RESPOND Session. Customers Response to Electricity Price Variations Caused by Intermittent Generation

Transcription

1 1 th IAEE European Conference, Vienna, Austria, 7-1 September 29! RESPOND Session Customers Response to Electricity Price Variations Caused by Intermittent Generation Frits Møller Andersen, Poul Erik Grohnheit and Helge V. Larsen Risø DTU, Technical University of Denmark

2 Demand response Demand response is to get customers to react to variations in the cost of production: Increase demand when costs are low Decrease demand when costs are high In a thermal based electricity system, increased intermittent production e.g. increase share of wind implies an increased variation in production and in the marginal costs of production. In a liberalized market, marginal costs of production are revealed through the market price. That is, customers should react on market prices. In this presentation we focus on Denmark and day ahead hourly market prices. 2

3 A general description of the hourly electricity market Demand [MW] Denmark 27 6, 5, 4, 3, 2, 1, Time of day Workdays Weekend [MW] 3, 2,5 2, 1,5 1, 5 16 Jan 18 Jan Denmark, January 27 2 Jan 22 Jan 24 Jan 26 Jan 28 Jan Wind production 3 Jan Demand: Systematic daily variation, shifts the demand curve, positive correlation between price and quantity. Figure 1. Average hourly consumption curve for Denmark 27, and variation of the wind power production in second half of January 27 for West Denmark Price of electricity p peak p* p low Off-peak demand q low q * q peak Supply curve Peak demand Price electricity p 1 p 2 p 3 of Peak demand q 1 q 2 q 3 Supply curves Supply: Unsystematic variation in the supply of wind, shifts the supply curve, negative correlation between price and quantity. Figure 2. Effects of changes in the demand and supply of electricity. 3

4 6, DK West, January , 5 Demand [MW] 4, 3, 2, 1, Price [DKK/MWh] Combining effects (in a system with considerable wind and at the border of thermal and water-based production) and looking at hourly prices, consumption and the share of wind. [%] Jan 17 Jan 18 Jan 19 Jan 2 Jan 21 Jan 22 Jan 23 Jan 24 Jan 25 Jan 26 Jan Consumption Price Wind/Consumption 27 Jan 28 Jan 29 Jan 3 Jan Observations: a systematic daily and weekly variation in demand and the price of electricity unsystematic peak prices often related to limited wind power unsystematic low or even zero prices often related to a large production from wind Hourly Nord Pool prices, consumption, and wind power production in West Denmark, the second half of January 27. Concerning intermittent production the main observation is the unsystematic variation in production and prices. Conclusion: To increase the share of intermittent production customers should react to unsystematic variations in production and prices. Requires hourly metering of consumption and billing according to hourly market prices 4

5 Descriptive statistics for hourly electricity prices and consumption in the Danish area Average Average abs. deviation Skewness coefficient Price Quantity Price Quantity Price Quantity DK West DK East DK West DK East DK West DK East DK West DK East DK West DK East DK West DK East DK West DK East DK West DK East Prices and the distribution of prices vary between years, consumption is relatively constant. The distribution of prices has a tail of high prices. 5 Table 1. Descriptive statistics for observed prices [ /MWh] and quantities [MW] traded at Nord Pool

6 Effects of changing from average prices to hourly prices Price of electricity p B p C p avg p C p B demand Off-peak demand A B qb C qc Welfare gain Effects of going from average pricing to hourly prices at the market. C q C B A qb Supply curve Peak demand Quantity of electricity With average prices customers will demand at point A incurring costs at point B. With hourly pricing the optimal demand is at point C, implying lower variations in prices and consumption and a welfare gain represented by the shaded area of the figure. The size of the effects depend on the slope of the demand and supply curves. In this study we assume constant elasticities, approximate the supply curve with constant elasticities in three levels and perform a sensitivity analysis of demand elasticities. 6

7 Effects on prices, the case DK 27 Average of prices. Index: 27 = Prices DK West DK East Average abs. dev. of prices. Index: 27 = Prices DK West DK East Demand elasticity Demand elasticity Skewness of prices Prices DK West DK East Average prices change marginally, only. Variation in hourly prices are reduced considerably. Especially the tail of high prices is reduced for even very small demand-price-elasticities Demand elasticity Demand price elasticity and changes in the average, the average absolute deviation and skewness coefficient for the distribution of hourly prices, 27. 7

8 Demand price elasticity Average abs. dev. Skewness in in Nord Pool prices Nord Pool prices West East Total West East Total West East Total West East Total West East Total West East Average DK West DK East Welfare gain [M ] Short-term Welfare Gains Demand elasticity: Nordpool price, Average abs. dev. [ /MWh] Welfare gain [M ] Demand elasticity: Nordpool price, Average abs. dev. [ /MWh] Short-term gains seen in the market so far very small (< ½%), vary between years and depend on the volatility of prices, effect > the effect of demand-elasticity. Long-term gains evaluated to be large related to a reduced need for peak-capacity. 8

9 Gains in price-intervals and effects of fixed price-additives M /year Demand p rice elasticity West East Total West East Total West East Total West East Total Below average price Average to two times average price Above two times average price Total Below average price Average to two times average price Above two times average price Total M /year Priceaddition Demand p rice elasticity /M Wh West East Total West East Total West East Total West East Total Large consumers Small consumers Households Total For households the fixed additive is app. 6 times the market price Having a tail of high prices in 27, for small priceelasticities most of the welfare gain comes from reducing high prices. In a symmetric pricedistribution (28) most of the welfare gain comes from prices below the average Fixed price-additives reduce the relative variation in prices and this reduces the gain from changing consumption. (Each category consumes 1/3 each hour) 9

10 Summary and conclusions Intermittent production increases the volatility of production and market prices. Demand response is one way to balance variations in production and to reduce the volatility of prices. Especially the tail of high prices is reduced by even limited demand response. Requires hourly metering of consumption, billing according to hourly market prices, and a sufficient large incentive for customers to respond to prices. So far, the short-term gain from demand response has been quite limited, but it varies considerably from one year to the next. Increased volatility of prices and a long tail of high prices increase short-term gains. Long-term gains (reduced need for peak-capacity) are evaluated to be substantial, and increasing intermittent production will increase both short- and long-term gains. Short-term gains are not sufficient for replacing old meters by new hourly meters, but given hourly metering customers should face hourly market prices. Fixed price-additives e.g. a fixed tax per kwh. reduces the relative volatility of prices seen by the customer and reduces incentives for demand response. Taxes may be changed to a percent on hourly market prices. Enabling technologies e.g. automatic cut off of consumption when prices become high may ease demand response in the future. 1