Securing Alternative Supply:
Advanced Renewable Tariffs
and Demand Response
Bruce Chapman
Christensen Associates Energy Consulting
October 3, 2012
Wisconsin Public Utility Institute
Fundamental Course: Energy Utility Basics
Agenda

Advanced Renewable Tariffs

Demand Response
October 3, 2012
2

Advanced Renewable Tariffs
Precursors to ARTs

PURPA required utilities to buy others’
generation at avoided cost

On-site generators of large customers served
under standby tariffs

Net metering: many jurisdictions mandate some
means to permit small providers to net out own
supply and sell back surpluses to the utility
 Limits on size of generation units and overall peak
capacity served
 Selling back sometimes credited at utility’s retail rate,
more often at avoided cost
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4
ART/“Feed-in” Tariff Components

Guaranteed interconnection

Premium rate, declining over 20-year
contract life
 Rate based on renewable generation source’s
cost of service, including reasonable return

Cost recovery via a system benefits charge

Can include a MW maximum for
jurisdictions, to limit risk to utilities and
consumers of price rise
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Status in U.S. of ARTs/FITs
Source: NREL, A Policymaker’s Guide to Feed-In Tariff Policy Design, July 2010p. 20
http://www.nrel.gov/docs/fy10osti/44849.pdf
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Recent Trends in ARTs/FITs

2010-12 have featured pauses, backward steps in
some jurisdictions:
 Spain, the U.K., other nations in Europe and elsewhere
and have cut payments, including retroactively


German rates are also being reduced to reflect
declining technology costs
North American jurisdictions mixed:
 U.S. not advancing, perhaps due to government
budgets, rise of shale gas potential
 Canada expanding, especially Ontario and Nova
Scotia; Ontario now among the most generous North
American jurisdictions, but prices are declining as
renewable technology costs decline
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Illustrative FIT Prices ($US)
Jurisdiction
Wind
Years
Large Solar
$/kWh
Years
$/kWh
20
15
25
$0.24
$0.26
$0.30
Small Solar
Biomass
Degres
sion
Years $/kWh
Years $/kWh
North America
Florida, Gainesville
Indiana (NIPSCO)
Vermont
Wisconsin (Alliant-WPL)
Wisconsin (Xcel Energy)
NA
15
20
NA
Ontario
Nova Scotia
20
20
$0.13
$0.13
20
NA
$0.43
NA
20
NA
$0.69
NA
12.40
20
$0.12
$0.12
20
25
$0.29
$0.18
20
25
$0.39
$0.38
20
$0.15
25
$0.13
25
$0.58
Europe
Germany
Spain
France
Great Britain
Source: Paul Gipe
•
•
•
•
NA
$0.10
$0.13
$0.09
20
15
$0.32
$0.30
10
$0.25
-9%
-10%
http://www.wind-works.org
Prices vary widely across technologies.
Prices vary widely with scale of technology.
Prices are relatively similar across jurisdictions.
Some prices “degress” over time at an annual degression rate.
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Hydro
Years
$/kWh
NA
15
20
NA
NA
$0.12
$0.13
$0.09
NA
15
20
NA
$0.11
$0.13
0.073
$0.07
20
20
$0.13
$0.17
40
20
$0.12
$0.14
20
NA
$0.15
NA
20
NA
$0.11
NA
20
$0.15
20
$0.07
The German Experience

German intention:
 Reduce environmental impact of energy
 Stimulate development of clean energy
industry

Outcome:
 Share in electricity consumption rose from
6.4% in 2000 to 17% in 2010; targeting 35% for
2020
 Germany is now a significant producer in
renewable energy generation
– Government claimed 280,000 jobs in 2009
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Current Issues


Renewable targets are being reviewed as part of
discussion of fate of nuclear generation
Electricity cost increases are being questioned:
 Small apparent price increases, but future uncertain
 Subsidy for renewables vs. claimed negative effect of
renewables on spot prices


Out-of-merit dispatch vs. absence of
environmental cost in standard generation costs
Cap and Trade results in (partial) offset of
German conservation by increased fossil
production elsewhere
October 3, 2012
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ART vs. RPS

ARTs may compete with Renewable Portfolio
Standards in stimulating demand for renewable
generation
 An RPS attempts to regulate the quantity of
renewable generation while an ART/FIT attempts to
regulate its price
 Arguably, one must choose
– Europe has chosen ARTs
– US favors RPSs but is still looking at ARTs
– ART advocates maintain that having both is feasible

29 states, DC and two territories have a
mandatory RPS; 8 states and two territories have
voluntary RPS targets (DSIRE 2012)
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ARTs & RPSs World-Wide
No. of
Countries
High income
46
Upper-Middle Income
36
Lower-Middle Income
24
Low Income
13
Total
119
N
35
20
16
3
74
ART
R
3
0
0
0
3
T
N
38
20
16
3
77
8
5
4
1
18
RPS
R
4
0
0
0
4
T
N
12
5
4
1
22
5
2
4
0
11
Both
R
2
0
0
0
2
T
7
2
4
0
13
N: national; R: regional; T: total
Source: Renewables 2012 Global Status Report, pp. 70-72
Use of ARTs continues to spread, but the rate of growth is slow.
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
Demand Response
Demand Response – (DR)
or, Price-Responsive Demand (PRD)

What is it?
 Changes in consumers’ electricity usage
pattern (particularly in peak periods) in
response to
–Price signals (e.g., occasional high prices),
–Incentive payments (for load reductions), or
–Requests to curtail usage
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Why Important? Inefficient Markets
Disconnect Between Wholesale and Retail Markets

Wholesale costs – vary substantially by
season, day, and hour (and location)
 Highly skewed – many low-cost hours; few
very high-cost hours (e.g., 1 – 2%)

Retail price – typically fixed at an average
for season or year (or possibly time of
day)
 Consumers don’t see or respond to
variations in wholesale costs
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Market Inefficiency / Lost Opportunities
(Persistent differences between cost and price)
$500
Cost far exceeds price
$400
Hourly wholesale costs
$/MWh
$300
Price exceeds market cost
$200
Retail price
$100
$0
0%
10%
20%
30%
40%
50%
60%
Hours
PJM LMP
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Average price
70%
80%
90%
DR Has a Role in Various
Wholesale Electricity Markets

Energy markets (kWh)
 Day-ahead
 Hour-ahead
 Real-time

Capacity markets (maximum kW)
 PJM, ISONE
 Utility resource plans

Ancillary services markets
 Supplemental/non-spinning reserves
 Synchronized/spinning reserves
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How to Achieve
Price-Responsive Demand (PRD)

Price-based mechanisms:
 Dynamic retail pricing: Prices vary to reflect
costs
 DR programs: Retail prices remain fixed, but
consumers receive credits for load reductions

Quantity-based mechanisms
 Utilities: Direct load control (e.g., AC);
interruptible service (large customers)
 DR programs: Emergency or capacity-based
DR through ISO/RTOs
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Do Customers Respond to Dynamic
Pricing? Overview

YES. Numerous studies show significant
price response on average

Considerable variability across customers
 Most responsive – large; energy intensive;
have facilitating technology
 Small % of customers provide large % of total
response
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CPP for C&I Customers (> 200 kW)
Recent California Experience


Voluntary CPP rates offered since 2005
Transition to default CPP
 SDG&E in 2008;
 SCE in fall 2009
 PG&E in spring 2010

CA Energy Consulting conducted
statewide load impact evaluations for 2006
through 2009, as well analysis of other
demand response programs
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Default CPP Load Impacts, SDG&E
Average Event Day
500,000
90,000
Reference
Event Day
Load Impacts
400,000
80,000
70,000
350,000
60,000
300,000
50,000
250,000
40,000
200,000
30,000
150,000
20,000
100,000
10,000
50,000
0
0
-10,000
1
2
3
4
5
6
7
8
9
10
11
12
13
Hour
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14
15
16
17
18
19
20
21
22
23
24
Load Impacts (kW)
Reference and Event-Day Load (kW)
450,000
Distribution of C&I CPP Load
Impacts across Customers

Share of load impacts accounted for by the
top-responding 5% of customers:
 PG&E:
 SCE:
 SDG&E:
October 3, 2012
64% (16% of load)
55% (15% of load)
74% (13% of load)
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Conclusions

Price-responsive demand is vital to wellfunctioning wholesale power markets
 Dynamic pricing provides natural market-based
approach
 DR programs can provide price signal in
absence of efficient retail pricing

Key issues:
 Costs of advanced metering
 DR program design without subsidies
 Measuring DR load impacts (baseline)
October 3, 2012
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Appendix: Types of
Price-Responsive Demand


Dynamic, time-varying pricing
Utility programs
 Direct load control
 Interruptible programs

ISO/RTO programs
 Economic response
 Reliability response
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A. Dynamic, Time-Varying Pricing

Real-time pricing (RTP)
 Hourly pricing with day-ahead or hour-ahead
notice

Critical-peak pricing (CPP)
 Flat or TOU rate, plus a critical peak-period
price when high-load/high-cost market
conditions occur

Peak-time rebate (PTR)
 Credit for critical, or peak-time load
reductions relative to baseline load
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B. DR Programs – Utilities

Direct load control (e.g., AC, water heat)
 Monthly credit for utility right to invoke
cycling strategy

Interruptible service
 Capacity credit for utility right to call for
interruption
 No payment for performance or overcompliance
 Strong penalty for non-compliance
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C. DR Programs – ISO/RTOs



Retail load “participates in the wholesale market” by
bidding demand reductions
Needed due to absence of dynamic retail pricing
Customers generally participate through energy
providers or curtailment aggregators
 Economic – Customers receive DR payment ($ per
kWh-reduced), as substitute for a dynamic price
 Reliability – Customers receive capacity credit for
committing to curtail when called; and often an energy
payment for load reductions during events
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