DEMAND RESPONSE WHEREDO WESTAND, WHEREDO WEGO ANDHOW DO WEGO CHALLENGES, OPPORTUNITIES AND PERSPECTIVES JOISA DUTRA

Transcription

1 DEMAND RESPONSE WHEREDO WESTAND, WHEREDO WEGO ANDHOW DO WEGO CHALLENGES, OPPORTUNITIES AND PERSPECTIVES JOISA DUTRA CIGRE DEMAND RESPONSE SEMINAR SÃO PAULO DECEMBER 15, 2016

2 ROADMAP Disrupting the Use-of-Energy Markets Demand Response Business Models Informing DR Through Economics Final Remarks

3 DISRUPTING THE USE-OF-ENERGY MARKETS FROM ASSET-BASE & ENERGY VALUE CHAIN TO USER-CHOICE SERVICES

4 DISTRIBUTED ENERGY RESOURCES: SETTING THE SCENE Key Facts Emerging technologies are disrupting the energy supply chain Consumers behavior have changed and actively exercising choice Utilities & regulators remain applying old framework in how to react to DER disruptions Three emerging questions in this energy landscape: What are the new business models & players in the markets? What are the (expected) policies guiding the market? What to regulate: subject, role and how regulators will adapt?

5 CURRENT WISDOM: OLD FASHIONED ENERGY SUPPLY CHALLENGES Supply Remote supply Network-based model High volumes through connecting points One direction business model flow Production T&D Consumer Demand Clustered-class consumers Busbar demand aggregation Regional diversity Legal Framework Ownership Structure and Funding Rigid system planning 100 years old value chain model Asset-based regulations Tariff-based services Public ownership Concession-based PPP structures Mortgage-based on public, concessional and commercial financing

6 CURRENT WISDOM: MORE EFFICIENT 100 YEARS OLD BUSINESS MODELS Asset costs and energy supply management + Debt costs (rates) + Equity returns = Cost of services & allowed revenues Large T&D networks Utility scale generation Fuel supply and retail management Public & concessional funding ECA/DFI & commercial financing Public (limited) Private - network (moderate) Private commodities supply (moderate +) Regulatory levies and fees Taxes Public coordination environment: concession and licenses to operate Business models thrive on asset returns and fuel/supply management mark-ups Networks Concession (size) rent seeking Guaranteed revenues Commodities Volume & capacity rent seeking Guaranteed entry barriers Trading & Retail Energy volume management mark-ups Supplier & customer capture

7 DISRUPTING THE CURRENT WISDOM: TECHNOLOGY AND BEHAVIORAL CHANGES LEADING TO NEW BUSINESS MODELS Technology Disruptions Fast, reliable & Mobile Telecoms Web-based IT Bounded demand systems efficiency Smart grid-customer interface Small size renewables generating & storage Big data Behavioral Changes IT Services Platform Predominance of customer s choices, not consumer Clustered energy services, not supply Millennium investor approach New Business Models Aggregator platform (yields seeker) Shared-asset usage (joint & part-time) Convergence of services trading Blending financing

8 INTRODUCING NEW BUSINESS MODELS WRAPPED BY BIG DATA AND THE INTERNET OF THINGS: NAVIGATING IN UNCHARTERED WATERS Energy Providers Services Aggregators Multisectors Competition and Regulations Telecoms Multisector Multi- Customer Origination IT Infrastructure Enablers Distributed Servers Big Data Platform Host Matching Providers & Storage Customers Providers and Customers Data Acquisition Data Rights Management Platform & Data Challenges: Ownership, Rights, Obligations and Civil Liberties Threats Customer Choice of services Data ownership Data leasing

9 DER PARADIGM: A NEW ECOSYSTEM FOR BUSINESS MODELS Asset costs and energy supply management + Debt costs (rates) + Equity returns + Services Platform = Cost of services & allowed revenues Large T&D networks Utility scale generation Small scale renewable generation and storage Public & concessional Quasi & commercial Creative financing Public - limited Private - network (moderate) Private - supply (moderate +) Millennium investor (very high) Private web platform operator Multisector agent Blended revenues (advertising & fees) Regulatory levies and fees Taxes Public coordination environment: concession, licenses and authorizations to operate Unregulated private IT platform operator (low cost with product & services differentiation) Emerging new ecosystem focused on customers' choice. Networks Concession (size) rent seeking Guaranteed revenues Commodities Volume & capacity rent seeking Guaranteed entry barriers? Trading & Retail Energy volume management mark-ups Supplier & customer capture? Independent Assets & Services Owner Partial asset sharing (revenues) Low cost operator Services Platform Aggregation of supply & demand (data) Low cost & high yield generator Data, Services & Capital Bundling capital, data & internet of things High yield & customer capture

10 COEXISTENCE OF BUSINESS MODELS? Energy chain supplier Services Platform Authorized revenues Market-driven fee Regulated asset rent seeker RoE 10% Blended yields (25%+) Retailer & Trader Yields seeker Equity costs Platform costs Debt costs Aggregated asset-base & usage Asset-base Product & Services Costs and Differentiation advantage

11 DEMAND RESPONSE (BUSINESS MODELS)

12 DEMAND RESPONSE BUSINESS MODELS Demand Response Encompasses a Large Category of Technologies and Applications DifferentBM emerge in each category Automatically activated in response to price signals Manually in response to requests from the DR business Via alternative dispatch signals.

13 PRICE - BASED DEMAND RESPONSE (TOU, CPP, RTP) Does not require the load to be verifiable. Dynamic Pricing (CPP, RTP): Trade-off: more accurate prices Pilot programs technological constraints institutional constraints (absence of spot prices reflecting short-run marginal costs on a real-time basis). Complexity, higher transaction costs Efficiency How reliable it is as a dispatchable load? Pilot programs tailores to critical areas?

14 INCENTIVE-BASED DR INCENTIVE- BASED EFFECTIVENESS Demand-side bidding, interruptible demand, and direct load More fit to deal with sudden contingencies. How to define the value of reduction? Rate of adhesion policy Complemen tary technologies Market mechanisms Consumer engagement

15 DEMAND RESPONSE (DR) IN BRAZIL AS A RESOURCE Potential for becoming a cost-effective source of flexibility for the system in the short, medium and long-term IN BRAZIL: Time Of Use Tariffs (ToU) Interruptible Contracts (Past) Tariff Flags (Low Voltage) Blue and Green Flags (High Voltage) White Tariffs: Voluntary adhesion Requires smart meter Who will be the contracting party of DR programs? How will the provider be remunerated?

16 THE NEED OF A NEW REGULATORY FRAMEWORK TO LAUNCH DEMAND RESPONSE AS A RESOURCE Need for new Business Models Competition and new players in retail. Requires the provision of comparable (to generation) opportunity More Accurate Price Signals CONTRACTING FRAMEWORK? Aggregators: Transaction costs (specially for small consumers). Customer interface management. Portfolio of residential consumers has increased value Access to markets Compensation Enablers: technology.

17 OUR APROACH Transitional Arrangements Demand growth for electricity grows sales and revenue growth. DG: Net metering scheme DR: ToU tariffs Market design Energy Capacity Ancillary Services Consumer empowerment New revenue streams for Utilities: more focused on electric service provisions DERs: comparable opportunities to those of generation More accurate price signals Customer-side business models

18 GOVERNANCE OF THE TRANSITION Challenge: disruptive changes, pace of technology innovation, a new paradigm. A dynamic framework for assessing priorities and recommendations, and acting on them to provide a sound regulatory and competitive environment must be drawn. Requires a comprehensive and integrated strategy active engagement of external stakeholders. interagency dialogue The executive power: leadership role in orchestrating the interaction of multiple stakeholders Acknowledge all stakeholders as strategic players. Integrated view of short, intermediate, and long-term objectives involving various actors and sectors. Aneel Chamada 20 R&D is an important step in this direction necessary but not sufficient. Quadriennial Energy Review (QER): An interagency Task Force, which includes members from all relevant executive departments and agencies (agencies) to develop an integrated review of energy policy that integrates all of these perspectives.

19 INFORMING (AND IMPROVING EFFECTIVENESS OF) DR THROUGH ECONOMICS

20 CONSUMER ENGAGEMENT CAN BE FOSTERED BY INSIGHTS COMING FROM ECONOMIC THEORY Understanding Consumer Elasticity is key for unlocking the potential of DRs and SG Technologies. Behavior Science can shed some (a lot!) light. Economic Theory can provide insights on Market Mechanisms Pricing Incentives Empirical techniques Field Experiments

21 CONSUMER ENGAGEMENT CAN BE FOSTERED BY INSIGHTS COMING FROM ECONOMIC THEORY Market Mechanisms Economic Theory can provide insights on Experiments are Key to Inform the Implementation and Learning From It Pricing Incentives Empirical techniques Field Experiments

22 ECONOMICS + BEHAVIORAL SCIENCE Program design Long-term/ General Equilibrium Pilot/ Experiment Program Evaluation Consumer Response Results

23 BEHAVIORAL SCIENCE HELPS TO UNLOCK DR POTENTIAL Economic Theory, network engineering and behavior science can help unlock the full potential of SG technologies Economics: In a general equilibrium setting peak and off-peak prices will depend on consumer adhesion and response rate. How will consumers react to incentives? Price is not the main determinant af electricity demand. Behavior Science is crucial in understanding and engaging endusers for and optimal program design and evaluation.

24 FINAL REMARKS

25 KEY MESSAGES The (ongoing) process of weakening the traditional value chain barriers expose incumbents and leads to a cream skimming process The entitlement of franchise(e) to supply energy is ending Isolated perspective myopia: new businesses involving multiple sectors are evolving and capturing profitable markups/margins New business models ecosystem is emerging as key feature of demand response Value is being squeezed through the emergence of combined low cost operator and service differentiation Incompleteness of regulations and unwillingness of regulators to evolve Positioning, rivalry and tension could characterize relationship among stakeholders Coexistence of Old" and New models are expected to stay for a while

26 FGV CERI AND WORLD BANK ENERGY, LATIN AMERICA AND CARIBBEAN (LCR) PARTNERSHIP This presentation is part of a series of works being developed under a collaboration between FGV CERI(the Center for Studies in Regulations and Infrastructure-CERI at Fundação Getulio Vargas ) and the World Bank (WB) to address key topics related to infrastructure investments in Brazil. The ideas discussed in these slides were presented by Prof. Joisa Dutra in São Paulo during the Demand Response event sponsored by CIGRE in São Paulo (December 15, 2016). They capture some of the thinking & perspectives current in discussions at FGV/CERI and the WB.

27 THANK YOU! FGV CERI CENTER FOR REGULATION AND INFRASTRUCTURE AT FGV