linking the wholesale and retail markets through dynamic retail pricing presented by: henry...
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Linking the Wholesale and Retail Markets through Dynamic Retail Pricing
Presented by:Henry YoshimuraManager, Demand ResponseISO New England
September 30, 2005
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Advantages of Linking Retail and Wholesale Markets
• Retail and wholesale markets are Disconnected• Linking retail and wholesale markets would encourage
naturally occurring Price Responsive Demand• Price Responsive Demand helps lowers short-term
and long-term wholesale prices for all Vermont customers– Over $215 million per year in estimated cost
savings from 1,000 MW of Price Responsive Demand in New England
• Price Responsive Demand reduces the potential for Suppliers to exercise Market Power
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Current Retail Market Conditions
• Few retail customers are exposed to wholesale price volatility
• Few retail customers are motivated to reduce load at times of high wholesale prices
• Why? Retail Rates and Wholesale Prices are disconnected in real-time!
• Few customers have or are motivated to install the technology to automatically respond to changing prices
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Achieving the Goal
• Give retail customers the option of reducing load at times of high wholesale prices in exchange for lowering their electricity bill
• Dynamic Retail Pricing is the best way to encourage Price Responsive Demand
• Dynamic Retail Pricing coupled with Controls Technology makes it easy for customers to save money
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
What is Dynamic Retail Pricing?California Statewide Pricing Pilot (SPP)
73.4¢
23.4¢
8.9¢
0
10
20
30
40
50
60
70
80
Cen
ts p
er k
Wh
Existing RatesAvg. Summer Price
13.4 ¢/kWh
26.0¢
10.3¢
Peak Off-Peak Peak Off-PeakCritical Peak
1,500 hrs/yr 7,260 hrs/yr
75 hrs/yr
1,425 hrs/yr 7,260 hrs/yr
Peak = 2:00-7:00pm weekdays; Off-Peak = all other hours
Critical Peak is dispatched from 2:00 to 7:00, 15 days per year
Time-of-Use Critical Peak Pricing
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
What’s in it for the Customer?
• Positive results from California Statewide Pricing Pilot (SPP) in terms of:– Bill Impacts
• 71.1 to 80.3 percent of participants reduced their electricity bill
– Customer Satisfaction• Almost 90% of participants felt that the new rate
design should “definitely” or “probably” be offered to other residential customers
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Key Findings from Recent Studies
• All customer classes have the potential to participate in and benefit from Dynamic Pricing
• The initial focus for implementing Dynamic Pricing policies should be on larger commercial and industrial customers– The majority already have the required
technology (I.e., interval metering and control equipment), are better informed, and are in a better position to manage varying prices.
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Key Findings from Recent Studies (Continued)
• Dynamic Pricing that is closely linked to the hourly changes in wholesale prices is more effective than traditional Time-of-Use Rates that are linked to average prices
• Demand Response Programs that do not provide customers with price signals are not as effective as Dynamic Pricing, nor is the demand response behavior sustainable.
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Key Findings from Recent Studies (Continued)
• Successful adoption and implementation of Dynamic Pricing requires:– Customer Education – Regulatory Support – Aligning the interests of the Retail Customers,
Local Utilities and Competitive Suppliers.
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Key Findings from Recent Studies (Continued)
• The regulatory process to implement Dynamic Pricing should include technical conferences and public hearings to solicit input from:– Retail Customers, – Local Utilities, – Competitive Suppliers, – Technology Vendors, and – Other Interested Parties
• The regulatory process should encourage joint proposals and negotiation among the stakeholders.
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Dynamic Retail Pricing Links• Real Time Pricing as a Default or Optional Service for Commercial and
Industrial Customers (California Energy Commission and the Demand Response Research Center)
– http://drrc.lbl.gov/drrc-pubs2.html
• A Survey of Utility Experience with Real Time Pricing (LBNL and Neenan Associates)
– http://eetd.lbl.gov/ea/EMS/EMS_pubs.html
• California Statewide Pricing Pilot– www.energy.ca.gov/demandresponse
• PSERC Research– http://www.pserc.org – http://www.pserc.org/ecow/get/generalinf/presentati/
psercsemin1/1psercsemin/schuler_seminar_nov2004.pdf
• Niagara Mohawk Real-Time Pricing– http://drrc.lbl.gov/drrc-pubs2.html– http://drrc.lbl.gov– http://eetd.lbl.gov/EA/EMP/reports/54974.pdf
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Dynamic Retail Pricing vs. Demand Response Programs
• Benefits of Dynamic Retail Pricing– No transfer payments, subsidies and other out-of-
market payments– No “middleman” between Retail Customers and their
Supplier– No double payment problem– No customer baseline, program triggering and other
program inefficiencies– Rate Design will result in Long-Term Investment in
Enabling Technology
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
What’s needed to Link the Wholesale and Retail Markets?
• Dynamic Rate Design Policy• Advanced Hourly Metering• Flexible Billing Systems• Customer Education • Controls Technology• State and Federal Support of Demand
Response
Integrating Demand Response into the
Wholesale and Retail Markets© 2005 ISO New England Inc.
Energy Policy Act of 2005
• Advanced Metering and Time-Based Rates– State regulatory agencies must conduct an
investigation and issue a decision whether it is appropriate to implement the standards regarding Time-Based Rates and Advanced Metering set out in the Act
• Challenge– May be difficult for individual States and utilities to
evaluate the impacts of Time-Based Rates and Advanced Metering on Wholesale Market Prices and Reliability
