Smart Grid Increasing the IQ of the Smart Grid • Unclear exactly what the smart grid is, but Through Active Customer it does include Participation in Wholesale Electricity – Interval meters Markets – Storage and load flexibility technology – Automated response technology Frank A. Wolak • Technology without information or an Director, Program on Energy Sustainable Development incentive for the consumer to use it is Professor, Department of Economics unlikely yields economic benefits Stanford University • Two important necessary conditions wolak@stanford.edu ignored in discussions of smart grid http://www.stanford.edu/~wolak (Joint work with Matthew Kahn) – Information provision – Dynamic Pricing 2 Outline of Talk Why Active Participation is Essential • Why active participation of consumers is essential • Many jurisdictions have ambitious renewable energy goals • Managing intermittency – California has 33 percent renewable energy share goal by 2020 • Managing unilateral market power • Renewables are often unavailable during peak periods • Three necessary conditions for active participation – During July 2006 heat storm, July 24 demand in California ISO control • Interval meters, adequate information, dynamic pricing area hit a 1 in 50 year peak of 50,200 MW • The role of information in active participation • Less than 5 percent of installed wind capacity was operating at the time • Information experiment – In California, wind energy comes primarily during night and solar energy • The role of dynamic pricing in active participation can only come during the day • Dynamic Pricing versus Time-of-Use Pricing • Cloud cover can significantly reduce solar PV output • Symmetric treatment of load and generation – Wind and solar output are highly positively correlated across • Dynamic Pricing Experiment locations in California • Hourly Pricing (HP) • If there is no wind at one location, there is likely to be no wind at others • Critical Peak Pricing (CPP) • Major factor driving need for dynamic pricing—High wholesale prices • Critical Peak Pricing with Rebate (CPP-R) do not cause more wind or solar energy to be produced • Day-ahead versus real-time dynamic pricing programs – As share of renewable energy grows final consumers must supply more • Automated dynamic demand response “dispatchable negawatts” to maintain system balance • The role of symmetric treatment of load and generation • Load-shifting or investments in energy storage technologies 3 4 1
Daily Load Shape in California Hourly Demand July 24, 2006 60000 Demand in Megawatt-Hours 50000 40000 30000 20000 10000 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 Hours of the Day Actual System Load Scheduled Load Hour Ahead Forecast 2-Day Ahead Forecast 5 6 Economics of Energy Efficiency Solar Output During Daylight Hours in California ISO Control Area • Variation in electricity demand throughout day and year – On 7/24/06 demand ranged from 28,300 MW to 50,200 MW – 50,200 MW is still historic peak for California ISO system • Average MW consumption per hour during 2006 – Approximately 27,000 MW – Peak demand for 2006 is 50,200 MW • Reducing peak demand through active participation – Eliminate need to construct new generation capacity – Can retire old inefficient units located close to large cities • Significant fraction of generation capacity used very infrequently – In California approximately 5,000 MW (10 percent of peak demand) used less than 2 percent of hours of the year – With climate change larger fraction is likely to be used even less frequently 7 8 2
California ISO Control Area California Summer Loads Conditions: 1998 to 2009 (Peaks are More Variable than Total Demand) Annual 9 10 Barriers to Active Participation Necessary Conditions for Active Participation • Substantial state-level regulatory barriers to • Lack of hourly metering of final demand makes it active participation impossible to set hourly retail prices that pass-through hourly wholesale price – “Consumers must be protected from short-term price risk” – Customer reduces monthly bill by same amount by reducing – “Electricity is a right, not a commodity” consumption by 1 KWh during hour when wholesale price is • Wolak, Frank (2007) “Managing Demand-Side Economic and Political Constraints on Electricity $5000/MWh as he does when price is $0/MWh Industry Re-structuring Processes,” on web-site. • Stakeholders in regulatory process realize few, • Economics of hourly meters is rapidly changing because of technological change if any, benefits from active participation – Modern hourly meters are read remotely by wireless or wireline – Most lose--Regulatory staff, Generation unit owners, Distribution utilities technology • Only consumers realize benefits – Interval metering investment in California justified primarily using labor cost saving and increased outage monitoring quality – Wolak, Frank (2010) “An Experimental Comparison of Critical Peak and • All California investor-owned utilities should have Hourly Pricing: The PowerCentsDC Program,” on web-site interval meters in place for all customers by end of 2012 – Wolak, Frank (2006) “Residential Customer Response to Real-Time Pricing: The Anaheim Critical-Peak Pricing Experiment,” on web-site – Need retail prices and information provision that maximize the benefits consumers realize from these meters 11 12 3
Nonlinear Price Schedules Necessary Conditions for Active Participation (SCE = Southern California Edison) (SMUD = Sacramento Municipal Utility District) • Consumers need to understand how their energy- consuming actions translate into dollars on their monthly electricity bill – Do not directly consume electricity – Electricity is a derived demand from the consumption of services from electricity-consuming durable goods • Watching television, washing clothes or dishes, using computer • Consumer needs to have information on costs of its energy-consuming actions to make informed choices • Most electricity utilities in California charge according to nonlinear price schedule which complicates this process – Information provision experiment described below attempts to assist in this process 13 14 The Role of Retail Pricing Information Experiment • Dynamic retail prices are source of the economic benefits to • PESD researchers partnered with two California electric utilities to consumers that alter their consumption to maintain system balance address the question of the role of information provision on a customer’s ability to participate in wholesale market – Manually in day-ahead time frame – Automatically (using technology) in real-time • Designed an “information treatment” to investigate two questions – Requires hourly meters to implement – How nonlinear price schedule impacts a customer’s monthly electricity bill • Must measure consumption on hourly basis to charge hourly prices – How customer’s electricity-using actions translate into monthly bill – Consumers must understand how their actions translate into dollars • On-line “information treatment” (roughly 30 minutes) • Dynamic retail prices also provide business case for consumers to – 1) Shows customer nonlinear price schedule they face and where they were on invest in energy efficiency and storage technologies that schedule during most recent months – Value of storage is ability to buy energy at low price and sell or displace purchase – 2) Takes an inventory of customer’s energy consuming durable goods and of energy at high prices utilization of these durable goods – Requires hourly meter to implement – 3) Suggested energy savings that customer could undertake based on inventory and utilization and showed expected impact on monthly electricity bill – Consumers must understand how actions translate into dollar savings • Interactive and allowed customer to consider many options and then “commit” to actions • Conclusion--Combination of hourly meters, information – 4) Customer was sent follow-up .pdf file of results to remind them of their provision, and dynamic retail pricing are necessary for “commitments” consumers to benefit from active participation 15 16 4
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