Demand Curve Analysis

Transcription

1 Demand Curve Analysis Overview of Modeling Approach and Stakeholder Support PREPARED FOR Alberta Electric System Operator PREPARED BY Kathleen Spees Johannes Pfeifenberger Judy Chang David Luke Oates Peter Cahill Elliott Metzler October 4, 2017 Copyright 2017 The Brattle Group, Inc.

2 Overview Primary Model Results Estimate average, range, and distribution of capacity market outcomes Price, quantity, and reliability Across annual and summer/winter auctions Summarize results realized with different demand curve shapes Approach Input annual or seasonal supply curves and demand curves Use a clearing model to calculate prices and quantities in the auction Simulate a distribution of outcomes using a Monte Carlo analysis of realistic shocks to supply and demand Average price over all draws must equal Net CONE, consistent with a market that supports entry at long-run marginal cost Supply and Demand Shocks (Illustrative) Range Range of of Price Price Outcomes Demand Shocks Demand Shocks Supply Shocks Supply Shocks Range of Quantity Outcomes Range of Quantity Outcomes 1 brattle.com

3 Demand and Reliability Modeling Demand Curves Options developed in collaboration with the working group Arbitrary number of price-quantity pairs Quantities are relative to the reliability requirement Prices expressed as % of Net CONE Reliability Simulation reliability results are evaluated with respect to the reliability standard Using quantity outputs, the EUE is tabulated over all simulation draws to estimate weighted-average reliability outcomes Demand Curve and Reliability (Illustrative) EUE Curve Minimum Acceptable: 800 MWh/year EUE (Preliminary Working Assumption) Target: 100 MWh/year EUE (Preliminary Working Assumption) 2 brattle.com

4 Supply Modeling Supply curves consist of three component pieces Supply Curve Components (Illustrative) Shape Blocks Supply offers at prices above zero Shape based on historical PJM offer curves Scaled to total MW offers, which vary based on annual vs. summer/winter auction type Independent of demand curve shape Shock Block Zero-priced supply block Quantity varies with each draw to generate shocks to the supply curve Represents expected year-to-year changes Shape Block Smart Block Zero-priced supply block Smart Block Shock Block Quantity adjusted such that the average price across all draws equals Net CONE Quantity is constant across draws, but may be slightly different across demand curves 3 brattle.com

5 Representative Model Results (ISO-NE) Example results as developed in support of ISO New England stakeholders 4 brattle.com

6 Demand Curves Tested (ISO-NE) Stakeholders in New England proposed a number of curves for testing Engaged in an iterative, collaborative process with ISO New England stakeholders to identify and evaluate a range of potential demand curves Final ISO-NE proposed curve was a consensus recommendation within the workable range, and reflecting a balance of design objectives Representative Subset of Demand Curves Evaluated on Behalf of ISO-NE and Stakeholders Final Proposed Curve Tuned to 1-in-10 reliability Moderate price volatility Drops below 1-in-5 reliability 7% of the time 5 brattle.com

7 Next Steps Timing SAM Sept-Dec 2017 SAM Jan-Mar 2018 SAM Apr-Jun 2018 Scope Oct 4 Web/Phone Meeting (Today) Gather feedback from workgroup on scope Oct 10 In-Person Meeting: Discuss preliminary analysis of potential demand curve shapes Review Alberta-specific considerations affecting price volatility and desirable curve width/parameters Expand on and complement introduction of demand curve concepts/principles by providing information on modeling approach, impacts of key parameters and principles, preliminary suggestions about the workable range of demand curve parameters Nov 1 Meeting: Develop materials in response to workgroup questions, requested sensitivity analysis, and requested demand curve alternatives. Provide 2-4 workable demand curve options for the workgroup to consider for SAM 3.0 Nov 15 Meeting: Respond to workgroup questions/input. Discuss demand curve selected for SAM 3.0, finalize principles Jan Meeting: Outline outstanding uncertainties/questions to be refined in SAM 4.0, primary interactions/uncertainties, gather stakeholder input on necessary refinements Feb or Mar Meeting: Answer outstanding questions, finalize demand curve parameters. Develop workgroup conclusion for SAM 4.0 demand curve parameters Make final adjustments to demand curve based on final AESO/workgroup input and conforming changes to other workgroups changes in SAM 4.0 April Meeting: Provide final presentation to the workgroup on selected demand curve and recommendations to be included in report. Last opportunity for stakeholder input/adjustments June Recommendations Report/Testimony: Prepare final recommendations report and deliver to workgroup/aeso. Document the defined objectives, principles, workgroup process, and dissention. Include final recommended Demand Curve. Submit report or testimony suitable for filing with governing body 6 brattle.com

8 Contact Information KATHLEEN SPEES Principal Boston, MA JUDY CHANG Principal and Director Boston, MA JOHANNES PFEIFENBERGER Principal Boston, MA DAVID LUKE OATES Associate Boston, MA The views expressed in this presentation are strictly those of the presenter(s) and do not necessarily state or reflect the views of The Brattle Group, Inc. 7 brattle.com

9 About The Brattle Group The Brattle Group provides consulting and expert testimony in economics, finance, and regulation to corporations, law firms, and governmental agencies worldwide. We combine in-depth industry experience and rigorous analyses to help clients answer complex economic and financial questions in litigation and regulation, develop strategies for changing markets, and make critical business decisions. Our services to the electric power industry include: Climate Change Policy and Planning Rate Design and Cost Allocation Cost of Capital Regulatory Strategy and Litigation Support Demand Forecasting Methodology Renewables Demand Response and Energy Efficiency Resource Planning Electricity Market Modeling Retail Access and Restructuring Energy Asset Valuation Risk Management Energy Contract Litigation Market-Based Rates Environmental Compliance Market Design and Competitive Analysis Fuel and Power Procurement Incentive Regulation Mergers and Acquisitions Transmission 8 brattle.com

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