Components of A Successful Industrial Demand Response Strategy

Transcription

1 Components of A Successful Industrial Demand Response Strategy 1

2 About Viridity and Your Speaker Viridity Energy is in its fourth year as a technology company focused on end user asset optimization Founded by the former President and CTO of PJM We are not a Curtailment Service Provider, although we do manage Demand Response for customers The purpose of our software is to translate complex market opportunities and challenges into actionable business decisions and to execute transactions that lower your energy cost We create a digital model of your energy asset infrastructure, run it through a powerful optimization engine that looks at an array of product/program alternatives, and control resource response where applicable Your speaker has nearly 30 years experience in all aspects of the energy commodity markets 2

3 Understanding the True Value of Load Management in an Industrial Environment

4 The Smart Grid Odyssey One Picture to Make it all Clear Source: Groom Energy 4

5 Market Participants View of the Drivers for Load Response Behavior Most compelling reason Commercial/Industrial customers will change behavior ELP Executive Conference 2012 survey results courtesy Skipping Stone 5

6 Back to Fundamentals The purpose of the energy market is to provide reliable power at the lowest possible cost End Users are the reason we all exist How do you take all of the complexity around Smart Grid, deregulation, market design, and turn it into something that makes sense for the end user? Focus on managing and controlling energy cost 6

7 The Evolution of Market Tools Early 1980s Negotiating interruptible transportation with NG Pipelines Early 1990s Controlling forward Price Risk with Futures Contracts Mid to late 1990s Rumblings about a deregulated power market Formation of the ISOs We all learn to spell Risk Management (E-N-R-O-N) A New Millennium ERCOT opens retail market for power We learn to spell Credit Risk Management We learn about Smart Grid and Demand Response Today We learn how to use the market tools available to actually take control of our energy spend 7

8 A Market Guy s View of the History of ERCOT 1970 ERCOT created 1996 ERCOT becomes ISO 2002 Retail Market opens 2011 New Record peak for summer, winter ERCOT 1995 Legislature deregulates wholesale 1999 Senate Bill Nodal Go-live 2013 Customer Demand Management Customer was captive to utility. Regulated rate design only options. Interruptible Tariffs Customer given choice option and rely on suppliers. Peak Demand Management Over 20 hours of curtailment under EILS. CSPs control demand response market captive to ERCOT. Proactively can manage forward price risk with monetization of load management using multiple avenues including access to wholesale markets. Focus moves to convergence of supply/demand side strategies to optimize load position. 8

9 ERCOT ERCOT/Market ISO Issues Declining Reserve Margins Economic Dispatch of Resources Lack of Incentives for New Generation PUCT solution? Raise the SWOC!!! Results of the Smart Grid Odyssey for the end user: Access to Data Access to Markets 9

10 Controlling Load to Control Costs Peak Shaving Multiple Markets = Customer Choice Reliability Programs Low frequency, mandatory response Easy to Implement A reactive way to earn additional revenue stream Load Shifting + Ancillary services Pre-cooling Load Shifting Ancillary Programs High frequency, high payment, shortnotice program Requires automated response due to short notice times and duration. Energy assets such as generators or battery storage can further enhance your ability to participate Economic Programs High frequency, voluntary response program Daily Price Settlement A proactive way to earn additional revenue 2011 Viridity Energy Inc. All Rights Reserved 10

11 ERCOT Market Programs Overview MW 2500 Ancillary Services Programs Distribution Level Load Management EILS NS RRS Regulation Energy 60 minutes 10 minutes Up to $40/MW Summer Only 10/MW Year round in 3 tranches 30 minutes 10 minutes 4 seconds $8/MW No current load participation $10/MW Requires AGC or UFR $9/MW Generation Only Requires AGC Day Ahead Can t accept load offer curve Bilateral market opportunity 11

12 There s a Catch Actually, two: 1. It hasn t solved ERCOT s problem 2. It hasn t solved your problem Some estimates show that there is over 4,000MW of interruptible load out there, and yet only 50% participate in existing Demand Response programs. Why??? Two possible answers: 1. The end users haven t been provided the right tools and incentives to take control of their load 2. One size fits all programs, don t meet the needs of disparate end users So, what is the answer??? 12

13 Supply, Demand, The Market... and You Tool Box Demand Side Strategy Supply Side Strategy Supply Side Procurement Strategy Products Liquid wholesale market Generation Storage ERCOT/Market With Choice Comes Accountability: Congratulations You Are a Market Participant!! Demand Side Access to data Energy Efficiency Projects Demand Response Green credits Incentives Tax credits Capital 13

14 If You Have Accountability, You Better Figure Out What You Can Control Tool Box Load Demand Side Strategy Price Supply Side Strategy Supply Side Procurement Strategy Products Liquid wholesale market Generation Storage ERCOT/Market Two Variables Relating to Cost: 1. Load (what can you control?) 2. Price (what are your priorities?) Demand Side Access to data Energy Efficiency Projects Demand Response Green credits Incentives Tax credits Capital 14

15 Arms Around the Problem What if you looked at bringing the whole tool set together to manage both of your key variables??? Your Load is your asset The market is your price control mechanism It s Up to You to Optimize Your Asset 15

16 The Pieces Supply Side Strategy Competitive Procurement from deregulated market Commoditization of physical supply Forward price risk management through fixed pricing alternatives and financial hedging Demand Side Strategy Energy Efficiency Projects Sustainability goals Demand Response ( Free money!! ; BUT NO CONTROL ) Asset optimization Why are we trying to manage these things separately???? 16

17 Bringing It All Together: An Integrated View Convergence of Demand and Supply Side Strategies Use your commodity agreement (supply side strategy) to optimize the value of your ability to manage load (demand side strategy) Use load flexibility to benefit from market scarcity Use your position as a load resource to host the capital plays of others Use load flexibility and asset optimization to meet sustainability goals Optimize against your fixed price forward position Optimize hard assets like generation and storage using DR products AND market options Optimize soft assets like load reduction based on your constraints, not program requirements Examine all of the monetization options at your disposal Look at incentives and capital projects with accelerated returns based on the value of load flexibility that they create, not just operational efficiencies Control Both of Your Key Variables by Having Them Work Together 17

18 Great!! How??!!! Each end user is different Each answer is different for each end user The common thread is the willingness to explore the art of the possible with the right team to help identify and navigate the options Distill the complexity into a business focus by creating a simple value for each hour of each day of each month Is $2,000 enough to do something? Is $15,000 enough to do something else? You can now decide based on what is best for your business Be willing to take control and provide yourself with the right tool box. 18

19 Getting Started Plant Asset and Load Analysis Hard assets (co-gen, boilers, chillers, furnaces, stacks, etc.) Soft Assets (process flexibility, inventory management, etc.) Quantify Opportunity Evaluation of the potential economic opportunity from load optimization Educate and Garner Support from Operations and Other Stakeholders Crawl, Walk, Run Begin with those areas that are easiest to implement Be Qualitative Monitor Progress Relative to Stated Goals and Performance Objectives 19

20 Controls and Equipment Begin by leveraging what you have The right service provider can do a lot with load data and basic reporting that is probably available Any existing data historian will deliver a wealth of information to a 3rd party that can be turned into opportunity Balance investment in incremental hardware and controls infrastructure with committed revenue returns from load monetization activities Use revenue sharing to finance infrastructure upgrades 20

21 Controls and Equipment Use automation where it makes sense to you Many activities can rely on manual or semi automated responses Only certain fast response programs like regulation service require full automation Of course, the more automated, the higher the value of the response Unless you are willing to make a significant investment in this area, rely on 3rd party expertise Mostly these should come at no capital or operating expense as the bulk of their cost can be covered through revenue sharing As you engage with a 3rd party under this structure you will learn more about what you an od on your own and receive an advanced degree in load management 21

22 Risk Management The One and Only Rule: Know the implications involved with the products/programs in which you enroll. Load flexibility is a tradable asset with substantial value in ERCOT. If an ERCOT program isn t the right fit, then work with someone who can customize a way for you to monetize the flexibility you own in a way that works for you. But in all circumstances, apply worst case risk management scenarios so that you understand the implications of your commitments 22

23 Need More Specifics? A couple of examples: 20MW total load with 4-6MW controllable load 2 NG generators with bad heat rates Additional 6MW emergency permitted diesel generators Historic load monetization value: $250,000 from DR Estimated annual optimized load monetization value without material changes in operations: $600,000- $1.2M Results based on applying a combination of ERCOT and utility based DR programs and market based structures that monetize load in Real Time and Day Ahead markets. Combination commercial building and research lab with 4MW total load 300kw load reduction 1.5MW back up generator Estimated annual optimized value of load monetization without material changes in operations: $200,000-$350,000 23

24 Summary From the outside, all the Smart Grid buzz is a big complicated thing with lots of people chasing lots of money To the end user it is much more simple: It means access to data and access to markets Coupled with the implications of a deregulated market it means: You CAN control cost and exposure by integrating demand and supply side strategies You CAN use tools to manage load and optimize the value of your assets without additional programs ERCOT isn t the answer. YOU are the answer With the right help and support, you can employ the tools available today to monetize your load flexibility and reduce your energy spend 24

25 Thank You Eric Alam Senior Vice President Viridity Energy (832) Offices in: Philadelphia, PA Houston, TX Seattle, WA Atlanta, GA San Diego, CA 25