Demand Response Lessons Learned

Transcription

1 Demand Response Lessons Learned Paul Wetherbee Director, Energy Supply Merchant Elaine Markham Senior Market Analyst, Program Development 10/6/2017

2 Agenda Background 2015 IRP and RFP Requirements Proposal Evaluation and Results Lessons Learned Program Parameters Cost-Effectiveness Cost-Recovery Summary and Next Steps 2

3 Background 2015 IRP 2015 IRP Electric Action Plan: Acquire demand-response. Develop and implement a demand-response acquisition process and issue a Request for Proposal (RFP). The analysis supports addition of demand-response by 2021, but these programs don t fit existing energy efficiency or supply-side resource models. RFPs for Direct Load Control (DLC) and Commercial/Industrial (C/I) Demand Response were approved by WUTC and released by PSE in September 2016 Primary RFP objective: acquire 121 MW of winter peak capacity by 2021 Turnkey approach with vendors to provide: Technology, Products & Services Marketing, Customer Recruitment & Outreach Technology Installation & Enablement Data Support & Performance Analysis Billing & Settlement Customer Service & Satisfaction Coordination with EE Programs 5-year, pay-for-performance pricing structure Required to provide MW within 1 hour of notice; 10 minutes preferred Max of (1) 4 hour event per day, no more than 2 consecutive days 3

4 Proposal Evaluation and Results A cross-functional PSE stakeholder team evaluated the proposals through 3 rounds of scoring followed by interviews, and selected apparent winners. Using methodology consistent with the IRP, bids were not costeffective even after modifications from vendors. Uncertainty exists around several key inputs such as long term incentive requirements, ongoing vendor maintenance payments, and IT integration costs. The methodology does not capture the value of all possible program structures such as shorter, higher frequency events, or day-ahead programs. All benefits were not able to be quantified at this time. Alternative cost-effectiveness tests yield different results. 4

5 Lessons Learned 1. Provide more guidance to vendors on preferred program parameters related to the resource need (events/day, duration, consecutive events, required notice, etc.). 2. Establish an acknowledged and consistent methodology for evaluating cost-effectiveness. 3. Establish a cost-recovery mechanism for demand response. 5

6 Lesson Learned Program Parameters The RFPs defined program parameters such that the resource should be available: 1. During weekday peak hours, typically between 7 a.m. to 10 a.m. in the morning, and 5 p.m. to 9 p.m. in the evening, from Nov 1 through Feb 28/ Additionally, a maximum of one event per day may be called. Event duration shall be a maximum of 4 hours, and events won t be called on more than two consecutive days. Lesson Learned : The original performance requirements are consistent with norms across the country. However, due to PSE s dual peaking nature, these parameters don t provide performance equivalent to a gas-fired peaker. Therefore, capacity provided from demand response under these program parameters is significantly derated. Recommendation: Provide additional program guidance in future RFPs to enable vendors to meet PSE s resource needs more cost effectively. Make a distinction between resource performance requirements and preferences Increase transparency about the impact of resource performance on costeffectiveness 6

7 Lesson Learned Cost-Effectiveness Other utility methodologies were researched and internal stakeholders were consulted to develop a proposed methodology for evaluating the cost-effectiveness of DR as a resource within PSE s portfolio. Lesson Learned: Cost-effectiveness evaluation for demand response is complex. PSE s proposed methodology uses the best available information, but doesn t account for all of the benefits associated with DR. Cost-effectiveness results are sensitive to several key inputs. Recommendation: Establish an approved methodology for evaluating the cost-effectiveness of future DR programs. 7

8 Lesson Learned Cost-Effectiveness General Approach Evaluating programs over 20 year horizon Using a Portfolio Screening Model to compare portfolio costs with and without DR resources Includes existing resources, generic new resources, and market purchases Avoided T&D benefits are included Ancillary services and potential market benefits are not included at this time Primary Challenges to Cost-effectiveness In 2016, the avoided cost of capacity decreased by ~30% PSE has morning and evening winter peaks The ELCC 1 will derate the DR resource based on allowed frequency and duration of events One, 4-hour event per day ELCC = 58% Two, 3-hour events per day with 6 hours of recovery between events ELCC = 77% 1 The peak capacity credit approach used is ELCC (effective load carrying capability) defined as the equivalent peaker capacity change to get the same LOLP or EUE as a percent of the resource capacity added or removed from portfolio 8

9 Lesson Learned Cost-Recovery Price discovery through the RFP process showed that DR costs are material. According to standard utility accounting principles, most of these DR costs would be expensed. Under current WUTC policy, DR costs cannot be recovered through the conservation rider. Lesson Learned: Equipment installation, customer service, customer recruitment, ongoing incentive payments, and other program management expenses comprise 60-80% of program costs 1 that do not contribute to rate base. For material investments such as DR programs, utilities need a line of sight to how they will recover and earn on their major investments. Recommendation: Establish an a policy recommendation for DR program costs to be recovered. 1 Percentage of costs in each category were reported by vendors in the 2016 solicitation process. 9

10 Summary and Next Steps There is strong vendor interest in developing DR in the Northwest. Additional program guidance is needed in future RFPs to enable vendors to meet PSE s resource needs more cost effectively. Cost-effectiveness methodology should be clearly communicated to all stakeholders and bidders. Next Steps Roll-out small scale C/I pilot program in winter Develop approved cost-effectiveness methodology with WUTC support Develop cost-recovery policy with WUTC support 10