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 Structures 1 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 September 28, 2016 Energy Policy Roundtable 2

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 September 28, 2016 Energy Policy Roundtable 3

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 or more costly power in others September 28, 2016 Energy Policy Roundtable 4

An&cipated 2018 BQDM Resource PorLolio 2 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 • Targeted Need Fuel Cell & Gas DG may operate when no load relief is needed September 28, 2016 Energy Policy Roundtable 5

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. September 28, 2016 Energy Policy Roundtable 6

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 20 th Century formaUon of markets before AMI and the growth of the digital economy September 28, 2016 Energy Policy Roundtable 7

Market Valua&on: Time Variance in PJM LMP 3 Peak Day Hourly Zonal LMPs for Selected PJM Zone 90 80 70 60 $ / MWh 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 September 28, 2016 Energy Policy Roundtable 8

Market Valua&on: Loca&onal Variance in PJM LMP 3 Variance in Peak Day Ave. Hourly Nodal & Zonal LMPs for Selected PJM Zone 1000 800 600 400 $ / MWh Minimum Nodal LMP 200 Maximum Nodal LMP Zonal LMP 0 -200 -400 -600 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 12 Hours with LMP Variance in Zone >$50/MWh September 28, 2016 Energy Policy Roundtable 9

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 September 28, 2016 Energy Policy Roundtable 10

Market Valua&on: Real & Reac&ve Power DLMPs 4 Modeling Results: Summer Day, High DER Scenario for an Illustra3ve 800 Bus Commercial / Residen3al Distribu3on Feeder DLMP reduces costs, increases DER income DER value is 3me- and loca3on-specific, changes with load and network state, and can erode with addi3onal DER on a feeder September 28, 2016 Energy Policy Roundtable 11

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 September 28, 2016 Energy Policy Roundtable 12

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 September 28, 2016 Energy Policy Roundtable 13

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 September 28, 2016 Energy Policy Roundtable 14

Value Proposi&on: Enable Responsive Demand Significant potenUal for residenUal and commercial demand to be shined in Ume reducing costs without impacUng consumers: • Pre-cooling to take advantage of Flexible Residential Demand: CA Potential Study 6 building thermal inerUa Flex Range • Smart refrigeraUon, water heaUng, and appliances Peak 1 o C Demand • Electric vehicle charging Many Commercial Buildings Can Use Thermal Inertia to Cut Peak 20-50% 6 2 o C Average Demand 4 o C September 28, 2016 Energy Policy Roundtable 15