Compe&&ve Markets and Pricing Structures: Implica&ons - - PowerPoint PPT Presentation

Compe&&ve Markets and Pricing Structures: Implica&ons for the Value DER

Paul Centolella President, Paul Centolella & Associates, LLC Senior Consultant, Tabors Caramanis Rudkevich

Energy Policy Roundtable for PJM Footprint Philadelphia, PA September 28, 2016

Markets & Pricing for DER in NY REV

• Tabors Caramanis Rudkevich team: White

Paper on Developing Compe33ve Electricity Markets and Pricing Structures1

• Funded by NYSERDA and prepared for

New York REV proceeding – PSC Case No. 14-M-0101

• Addressed the development of efficient

pricing structures for DER at both Bulk Power and DistribuUon levels

• Applied principles of PlaVorm Economics

to describe PlaVorm Market Structures

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DER Valua&on

• Fundamental Approaches to ValuaUon:

– AdministraUve valuaUon approaches (e.g. LMP +D, feed-in tariff, net metering retail rate credits) – Market based valuaUon via DistribuUon LocaUonal Marginal Prices (DLMP)

• What is the difference?

– LMP+D and similar approaches are average, administra&ve forecasts of the “avoided cost.” For example LMP (i.e. nodal, or wholesale value, of real energy) plus D (an administraUve forecast of average avoided distribuUon system costs). – LMP+D requires more transparent distribuUon planning & more detailed regulatory review of distribuUon plans – Bulk Power pricing for DER: Extension of interval, nodal LMP to load sealements – DLMP is a granular, market measure of short run marginal cost (SRMC) at the specific &me and loca&on for the provision or use of core electric products

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Planning and Regulatory Valua&on

• Role of Planning: TargeUng DER can defer more expensive

distribuUon investments

• LimitaUons of Planning:

– While planning can forecast expected values, more difficult to reflect Ume variance, dynamic change, & emerging resource opUons – Difficult to give customers and suppliers generally the incenUves to develop and operate just where and when DER are cost-effecUve – Planning requires mulU-layer forecasts on a circuit-by-circuit basis – Regulatory review of circuit-by-circuit valuaUon may be difficult to scale up in a Umely manner – Procurements may reduce costs in some hours and provide unneeded

• r more costly power in others

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An&cipated 2018 BQDM Resource PorLolio2

• Expect to rely on: Energy Efficiency, Voltage OpUmizaUon, Gas-fired

Generators, Fuel Cells, and Evening Demand Response

• Supplemented with modest contribuUons from PV and Baaery Storage

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Targeted Need

Fuel Cell & Gas DG may operate when no load relief is needed

Economic Principles Suppor&ng Market Valua&on

• Efficiency: “We must look at the price system as … a mechanism for

communica3ng informa3on if we want to understand its real func3on—a func3on which, of course, it fulfills less perfectly as prices grow more rigid.” - Friedrich Hayek, The Use of Knowledge in Society (1945)

– By communicaUng marginal cost and value, a dynamic and efficient price system promotes economic efficiency, enables cost savings, and incents innovaUon

• Non-Discrimina&on: Price discriminaUon occurs when a firm charges

different prices to different customers for reasons other than differences in costs

– Charging the same rate to customers for whom the marginal cost of service differs creates a cross-subsidy.

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Market Valua&on: Bulk Power Load SeTlements

• For most consumers in organized markets:

– Load is sealed at an Average Zonal Price: Fails to recognize nodal price differences

• For example, there are 11 Zonal prices in New York State, the 64 ConEd distribuUon areas see

the same Zonal price, and only 20% have peaks coincident with system peak demand

– Load is sealed at an Average Hourly Price: Fails to recognize opportuniUes to shin demand between intervals to minimize costs – Load is onen sealed on Historical Average Customer Class Load Profiles: Unrelated to actual demand by the customers of load serving enUUes

• Retail electric suppliers have limited or no incenUve to

compete based on helping customers manage demand

• ExisUng pracUces reflect the 20th Century formaUon of

markets before AMI and the growth of the digital economy

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Market Valua&on: Time Variance in PJM LMP3

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10 20 30 40 50 60 70 80 90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

$ / MWh

Peak Day Hourly Zonal LMPs for Selected PJM Zone

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Market Valua&on: Loca&onal Variance in PJM LMP3

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• 600
• 400
• 200

200 400 600 800 1000 $ / MWh

Variance in Peak Day Ave. Hourly Nodal & Zonal LMPs for Selected PJM Zone

Minimum Nodal LMP Maximum Nodal LMP Zonal LMP

7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 1 2 3 4 5 6

12 Hours with LMP Variance in Zone >$50/MWh

Energy Policy Roundtable

Core Electric Products from DER

• The 3 Rs: ONLY 3! in DistribuUon

– Real Energy – ReacUve Power – Reserves

• The 3 Rs require tradeoffs

– Tradeoff between producing real versus reacUve power – Tradeoff between commirng now to produce real or reacUve power (now and forward) and being available to provide reserves

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Modeling Results: Summer Day, High DER Scenario for an Illustra3ve 800 Bus Commercial / Residen3al Distribu3on Feeder

Market Valua&on: Real & Reac&ve Power DLMPs4

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DER value is 3me- and loca3on-specific, changes with load and network state, and can erode with addi3onal DER on a feeder

DLMP reduces costs, increases DER income

Distribu&on System PlaLorm

• What is a PlaLorm? The infrastructure of a business

ecosystem that matches producers and consumers, who transact using the plaVorm and resources provided by the

• ecosystem. The plaVorm provides components and rules

designed to facilitate interacUons and creates value by facilitaUng matches and providing easy access to useful goods and services.5

– Fundamental differences from ordinary product delivery business model

• What is a Distribu&on System PlaLorm? In addiUon to

distribuUon planning & operaUons, a distribuUon plaVorm includes markets and may provide:

– Transac&onal PlaLorm: Trading in Core Electric Products – Services PlaLorm: TransacUons enabling efficient demand management and other services

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Transac&onal PlaLorm: DLMP Markets

• Real Time / Balancing Market (ex post)

– Clears imbalances between scheduled and actual energy deliveries and usage – Can seale differences between LMP at the substaUon and prices at a distribuUon locaUons – With data on actual consumpUon, producUon, load flows, and distribuUon topology, the PlaVorm runs a straight forward mathemaUcal calculaUon, using substaUon LMP as the reference price, to determine a real-Ume price for energy and reacUve power at each distribuUon pricing locaUon

• Forward market (ex ante)

– ConUnuous, bilateral transacUons: locaUon- and Ume-based bids and offers are matched to set prices – Closes immediately prior to the Ume for producUon and consumpUon – ParUes can lock in prices as their operaUng schedules are set or revised – DistribuUon uUlity can use forward opUons contracts to avoid distribuUon system investments by obtaining advance commitments from DER to provide locaUon-specific resources when needed by the uUlity

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Value Proposi&on: Market for DER

• Expands DER access to markets beyond parUcipaUon in DR programs:

– Creates opportuniUes to sell real power, reacUve power, or reserves to distribuUon uUlity to support operaUons or avoid investment, uUlity as the default energy supplier, compeUUve retail energy suppliers, and potenUally directly to retail customers in peer-to-peer transacUons – Creates compeUUve market with: well-defined products, price transparency, mulUple buyers and sellers, minimal transacUon costs or barriers to market entry

• Provides an incenUve to invest in and operate DER where and when will be

cost-effecUve

– Creates a path to transiUon out of or avoid locking in subsidies for uneconomic DER

• Animates emergence of new products and services

– Services PlaLorm enables combinaUons of products and services from DER and third parUes: e.g. responsive demand and building commissioning – Reac&ve Power pricing could improve distribuUon efficiency through the integraUon of DER into uUlity Volt / VAR control

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Value Proposi&on: Enable Responsive Demand

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Peak Demand

Flexible Residential Demand: CA Potential Study6

Average Demand

1oC 2oC 4oC Flex Range

Significant potenUal for residenUal and commercial demand to be shined in Ume reducing costs without impacUng consumers:

• Pre-cooling to take advantage of

building thermal inerUa

• Smart refrigeraUon, water

heaUng, and appliances

• Electric vehicle charging

September 28, 2016 Energy Policy Roundtable

Many Commercial Buildings Can Use Thermal Inertia to Cut Peak 20-50%6

Value Proposi&on: Enable Responsive Demand

• Enabling demand to match supply will:

– Improve uUlity asset uUlizaUon: currently below 50% and far below that in other capital intensive industries – Enable more efficient integraUon of renewables and DER – Enhance reliability

• Tens of millions already installed smart thermostats and

smart commercial building management systems are rapidly becoming the backbone of an energy internet of things

• Market valuaUon would incent retail suppliers to compete to

help customers manage demand (e.g. offering lower fixed prices in return for temperature flexibility)

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Paul Centolella President, Paul Centolella & Associates, L.L.C. Senior Consultant, Tabors Caramanis Rudkevich (614) 530-3017 centolella@gmail.com

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References

1. Tabors Caramanis Rudkevich, “White Paper – Developing Compe33ve Electricity Markets and Pricing Structures,” NYSERDA (April 2016). HTTP://www.tcr-us.com/projects.html 2.

• S. Mahnovski and S. Wemple, The Role of Distributed Energy Resources in New York State, PresentaUon of Department of

Energy Electricity Advisory Commiaee (June 16, 2016) 3. PJM, Data Miner: Loca3onal Marginal Prices Total LMP, Available at: hap://www.pjm.com/markets-and-operaUons/energy/real-Ume/lmp.aspx. 4.

• M. Caramanis, E. Ntakou, W. Hogan, A. Chakraboray, and J. Schoene, “Co-OpUmizaUon of Power and Reserves in Dynamic

T&D Power Markets with Nondispatchable Renewable GeneraUon and Distributed Energy Resources,” Proceedings of the IEEE, Vol. 104, No. 4 (April 2016), available at: haps://www.hks.harvard.edu/fs/whogan/Caramanis_PublishedVersion_IEEE_2016r.pdf; Tabors Caramanis Rudkevich “White Paper – Developing Compe33ve Electricity Markets and Pricing Structures” NYSERDA released April 2016. HTTP://www.tcr-us.com/projects.html 5.

• G. Pavlak, G. Henze, and V. Cushing, “EvaluaUng synergisUc effect of opUmally controlling commercial building thermal mass

porVolios,” Energy, 84 (2015) 161-176, Available at: hap://www.sciencedirect.com/science/arUcle/pii/S0360544215002285. 6.

• J. Mathieu, Modeling, Analysis, and Control of Demand Response Resources, LBNL-5544E (Berkeley, CA: Ernest Orlando

Lawrence Berkeley NaUonal Laboratory, May 2012), Available at: hap://eetd.lbl.gov/sites/all/files/publicaUons/lbnl-5544e.pdf. September 28, 2016 Energy Policy Roundtable 18