The Benefits of Dynamic Pricing of Default Electricity Service

Transcription

1 The Benefits of Dynamic Pricing of Default Electricity Service Bernie Neenan UtiliPoint International Prepared for Assessing the Potential for Demand Response Programs Institute for Regulatory Policy Studies May 12, 2006

2 Integrating DR into Electricity Markets Energy efficiency Price-Based Demand Response TOU DA-RTP RTP Time scale System management action Years System planning Months Operational planning Day-ahead Scheduling In-day Dispatch < 15 min < 15 min RT balanced and regulated system ICAP KWH Bidding Emer DR I/C Load DLC Induced Demand Response 2 Source: The Benefits of Demand Response in Electricity Markets and Recommendations for Achieving Them. Feb. 2006,. USDOE

3 Dynamic Pricing It s About Time x.x Indicates the relative price/kwh 1:00 am } TOU 2 (16 hr) 1.0 TOU 3 (6 hr) TOU 2S (6 hr) 6:00 am 8:00 am 12:00 2:00 pm 6:00 pm 1.50 Cover swing hours} } Higher price ratio Maximize price ratio } :00 pm 12:00 pm 3

4 Dynamic Pricing It s About Time (2) TOU 2S (6) CPP (6) VPP (6) RTP One peak price for normal days, and another for extreme days 1.50 or 5.0 Tie daily peak prices to market prices 1.1 to 10 Tie all hourly prices to market prices 4

5 Benefits of Dynamic Pricing Participant Savings Savings to customers that take default service consist of two components: Avoid paying the hedged service risk premium Savings from demand response behaviors Savings from shifting away from high prices Consumer surplus from expanded load at low prices Benefits to all Electricity Consumers Lower LMPS reduce bilateral market prices: Lower competitive prices Lower default service prices 5

6 Benefits of Dynamic Pricing (2) Peak Load Reduction Two Measures Maximum single hour of demand response (MW) on annual basis Average level of demand response (MW) coincident with June, July, August and September monthly zonal maximum demands Market Performance benefits Resource Savings - Improvement in the efficient allocation of societal resources 6

7 Benefits of Dynamic Pricing (3) Other Benefits Improved reliability Market power mitigation Reduced emissions More choices Portfolio risk reduction Vertical market development (enabling technologies) These are hard to quantify, redundant or both 7

8 Benefits of Dynamic Pricing of Default Service in New England Service Benefits of alternative default service pricing Targeted to New England customers over 500 kw Customers distinguished by: Business activity Load size and profile Price response (from NGrid Study) Scenarios characterize market supply as: Status Quo (2004-5) High (more high prices more often) Extreme (even more higher prices more frequent) 8

9 Alternative Designs Evaluated Current Default Dynamic Default Service Alternatives TOU 2 (16 hr) TOU 3 (6 hr) CPP (6) VPP (6) RTP Block & Swing or to 10 9

10 Block and Swing Block and Swing Design Nominate kw (peak and offpeak) to fixed price block (TOP) Variance settled at the corresponding RTP swing price Block Load Pricing TOU 3 Swing Load Pricing RTP 1.0 2,500 2,000 1,500 Excess load purchased at period fixed prices but not used Hedged Block Actual Usage Load purchased at RTP , % of Max Off-Peak Load purchased at offpeak fixed price 90% of Max Peak Load purchased at peak fixed price

11 Price FX Model Rates Customer Profiles and SICs Market Outlook Price Elasticities by Business Class PRICE PRICE FX FX SS SS and and DD DD Simulations LMPs (DA & RT) by Day Type, Price Scenario Participant Participant Bill Bill Savings Savings LSE LSE Hedge Hedge Savings Savings LSE LSE Energy Energy Market Market Savings Savings Net Net Social Social Welfare Welfare Improvement Improvement Status Quo Yr High Yr Extreme Yr 5 -Yr. Benefit Outlook 11

12 Maximum Non-Coincident Peak Load Reduction New England 700 ~ 600 MW MW Part TOU CPP VPP RTP B&S- 70% B&S- 80% B&S- 90% Extreme Year High Year Status Quo Year 12

13 Average Coincident Monthly Peak Load Reduction New England 250 Coincidence of High Prices and High Load Summer ~ 200 MW Top 5 20% 60% Top 15 53% 53% 150 MW Part TOU CPP VPP RTP B&S- 70% B&S- 80% B&S- 90% Extreme Year High Year Status Quo Year 13

14 Benefits Five Year Outlook New England (33% of customers over 500 kw price responsive) $300 Five-Year Benefit Expectations ($ Million) $250 $200 $150 $100 $50 $0 -$50 CPP 3-Part TOU VPP RTP B&S (75%) Efficiency Other Customers Participants 14

15 Some Observations Autonomous price response is the desired end result Don t expect bloom naturally Flat default service engenders price inelasticity Dynamic default service fosters the development of price response Load bidding as a resource is poor second best solution Because reliability is a social good, ISO ICAP, emergency and ancillary service programs 15

16 Summary I welcome your comments and criticisms: bneenan@utilipoint.com 16