MW of Demand Response the effective demand could be reduced to 98% level


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Profile of Highest Demand Week in AugustWithout Demand Response


� The weekly demand profile for the 1st week of August 2011 is represented below with the scale amplified� The red shaded area represents the trading periods where the forecast demand exceeded 98%


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Profile of Highest Demand Week in AugustWith Demand Response


� With Demand Response the trading periods in the previous chart which exceeded 98% can be avoided


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NEMS Example

Price Response Program“Demand Side Bidding in Energy Market

Targeting High Price Periods”


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Targeted Demand Response During Highest Equivalent GT Generation Periods for August 2011


� During the month of August there were 48 trading periods when GT capacity was scheduled (approximately 3% of the time)� The maximum scheduled GT capacity of 285 MW was observed on 15th August during trading periods 23 through 28 (1/2 hour trading period commencing 1100 through 1400 hrs)� With 125 MW of Demand Response 40 of these periods could be avoided (approximately 83%)


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Quantifying the Benefits of Demand Response in the Energy Spot Market

� Without Demand Response� GTs Scheduled > 125 MW: USEP Average 3,092.97 S$/MWh� GTs Scheduled ≤ 125 MW: USEP Average 598.37 S$/MWh (Min 481.91 S$/MWh)� GTs Not Scheduled: USEP Average 228.20 S$/MWh� Generation from GTs: 1,773 MWh� Cost: S$ 1,021 Million

� With Demand Response

� Demand Response Capability: 125 MW

� Trading Periods when GTs Scheduled ≤ 125 MW � Demand Response offsets required GT Capacity and the prevailing USEP is replaced with 481.91 S$/MWh

� Trading Periods when GTs Scheduled > 125 MW � No Change to price� Trading Periods when GTs Not Scheduled � No Change to price� GTs Generate: 1,268 MWh� Cost: S$ 1,008 Million

Offsetting High Price Periods (August 2011 Example)


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Summary of Benefits (August 2011 Example)

Description Benefit

Reduced System Cost 13.099 S$ MillionReduction in Generation from GTs Translates to Lower Carbon Emissions

506 MWh

Demand Response is a compliment to existing GT capacity and when annualized represents

significant benefit to the market


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Outlook for Demand Response & Forward Plan“Whenever you find yourself on the side of the majority, it is time to pause and reflect.”Mark Twain

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Outlook for Demand Response� Demand Response represents significant benefits to the market and to consumers who

participate

� Phase 2 of the Energy Market Authority’s Intelligent Energy System Pilot Project has an extensive Demand Response program envisaged� The Energy Market Authority is planning to initiate a Request for Proposal (“RFP”) for a Demand

Response Aggregator

� The Electric Vehicle Test Bedding Project by the Energy Market Authority and the Land Transport Authority presents Grid to Vehicle and Vehicle to Grid opportunities

� Other existing merchant power markets and soon to be implemented merchant power markets in the region such the Philippines and Vietnam respectively intend to implement Demand Response programs

� Demand Response also provides an opportunity for Retailers affiliated with non-portfolio Generators an avenue to mitigate outage risk


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Conclusions� Demand Response programs, when appropriately designed and implemented, can

yield significant benefits to the market

� Demand Response is not intended to replace existing generation capacity already in operation but rather complement this infrastructure

� Demand Response can diversify the supply mix

� Unlike conventional generation capacity, Demand Response does not require additional land resources and can be implemented with short lead times provided the commercial incentives are sufficient to entice participation


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Forward Plan� A strategic target for Demand Response should be established for Singapore� 125 MW could be considered initially

� Proactive efforts to increase the awareness of Demand Response are needed

� A thriving Demand Response industry will require enhanced information flow and availability of data

Crafting a comprehensive Demand Response Master Plan is the next step for Singapore


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Disclaimer

Diamond Energy is pleased to present to you the proposed transaction or transactions described herein. Although the information contained herein is believed to be reliable, we make no representation as to the accuracy or completeness of any information contained herein or otherwise provided, and accept no responsibility or liability, in contract or in tort, in negligence or otherwise, should such information be found to be inaccurate or incomplete in any respect. The ultimate decision to proceed with any transaction rests solely with the recipient of this information. Diamond Energy is not acting as the advisor to the recipient of this information. Therefore, prior to entering into any proposed transaction, the recipient of this information should determine, without reliance upon Diamond Energy, the economic risks and merits, as well as the legal consequences, of the transaction and that it is able to assume these risks. The concepts described herein are intended for discussion purposes only. This presentation is neither an offer to sell nor the solicitation of an offer to enter into a transaction. This document and its contents are proprietary information and is the work product of Diamond Energy and may not be reproduced or otherwise disseminated in whole or in part without Diamond Energy’s prior written consent. The views contained in this document do not represent the views of Diamond Energy Pte Ltd a Wholesaler Licensee of the Energy Market Authority of Singapore.


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Dallon KayManaging DirectorDiamond Energy Group

email: [email protected]

demand response electricity markets dallon kay diamond energy group 20111101

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