Demand Response Programs: An Demand Response Programs: An Emerging Resource for Competitive Emerging Resource for Competitive

Electricity MarketsElectricity Markets

Charles GoldmanCAGoldman@lbl.gov

(510) 486-4637

E. O. Lawrence Berkeley National Laboratory

WGA CREPC WorkshopScottsdale, AZ

April 18, 2001

Berkel ey Lab

Energy Analysis Department

Ber kel ey Lab

Overview Overview

• Why the Renewed Interest in Demand Management

• Typology of Demand Response Programs

• Key Program Design Features and Pricing

Energy Analysis Department

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Why the Renewed Interest in Load Management?

Network congestion and generation shortfalls Price volatility in bulk power markets Continuing electric emergencies in California FERC rulings encouraging more use of price-

responsive demand management Improved capabilities & economics of control &

communications technology Emergence of energy-internet entrepreneurs

Energy Analysis Department

Ber kel ey Lab

Demand Response Program TypesDemand Response Program Types• Traditional C/I Interruptible Tariffs

- Up-front payment; typically bill or rate discounts for curtailments to Firm Service Level

• Direct Load Control- Utility control of customer loads (e.g., cycle or shed a/c, water

heating, pool pump)

• VDRP - Call option- Customers selects Strike Price. LSE can exercise the Call Option

and require customer to reduce load or face penalties when projected Mkt. Price > Strike Price

• VDRP - Quote option- Customers specify when and at what price they are willing to

voluntarily curtail demand (“pay-per-interruption event”)

• Dynamic Pricing (e.g., real-time pricing)

Energy Analysis Department

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Key Program Characteristics & Key Program Characteristics & Design FeaturesDesign Features

• Target Market- “Mass market” vs. Large C/I

• Operational threshold- Emergency (system condition) vs. Economic

programs

• Dispatchability- Utility vs. customer-controlled loads

• Resource Firmness- Call Option (participation is pre-paid) vs. Quote

program (participation is fully voluntary)

Energy Analysis Department

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Key Program Characteristics & Key Program Characteristics & Design Features (cont.)Design Features (cont.)

• Payment scheme- specified, fixed price vs. variable price, based

on market conditions

- upfront, reservation payments; energy credits

- adjustments for performance

• Exposure to & assignment of forecast risk - day-ahead vs. day-of vs. real-time demand &

prices

• Role of aggregators and/or third parties

Energy Analysis Department

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Demand Response Program: Some Demand Response Program: Some ExamplesExamples

Utility/ISO ResourceFirmness

OperationalThreshold &Frequency

PaymentScheme

CA ISODemandReliefProgram

Call-like (nopenalties butperf.Adjusted)

Emergency 24 hrs per

month (96 hrstotal)

$20,000/ MW-month

$500/MWh

CA ISODisc. LoadCurtailmentProgram

Quote Mgmt. ofpotentialsystememergencycondition

$350/MWh

BPA Call (2000);Quoteprogram newin 2001

Economic Sharing ofsavings (Spotmkt.Settlementprice – BPAmin. price bid)

Energy Analysis Department

Ber kel ey Lab

Demand Response Program: Some Demand Response Program: Some ExamplesExamples

Utility/ISO ResourceFirmness

OperationalThreshold &Frequency

PaymentScheme

CA Utility:BaseInterruptibleProgram

Curtail toFirm ServiceLevel

Penalty:$6/kWh

Emergency 10 events per

month (120 hrsper year)

Bill credit of$7,000/ MW-month

CA UtilityVoluntaryDRP

Quote Economic, buttriggered bysystemcondition

$350/MWh

CinergyPowerSharePricing Pgm

Call & Quoteoptions

Economic Guaranteed orShared EnergyCredit

Energy Analysis Department

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Financial Incentives: CA Interruptible vs. Financial Incentives: CA Interruptible vs. Demand Response ProgramsDemand Response Programs

84,0

00

1,68

0

840

80,5

00

2,10

0

1,33

3

350

350

350

350

350

350

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

1 50 100hours of interruption

$/M

Wh

Current CA Non-Firm Program

CA ISO Demand Response Program

CA ISO Discretionary Load Curtailment Program

CPUC Voluntary Demand Response Program

Energy Analysis Department

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California Demand Response California Demand Response Programs: BackgroundPrograms: Background

• CPUC D.01-04-006 orders:- Changes to Current Interruptible Program

- New Base Interruptible Program (BIP)

- Voluntary Demand Response Program (VDRP)

- Optional Binding Mandatory Curtailment (OBMC) Program

- Direct Load Control Programs (Res. A/C Cycling, Irrigation pumping)

Energy Analysis Department

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California’s Current Non-Firm California’s Current Non-Firm “Interruptible” Rate Program“Interruptible” Rate Program• 15% Rate discounts for ~1500 large customers ($220M/year) to

curtail up to 100-150 hrs/year on 25-30 occasions• Available curtailable load at peak during 2000: PG&E (500 MW),

SCE (1800 MW), and SDG&E (40 MW) • Actual curtailable load during 2000: PG&E (490 MW), SCE (1213

MW) • Fairly dependable “Reliability” resource until 2000

- But rarely utilized- ~600 MW at SCE failed to interrupt when requested and incurred

substantial penalties ($92M)- 25%, or 124 MW, of PG&E’s load dropped out in 2000

• CA would have had “rolling blackouts” on at least 5 occasions in 2000 in absence of Non-Firm program

- Program demand reductions up to 2190 MW (8/2/2000)

Energy Analysis Department

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CPUC Changes to Current Interruptible, CPUC Changes to Current Interruptible, “Non-Firm” Tariff“Non-Firm” Tariff

• Current Program: 15% rate discount to customers willing to interrupt service for 80-150 hrs/yr. with30 minutes notice; substantial penalties for failure to comply ($4.20 - 8.00/kWh)

• SCE Customers may elect to opt-out or change firm service level during 15 day notice window, with effective date of 11/1/00 or next billing cycle

• If SCE customers opt out, can’t participate in any other program that pays a Capacity payment (e.g., BIP, CA ISO DRP)

• Extend existing programs through 12/31/02

• Program use limited to one 6 hour event/day; 4 events per calendar week and 40 hrs/month

• Current program open only to Existing Customers & lift suspension of penalty provisions

Energy Analysis Department

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New Base Interruptible Program (BIP)New Base Interruptible Program (BIP)

• Designed primarily as replacement for current PG&E program which is fully exhausted

• Open year-round

• Key program elements- one 4-hour event/day

- 10 events per month and 120 hours/yr.

- Incentive: $7 per kW-month credit on bill

- $6/kWh penalty for usage above Firm Service Level

- 15% of load, with minimum drop of 100kW per event

- No “double dipping” - Customer must complete obligations to current Utility Interruptible program or CA ISO DRP before eligible

Energy Analysis Department

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Voluntary Demand Response ProgramVoluntary Demand Response Program

• Utility solicits bids from customers when ISO notifies utility of need for demand relief

• Customer offers kW reduction for specified hours; Utility either accepts or rejects bids

• Customer paid for performance at $350/MWh with no penalties

• Baseline = average hourly usage during 10 immediate, similar days

• New Participants receive interval meter & communication equipment without CHARGE (if stay in program for 1 yr. and respond to 10 events)

• Customer minimum peak demand & reduction of 100 kW - Customer with 300 kW demand must drop 33% to participate

- Customer with 100 kW demand must drop 100%

Energy Analysis Department

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Optional Binding Mandatory Curtailment Optional Binding Mandatory Curtailment (OBMC) Program(OBMC) Program• Exempts participating customers from Stage 3 rotating outages

if customer can reduce Circuit load by 15% during System Firm Load Reductions (I.e., concurrent with rotating outages)

• Load reductions requested in 5% increments

• Utility will facilitate circuit aggregation

• Program participants pay equipment costs and receive No payment

• Penalty for failure to reduce load = $6/kWh for excess energy

• Baseline - 5% increments measured against average hourly demand during

previous 10 similar business or weekend days

- 15% total peak reduction measured against prior year’s usage for the same month

Energy Analysis Department

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CAISO Demand Response CAISO Demand Response ProgramsPrograms

• Demand Relief Program

- Emergency curtailment program, prior to Stage 3 during Summer Months from 11 AM to 7 PM

- First Request for Bids (~596 MW awarded; contracts signed)

- Second Request for Bids for Loads without Back-up Generation (due 5/1/01; ISO wants 6/1 or 7/1start)

- Third Request for Bids for Loads WITH Back up Generation (issued 4/3/01; WITHDRAWN 4/5/01)

• Discretionary Load Curtailment Program- RFP issued 4/11/01; ISO prefers responses by 4/23/01

• Participating Load Program

- Loads can bid in Ancillary Services markets

Energy Analysis Department

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CA ISO: Operation of DemandCA ISO: Operation of Demand Response Programs Response Programs

Normal OperationOperating Reserves above 7%

Stage 1 EmergencyOperating Reserves forecast below 7%

Stage 2 EmergencyOperating Reserves forecast below 5%

Stage 3 EmergencyOperating Reserves actually below 1.5%

Public alert Voluntary conservation

Curtail UDC interruptible Loads Curtail DRP Load Blocks Curtail DRP Load with BUG

Begin firm Load shedding

Disc. Load Curtailment ProgramUtility VDRP ??

BUG = Back-up Generator

Energy Analysis Department

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CA ISO Demand Relief ProgramCA ISO Demand Relief Program

• Emergency curtailment program prior to Stage 3 for 4 summer months (June - Sept 2001)

• Minimum bid = 1 MW; need hourly interval meter

• Mandatory curtailment limited to 24 hrs/month between 11 AM- 7 PM (4 hour blocks); must respond within 35 minutes

• Reservation payment = $20,000 per MW-month

• Energy performance payment = $500/MWh

• ISO can also issue Additional Optional Curtailment request or Contracted Load can offer “Voluntary” Curtailment under certain conditions

Energy Analysis Department

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CA ISO Discretionary Load CA ISO Discretionary Load Curtailment ProgramCurtailment Program

• Provides additional resource to Grid for management of potential system emergency conditions

• Availability: 4/23/01- 3/31/02 between 7 AM - 8 PM

• Curtailed Energy payment = $350/MWh

• Minimum demand reduction: 1 MW

• Metering & Performance Measurement

- Hourly interval meter or appropriate measuring devices as required by CAISO-approved Perf. Meas. Plan

- Load Aggregator proposes Baseline Load profile

• Use of generation - <1MW behind each interval meter with approval from AQMD; not intended for Back-up generators