Incentives for DSP a distributors perspective Alistair Parker 19 - - PowerPoint PPT Presentation

Incentives for DSP – a distributor’s perspective

Alistair Parker 19 April 2012

AEMC DSP 3 Review Public Forum

• AEMC Directions Paper
• DSP’s importance
• Preference for incentives
• Cost reflective pricing
• Critical Peak Pricing

Case Study

Overview

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AEMC Directions Paper

• SP AusNet supports the findings of the Directions Paper
• Encouraged by further consideration of:
• options for appropriate commercial incentives for

distribution businesses (DBs) towards DSP options

• possible temporary arrangements which help DBs

manage any additional risks

• the potential for DBs to provide DSP products to

consumers

We need alternatives to continued capital investment

DSP is increasingly important

SP AusNet Peak Demand Vs Annual Load

• 2,000.00

4,000.00 6,000.00 8,000.00 10,000.00 12,000.00 14,000.00 16,000.00 18,000.00 20,000.00 2002 2003 2004 2005 2006 2007 2008 2009 2010 Month/Year GWh 200 400 600 800 1000 1200 1400 1600 1800 2000 MW GWh MW

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Incentives work

• SP AusNet supports financial incentives over regulatory
• bligations and cost recovery
• Range of potential incentives:
• higher-powered incentive scheme similar to the S-factor to

reward efficient demand side response (demand reduction)

• innovation and R&D rewards

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A high power DSP incentive

• A high powered incentive scheme like S-factor:
• based upon a value of reduced energy consumption
• target based on net benefits achieved, energy or

capacity saved

• Well-designed scheme would involve:
• an appropriate measurable target
• an adequate quantum of reward
• the marginal incentive rate
• caps or floors to mitigate the risks of the incentive

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Incentive options

• Rewarding Innovation and R&D is key to driving DSP:
• An “obligations-led” approach to regulation will hinder

innovation and R&D

• Rewards of innovation and R&D are generally long term in

nature:

• Under building block regulation, rewards are truncated
• Ofgem has implemented Innovation Funding Incentive (IFI)

to address this issue:

• IFI has yielded some positive results

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Cost-reflective pricing

• Strongest driver of DSP will be a cost reflective price signal:
• Gives consumers and potential investors the future cost of

consumption

• Provides a financial incentive for them to change their

consumption and /or investment behaviour, if beneficial

• This allows the community to optimise its use of its current

resources, therefore, maximising community welfare

• SP AusNet’s critical peak pricing tariff as a case study

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Case study : Critical Peak Tariff

<160MWh (large LV, HV and Sub-transmission customers) Tariff Component Approved Tariff Two Part Demand Charge The demand charge based on the average of customer’s maximum kVA recorded on the 5 nominated peak demand weekdays during the Defined Critical Peak Demand Period. Capacity Charge based on the Capacity of the connection assets Defined Critical Peak Demand Period Days must be in summer (+ March), and the days will be nominated and communicated to customers at least one day in advance. The period only includes between 2pm-6pm on that nominated day. The 5 maximum’s are averaged and used as the basis for the demand charge for the next 12 months. Energy Charge Similar to existing charges Standing Charge Similar to existing charges

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• 2011 summer period* saw a marked response to the

critical peak tariff. Of 1,800 industrial customers:

• 66% reduced their demand from the nominated value
• Over 300 reduced their demand by more than 50%
• Over 75 customers achieved reductions above 90%.
• This represented a net 88MW reduction in peak demand

* The 2011 Victorian summer was mild so caution must be taken before intimating all the

• bserved demand reduction was due just to the new tariff.

Case study : Critical Peak Tariff

Customer without generation

100 200 300 400 500 600 0:30 1:30 2:30 3:30 4:30 5:30 6:30 7:30 8:30 9:30 10:30 11:30 12:30 13:30 14:30 15:30 16:30 17:30 18:30 19:30 20:30 21:30 22:30 23:30 Time kVA 7-Mar-11 11-Mar-11 18-Mar-11 24-Mar-11 29-Mar-11 Weekday Note Times are

Case study : Critical Peak Tariff

Customer with generation

50 100 150 200 250 300 350 400 0:30 1:30 2:30 3:30 4:30 5:30 6:30 7:30 8:30 9:30 10:30 11:30 12:30 13:30 14:30 15:30 16:30 17:30 18:30 19:30 20:30 21:30 22:30 23:30 Time kVA 7-Mar-11 11-Mar-11 18-Mar-11 24-Mar-11 29-Mar-11 Note Times are

Case study : Critical Peak Tariff

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Concluding remarks

• Price signals work
• Retailers pass on the network price signals
• Creating the right price signal creates a market product
• If ‘Time of Use’ tariffs are rolled out for domestic and

commercial customers, will this ignite the DSP market?

• Incentives work
• Further work to develop scheme with suitable

parameters