FACS borenstein Dec03

Information about FACS borenstein Dec03

Published on April 22, 2008

Author: Abhil

Source: authorstream.com

Content

Demand Response in California’s Electricity Future:  Demand Response in California’s Electricity Future by Severin Borenstein, Professor, Haas School of Business Director, UC Energy Institute (www.ucei.org) A Brief History of Electricity Pricing:  A Brief History of Electricity Pricing In the beginning, there was no metering Then <someone> begat aggregate consumption meters Businesspeople and economists said it was better But utilities still had to plan for highest plausible demand Unlike nearly most other industries, price didn’t adjust to reflect demand changes Technology to do so didn’t exist or was too expensive “buyers wouldn’t respond to prices anyway” “System Operator’s 1st, 2nd, and 3rd, priority is reliability”:  “System Operator’s 1st, 2nd, and 3rd, priority is reliability” Avoiding blackouts was/is job #1 But, maybe in a pinch demand could help out Thus begat “interruptible service” Lower rate, but first to black out if system is short Promise not to black out very often Actually, mainly an industrial customer discount “Interruptions” were actually just high prices Interruptible service minimizes phone calls, but is the most costly way to ration demand Not all power usage has the same value Not all power usage is “critical to our lives” Time-Varying Prices for Electricity:  Time-Varying Prices for Electricity Time-of-Use Pricing Peak/Off-peak, but highest costs are in few hours TOU with Demand Charges Old technology attempt to capture highest peaks Critical Peak Pricing New technology attempt to capture highest peaks Paying for Demand Reduction The “nice guy” approach, but with many headaches Realtime Pricing The gold standard The Value of Time-Varying Retail Prices:  The Value of Time-Varying Retail Prices Efficient pricing in the short-run gives efficient incentives to consume and efficient load shifting among periods Efficient pricing gives optimal long-run incentives to invest in capacity More immediate demand response reduces generator incentive to exercise market power in wholesale market Reduces need for reserve capacity Bottom Line: Lower Long-Run Costs, Higher Consumer Benefits, CSEM WP#116 Methods for Implementing Time-Varying Retail Pricing:  Methods for Implementing Time-Varying Retail Pricing Key differences among plans Granularity of retail prices Timeliness of retail price setting - “dynamic” Adaptability to varying revenue target Bill Volatility – protection against price spikes Granularity and Timeliness are different, but interact in important ways Adaptability need not conflict with protection against volatile bills Flat-Rate Service Revisited:  Flat-Rate Service Revisited poor granularity, no time variation prices are not timely, change annually (?) very adaptable -- change rate to hit revenue target, but prices are very inefficient protection against volatile bills Wholesale price spikes smoothed over long periods Real-Time Retail Pricing (RTP):  Real-Time Retail Pricing (RTP) Excellent Granularity Prices usually change hourly Very Good to Excellent Timeliness Using “day-ahead” or “real-time” price Arguments against RTP bills will be volatile not adaptable to meet revenue requirements BUT straightforward alterations to RTP overcome these objections Issues in Implementing RTP:  Issues in Implementing RTP Customer Price/Bill Risk on RTP Meeting Retailer/Utility Revenue Requirements Mandatory versus Voluntary RTP RTP and Reserve Requirements Mitigating Customer Risk Under RTP:  Mitigating Customer Risk Under RTP Customer risk comes from the possibility of unexpected high wholesale prices Hedge through long-term contracts Active Hedging by Customers or Hedging by Retailer on Behalf of Customer How to pass along gain/loss from hedge while minimizing distortion of retail price? Mitigating Customer Risk Under RTP:  Mitigating Customer Risk Under RTP Retailer Hedges for Customers Still charges RTP on the margin Passes through gains/losses from hedge with minimum distortion of retail price Customer Baseline Load (CBL) approach Constant adder/subtractor to retail RTP Active Hedging by Customers “BYO Baseline” offered by retailer Hedging instruments from energy sector Meeting Retailer/Utility Revenue Requirements Under RTP:  Meeting Retailer/Utility Revenue Requirements Under RTP RTP revenues won’t match retailer’s costs if some power bought under long-term contract if some power generated by retailer if retailer has fixed costs unrelated to energy e.g., distribution costs if retailer has sunk/stranded costs Meeting Retailer/Utility Revenue Requirements Under RTP:  Meeting Retailer/Utility Revenue Requirements Under RTP Collect differential as lump-sum, so marginal price is still RTP CBL approach does this Politics of setting lump-sum levels/baselines Collect differential as constant per kilowatt-hour adder or subtractor still have variability in RTP small inefficiency of consumption Example: Passthrough of Fixed Hedging Gains with Constant “Subtractor”:  Example: Passthrough of Fixed Hedging Gains with Constant “Subtractor” Mandatory versus Voluntary RTP:  Mandatory versus Voluntary RTP If RTP is so great, why do we have to make it mandatory? We don’t. But don’t cross-subsidize flat rate customers The vicious cycle of equalizing average price between RTP and non-RTP customers some RTP customers will always be paying more than they would on flat rate so will switch to flat eventually RTP collapses Voluntary RTP Without Cross-Subsidy:  Voluntary RTP Without Cross-Subsidy The virtuous cycle of allowing each group to stand on its own -- no cross-subsidy lowest-cost customers on flat-rate better off switching to RTP mimics a competitive market outcome lower prices for those who are cheaper to serve if that’s “cherry picking,” I’m for it all customers still pay for fixed/sunk costs, not a method for dodging sunk cost liability The Role of Demand Response in Resource Adequacy and Reserves :  The Role of Demand Response in Resource Adequacy and Reserves RTP will not eliminate the need for reserves so long as price-responsive demand is slower than callable supply But RTP offers more than peak demand reduction demand “tilts” as well as shifts RTP will gradually reduce use of reserves as system operators recognize its reliability Eventually, RTP will reduce the standard for percentage reserves Demand Response and Renewables:  Demand Response and Renewables Demand response flattens load, reducing peaks and raising off-peaks Reduces use of peaker gas power Helps wind and solar power Can make baseload coal more attractive Demand response is not Energy Efficiency Both will play a critical role in CA energy future How Price-Responsive is Demand?:  How Price-Responsive is Demand? Evidence from California 2001 and other conservation programs Evidence from RTP programs and pilots Evidence from dynamic pricing programs and pilots These estimates almost certainly understate price responsiveness as technology improves The next programmable thermostat Where is Demand Response in now?:  Where is Demand Response in now? Nowhere in California (worse than pre-2000), but working groups and pilot projects to restart it – CPUC/CEC joint initiative Still great resistance to RTP. Most initiatives are Critical Peak or paying for demand reduction Open question of resource adequacy for a “non-core” group and role of demand response Conclusions:  Conclusions Static pricing of electricity is based on old metering technology, has large inefficiency RTP is the gold standard of electricity pricing Resistance to RTP is understandable, but not difficult to address Real barrier to RTP is metering cost, but only for small customers (and maybe not even them) starting with large customers probably gets biggest bang for buck Demand response will play significant role in resource adequacy and future CA electricity industry

Related presentations


Other presentations created by Abhil

oyster culture
03. 01. 2008
0 views

oyster culture

laser
02. 05. 2008
0 views

laser

electricity project
10. 10. 2007
0 views

electricity project

CAPM Nt
28. 04. 2008
0 views

CAPM Nt

futures
16. 04. 2008
0 views

futures

601presentation
29. 09. 2007
0 views

601presentation

RJ Iris Equity Seminar
03. 10. 2007
0 views

RJ Iris Equity Seminar

bubbles
03. 10. 2007
0 views

bubbles

weather jeopardy spanish
07. 10. 2007
0 views

weather jeopardy spanish

pc03
09. 10. 2007
0 views

pc03

IVACS2006 handout
09. 10. 2007
0 views

IVACS2006 handout

06 collaborating to improve ell
10. 10. 2007
0 views

06 collaborating to improve ell

lj
13. 10. 2007
0 views

lj

4bTheNobelPrizeinChe mistry2004
15. 10. 2007
0 views

4bTheNobelPrizeinChe mistry2004

Lecture 1 Darwin vs God
15. 10. 2007
0 views

Lecture 1 Darwin vs God

NCMA Presentation
22. 10. 2007
0 views

NCMA Presentation

endangeredspecies ppt
12. 10. 2007
0 views

endangeredspecies ppt

mtom
24. 10. 2007
0 views

mtom

scaling
19. 10. 2007
0 views

scaling

p10
23. 10. 2007
0 views

p10

2007 Applicant Demographics
30. 10. 2007
0 views

2007 Applicant Demographics

WNV
21. 10. 2007
0 views

WNV

cells
20. 11. 2007
0 views

cells

conclusiones V1 sep28 2007
25. 10. 2007
0 views

conclusiones V1 sep28 2007

ap Cold War 07
23. 12. 2007
0 views

ap Cold War 07

10 Review
29. 12. 2007
0 views

10 Review

Isle Royale Simulation
01. 01. 2008
0 views

Isle Royale Simulation

structengr
04. 01. 2008
0 views

structengr

2005 02 07 Could Al Qaeda Win
07. 01. 2008
0 views

2005 02 07 Could Al Qaeda Win

td06030
15. 10. 2007
0 views

td06030

I DESC Japan
09. 10. 2007
0 views

I DESC Japan

section5 lec2
13. 11. 2007
0 views

section5 lec2

205w
03. 01. 2008
0 views

205w

Ceiling Fan Sales Training
23. 10. 2007
0 views

Ceiling Fan Sales Training

v war stuntman
19. 02. 2008
0 views

v war stuntman

HIMARS ENGLISHLANGUAGE
04. 03. 2008
0 views

HIMARS ENGLISHLANGUAGE

ING NYC Marathon 2007
12. 03. 2008
0 views

ING NYC Marathon 2007

K ICMCI as an NGO
20. 03. 2008
0 views

K ICMCI as an NGO

CPB750 TXT
03. 04. 2008
0 views

CPB750 TXT

Unit 4 Japan s Geography 1
07. 04. 2008
0 views

Unit 4 Japan s Geography 1

neither shall the sword
27. 02. 2008
0 views

neither shall the sword

solka fml 4 15 06 dj final
15. 11. 2007
0 views

solka fml 4 15 06 dj final

coface07
13. 04. 2008
0 views

coface07

AMurcko
17. 04. 2008
0 views

AMurcko

mhtb
07. 11. 2007
0 views

mhtb

ç
10. 10. 2007
0 views

ç

Retroviruses105
15. 10. 2007
0 views

Retroviruses105

Krajweski Chapter 15 16
07. 05. 2008
0 views

Krajweski Chapter 15 16

0916 Branch 0730
02. 10. 2007
0 views

0916 Branch 0730

Lec5 3rd
30. 04. 2008
0 views

Lec5 3rd

pp angel cristian
01. 10. 2007
0 views

pp angel cristian

Guy Wormser
23. 10. 2007
0 views

Guy Wormser

From the Inside Looking Out
02. 05. 2008
0 views

From the Inside Looking Out

26 ple edgecock
17. 10. 2007
0 views

26 ple edgecock

rcdt 061127 05
10. 10. 2007
0 views

rcdt 061127 05

CAISModelGreenSchool
07. 03. 2008
0 views

CAISModelGreenSchool

Ordinamento Germania
16. 11. 2007
0 views

Ordinamento Germania

20041005 Adam Posen
09. 10. 2007
0 views

20041005 Adam Posen

A71 Quezada
01. 11. 2007
0 views

A71 Quezada

CAMET Report
22. 10. 2007
0 views

CAMET Report

workbench
08. 10. 2007
0 views

workbench

melderichtlinien
05. 10. 2007
0 views

melderichtlinien

APAN E culturePresentation 1 21
30. 10. 2007
0 views

APAN E culturePresentation 1 21

ANGELImplementationa tLCCC
01. 10. 2007
0 views

ANGELImplementationa tLCCC

Options Questionnaire 12 11 02
29. 10. 2007
0 views

Options Questionnaire 12 11 02

cancer nutri
04. 10. 2007
0 views

cancer nutri

SYSTEM 3 presentation
27. 09. 2007
0 views

SYSTEM 3 presentation

Souza parallel 3 1
12. 10. 2007
0 views

Souza parallel 3 1

Memorial 2007
18. 10. 2007
0 views

Memorial 2007

SIEl 2006
24. 10. 2007
0 views

SIEl 2006