Advanced Energy Management Alliance Aggregators and Replacement Capacity July 10, 2017

Transcription

1 Advanced Energy Management Alliance Aggregators and Replacement Capacity July 10, 2017 Katherine Hamilton, Executive Director, AEMA PJM Interconnection: Incremental Auction Senior Task Force Meeting 1

2 Agenda Introduction to AEMA Issue Overview Aggregator Business Model Constraints and Costs Replacement Capacity Decision Process Fluctuation Example 2

3 AEMA Mission Empowering consumers through distributed energy resources, including demand response and advanced energy management We are providers and consumers united to overcome barriers to nationwide use of distributed energy resources. We advocate for and educate on policies that empower and compensate consumers to have cost-effective, efficient, resilient, reliable, and environmentallysustainable choices. 3

4 AEMA Members Achieving Equilibrium AF&PA Alcoa Century Aluminum Cpower Direct Energy Eckert Seamans ELCON EnergyHub EnerNOC GreeneHurlocker Icetec IPKeys Itron Jennings Strouss Nest NRG Tesla Viridity Energy Walmart Whisker Labs 4

5 Issue Overview AEMA Members believe that stakeholders have a incomplete understanding of how DR works for aggregators and customers. This presentation is intended to provide some education on DR market drivers. 5

6 Overview Load has no choice about RPM participation; load is always charged for Capacity. Load participates in RPM as Demand Response to mitigate capacity costs. DR is a means for load to hedge or control its capacity costs, but doing so does not come without cost or risk. Both cost and risk can vary significantly from customer to customer and CSP to CSP, and which drives both BRA and IA bidding strategies. 6

7 Aggregator Business Model Aggregators have a business imperative to grow contracted customers; CSPs also seek to maximize revenues and profit given fixed and variable costs; and Collateral for Planned resources can be a significant cost. 7

8 Demand Response Growth Reset for M&V, ILR Reset for EG Committed DR has grown in each year of RPM (with resets from rule changes). 8

9 Aggregator Costs Have to balance profit with competitiveness and meeting reliable performance obligations Registration of extra customers to provide performance margin Most RPM revenue goes to customers Costs can be both Variable and Fixed depending on the CSP and may include (but are not limited to): Customer payments Customer acquisition - (sales) costs are significant Customer support Training and communications Interface platform Dispatch costs Investments in innovation 9

10 Other Cost Factors (not necessarily all-inclusive) Risk Management tolerance varies between CSPs Customer splits (portion of revenue paid to customers) Reserves/excess Aggregation strategy Testing 10

11 Customer Variables (not necessarily all-inclusive) Customer may drop out altogether; Customer may not have the expected load, physical reality of the resource; Health of the economy can change customer cost to participate; Customer could migrate to another provider; and Lifecycle for customer of 3-5 years (with 3 year commitment in advance). 11

12 Aggregator Limitations Aggregators that stay in business need some degree of customer growth and stability. Customer acquisition costs are significant. Customer retention is paramount. Collateral costs are not insignificant for Planned resources: Credit requirement is $50,000 + Credit is held up to 3 years. If cost of credit is just 5%, then replacement capacity must cost less than $42,500 just to break even. 12

13 Replacement Capacity Drivers Only if customer does not come through based on planning Policy or rule changes (such as the Rice Rule) Year to year fluctuations in BRA results Adjustments due to PLC shifts Fine tuning LDA to LDA migration 13

14 Uncertain Business Cycles and Rules The need to balance capacity obligations with customer capacity year to year can contribute to situations where reduced obligations or customer capability three years out results in adjustments for delivery year 1-2 years out. 14

15 Fluctuation Example Example 500MW existing assets Year 0 BRA: target 10% growth thru Year 3 = 650MW Target met and cleared Year 1 BRA: target 10% growth thru Year 4 = 700MW Target not met - 600MW cleared Year 3 target is adjusted to ramp to 575MW 75MW of replacement capacity procured 15

16 Fluctuation Example (cont d.) Year 2 BRA: rule change reduces capacity of existing portfolio by 75MW in Year 5 to 550MW (accounting for growth). Year 5 target 550MW. Target met and cleared Year 3 and 4 targets adjusted Year 1 BRA: target 10% growth thru Year 4 = 700MW Target not met - 600MW cleared Year 3 target is adjusted to ramp to 575MW 75MW of replacement capacity procured 16

17 Example Year to Year Fluctuations Existing/Yr Yr 0 BRA Yr 1 BRA 600 Yr 1 Adj Yr 1 Net(target) Yr 2 BRA Rule change Yr 2 Adj Yr 2 Rev. Target Cleared Replacement

18 Questions? Thank you. 18