INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 1

The Power to ChooseDemand Response in Liberalised Electricity Markets

Ulrik StridbaekInternational Energy Agency

APEx Conference 200411-12 October 2004, Leipzig

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 2

Outline

What is Demand Response?Why do we need it?The role of pricesRecent developmentsConclusions

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 3

Demand Response - Definition At its most general level,

demand response is the ability of (electricity) demand to respond to variations in market prices

Can be achieved through demand reduction, by shifting load to a less expensive time period, or by substituting another resource for delivered electricity (such as gas or self-generation).

Elasticity is the unit of measurement of Demand Response

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Time Period (24 Hours)

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Baseline Load Reduction

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24Time Period (24 Hours)

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Baseline Load Shifting

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 4

DR – “soft” definitionThe electricity consumer…

Heart transplantPig farming

Car manufacturingCooking supper

Watching the news on TV

Heating up the swimming pool

PRICE, value, free choice, willingness to pay, demand participation

NOT demand side MANAGEMENT

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 5

DR in liberalised marketsSome observations

DR has so far not emerged ‘naturally’ as a resource in liberalised electricity markets

During periods of resource scarcity there are price spikes and markets are vulnerable to market power abuse

Few examples of wide-scale deployment of DR enabling technology

Market structures and regulation policies does in general not take consumers’ market accessibility properly into account.

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 6

The changing role of demand

Regulated Captive Markets - Demand Side Management

Deregulated Markets - Demand Response Measures

Wholesale Market

  N/A. Market time use of demand resources

Ancillary Services

N/A. Commercial Service. Requires access to

Ancillary Services Market.

Network Congestion

Planning resource. Commercial Service. Requires access to

Congestion Charging Mechanism.

Efficiency & Environment

Regulated / Corporate Governance / Market

Driven

Regulated Corporate Governance / Market

DrivenNetwork

ReliabilityPlanning resource. Limited market access.

Market Power

Mitigation

N/A. Key transitional role.

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 7

Outline

What is Demand Response?Why do we need it?The role of pricesRecent developmentsConclusions

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 8

Demand response makes the market work

Balancing supply & demand investmentMitigate abuse of market powerThe “philosophical value” of free choice

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 9

D1 – Inelastic Demand

P1 - Inelastic Clearing Price

P2 - Elastic Clearing Price

Supply Curve

D2 – Elastic Demand

– 5% reduction in demand would have reduced the 5% reduction in demand would have reduced the highest wholesale prices in California by 50%highest wholesale prices in California by 50%– 10% of retail load on a real-time price would have 10% of retail load on a real-time price would have mitigated the US Midwest price spikes of 1998/99 by mitigated the US Midwest price spikes of 1998/99 by about 60%about 60%

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 10

Balance

Incentives for

new investmentsEfficiency

Balance supply & demand in

markets

Platform of flexibility from International

Trade

Platform of flexibility from Demand Response

Platform of flexibility from International

Trade

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 11

Outline

What is Demand Response?Why do we need it?The role of pricesRecent developmentsConclusions

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 12

Something to respond to!

Real value of DR based on real market pricesSpot exchange, markets for balancing power

and ancillary services, competition, solid market rules etc.

The price must reach the consumer Interval meters with remote readingTransparent and easily observable prices

Low transaction costsSmart retail contractsSmart technology => automated response for

households

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 13

Information

http://currentenergy.lbl.gov

100,000 visits/day during California 2001 crisis housewives, factory

managers, utility staff, governors…

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 14

Outline

What is Demand Response?Why do we need it?The role of pricesRecent developmentsConclusions

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 15

On the right trackDR has so far not emerged ‘naturally’ as a

resource in liberalised electricity markets But consumers need something to respond to.

Price spikes in Scandinavia has led to some DR.Few examples of wide-scale deployment of DR

enabling technology But it is picking up. Solid business case for full

scale remote metering. E.g. ENEL in ItalyMarket structures and regulation policies does in

general not take consumers’ market accessibility properly into account.

High political focus: EU directives, FERC, Australia, Nordic ministers…

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 16

Outline

What is Demand Response?Why do we need it?The role of pricesRecent developmentsConclusions

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 17

Key FindingsSignificant benefits can be achieved with small amounts of

demand responseLower Prices for allReduced Price VolatilitySecurity of Supply

Relief of Network Congestion Peak Loads Reduction

Reduction of Short Term Market Power AbuseEnvironmental BenefitsEfficient Long Term Investment Planning

Low elasticity Result of a lack of incentives and ability for consumers to control

demandCustomers will respond

If opportunity, incentives and information are presentGovernments & Regulators must act

INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE17/09/2004-U. Stridbaek APEx Conference 2004, Leipzig, 11-12 October 2004 18

Key messages

The need for market efficiency will increase during times of resource scarcity

Demand Response remains a significant untapped market resource which, if incorporated, will deliver more efficient use of infrastructure, lower end user cost, increased security of supply and less constrained markets

Market design and regulation policy will be the primary factors in the establishment of equitable and efficient demand side participation