PRICE RESPONSIVE DEMAND: LEARNING TO LOVE SMART THERMOSTATS, EFFICIENT PRICING, AND TREATING DR AS DEMAND The State of Demand Response Organization of PJM States 10th Annual Meeting Paul Centolella October 13, 2014 2 EPSA v. FERC: Challenge & Opportunity • FERC can’t regulate or set compensation for Demand Response (DR): “entails direct regulation of the retail market—a matter exclusively within state control” • Agency can’t Infer broad authority to regulate: While DR “affects” wholesale rates, FERC offered “no limiting principle” and without boundaries FERC could regulate steel, fuel, and labor markets • FERC can recognize the impact of DR in wholesale markets – Treat DR as a variation in demand • Court distinguished DR compensation from Energy Policy Act’s direction to eliminate “unnecessary barriers to demand response” • Decision opens current DR qualification requirements to challenge: • “[I]f FERC’s arguments are followed to their logical conclusions, price- responsive demand … would also affect jurisdictional rates … [and] nothing would stop FERC from expanding this regulation and encroaching further on state authority in the future.” • Under EPSA v. FERC, RTOs might well lack authority to apply to responsive demand the same standards applicable to supply resources 3 October 13, 2014 RTO Demand Response Programs: Valuable & Limited • Limitations: • Across NERC, all DR programs account for only 3.8% of total internal demand • Programs don’t engage most customers • Asset utilization remains inefficient & did not improve • Largely focus on peak or emergency events, not daily challenges facing grid operators ISO/RTO Demand Response Potential Percent of Peak Demand • Benefits: • Potential to reduce ISO/RTO peak demand: average of 6% in 2012 • Reduced ISO/RTO prices 12% 10% 8% 6% 4% 2% 2011 2012 0% Baseline Program Issues: • Baseline administration costs • Third party aggregation can increase costs & inconvenience to customers • Baselines unduly benefit some & penalize other customers • Baselines can be abused October 13, 2014 4 Types of Responsive Demand • Baseline DR Programs: • RTO or utility notifies customers of an event and compensates them based on reductions from usage in a recent baseline period • Net reductions may be achieved by reducing or shifting demand or with behind-the-meter generation • Most RTO DR and utility Critical Peak Rebate programs • Automated Customer Choice: • Smart thermostats, building energy management systems, & other smart devices implement customer preferences • Some devices use data analytics and can consider expected prices, weather forecasts, building occupancy, HVAC & building performance, and customer comfort and savings preferences • Utility DSM programs, retail supplier service packages, & direct sales • Variable Pricing: • Can be 2-Part Price with dynamic price & an insurance mechanism • If linked to PJM prices may qualify as Price Responsive Demand • Utility or competitive supplier’s retail price October 13, 2014 5 Smart Devices: Automation of Customer Preferences • Just as KAYAK can locate the least expensive air fares or Pandora can match musical preferences, smart devices can identify the least expensive times to use power, implement savings strategies, and match individual comfort preferences • Devices can optimize all of the time, automatically, in the background, in near real-time, based on even modest interval-to-interval changes in conditions and anticipated prices • Potential impacts: • Greatly expand demand participation and customer savings • Improve utility asset utilization on a continuous basis • Enable the integration of renewable and variable resources • Provide system operators location-specific, rapidly responding options to address reliability events • Costs continue to fall with improvements in information and networking technologies October 13, 2014 6 Smart Devices: Huge Potential • Smart devices can provide energy storage on a local and large scale using the thermal inertia (heating, cooling, water heating, & refrigeration) and/or flexibility (pumping loads, industrial batch processes, pool pumps, dishwashers, clothes driers, & charging of vehicles & battery powered devices) in most energy using devices • Smart devices can reduce an estimated 20%+ of residential energy use wasted cooling & heating unoccupied space saving up to $40B/yr. • Examples: • With pre-cooling strategies tailored for each customer, Nevada Energy reduced average air conditioner operating times, during two hour peak events, to seven minutes or less and achieved demand reductions of 3kW per home with high levels of customer satisfaction. • With pre-cooling, Nest achieved an average 55% reduction in residential air conditioning energy demand, including 50% reductions in 100o+ Texas temperatures while indoor temperatures drifted up by less than 1.6o • FERC’s 2009 DR study estimated then-current enabling technologies with dynamic pricing could reduce US peak demand by 20% by 2019. 7 October 13, 2014 Smart Devices Deployment Path 1: Utility DSM Programs Advanced Meters: Not required Dynamic Pricing: Not required Cost Recovery: DSM Allocation Customer Engagement: Limited Participant Risk: None • Retail responsive demand • Deployment by conventional utility demand-side management program incentives or financing • Any state and utility could do so with costs and much of the benefits would be shared through rates • Programs could target low income customers • Devices can respond to PJM Day Ahead • Additional information could be provided by RTO based on RTO “look ahead” price forecasts & the utility to help position demand 8 October 13, 2014 Smart Devices Deployment Path 2: Supplier Competition Advanced Meters: Valuable, not required Dynamic Pricing: Not required Cost Recovery: Supplier service pricing Customer Engagement: Limited Participant Risk: Limited • State & RTO collaboration in retail access jurisdictions • Create incentives for retail suppliers to compete based on managing customer energy bills • Suppliers can offer a lower fixed price or other incentives to customers with smart devices who, for example, provide their supplier a degree or two of thermostat temperature flexibility • Market Structure: • Wholesale settlement based on supplier specific demand profiles • Interval usage data obtained from AMI, some AMR, or an allocation of demand to intervals based statistical samples for each supplier • Ideally RTO would provide information to help position demand potentially based on RTO “look ahead” price forecasts • Federal Power Act directs FERC to “facilitate price transparency” and “provide for the dissemination, on a timely basis of information about [wholesale] prices … to … the public.” 9 October 13, 2014 Smart Devices Deployment Path 3: Two Part Dynamic Retail Pricing Advanced Meters: Needed Dynamic Pricing: Portion of Rate Cost Recovery: Various options Engagement: Incents Behavior Participant Risk: Personalized • Retail price responsive demand • Smart devices enable broader use of dynamic rates that in turn can incent additional efficient behavioral changes • Utility could offer on-bill financing to support adoption of smart devices • Default rate could become 2-Part Pricing with dynamic (e.g. RTP) component, plus an insurance component (fixed rate for specified profile, subscription to a maximum price or call option, or balanced billing that spreads monthly costs) • Practice of placing customers on most beneficial rate could be applied to 2-Part pricing for utility or default service • When customers have been placed on time-varying rates on an optout basis with appropriate education, a minority of customers have opted-out and customer satisfaction tends to be high October 13, 2014 Is Demand Response a “Resource”? Smart technology has created the opportunity for Demand Response to be a great deal more than the RTO Resources to which we are accustomed. 10 11 October 13, 2014 Paul Centolella 180 Clyde St. – Rear Chestnut Hill, MA 02467 [email protected] (614) 530-3017
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