Economic
Demand Response
Sheldon Fulton
Executive Director, IPCAA
November 4, 2008
Outline
1. What is Economic Demand Response (DR)?
2. How is the Alberta electricity market unique?
3. What is the value of Economic DR?
4. What are the proposed objectives and activities of the
Economic DR working group?
Overview of DR
What is Demand Response (DR)?
 DR is a mechanism to reduce demand in response to certain
conditions
Why DR?
 To hedge against high market prices
 To avoid significantly higher costs and waiting time required for
additional generation investment
 To provide “safety cushions” for system supply
 To deal with reliability issues
Who administers DR?
 Generally administered by ISOs or other entities such as utilities,
planning agencies and/or commercial corporations
Economic DR
What is Demand Response (DR)?
 DR is a mechanism to reduce demand in response to certain
conditions
Why DR?
 To hedge against high market prices
 To avoid significantly higher costs and waiting time required for
additional generation investment
 To provide “safety cushions” for system supply
 To deal with reliability issues
Who administers DR?
 Generally administered by ISOs or other entities such as utilities,
planning agencies and/or commercial corporations
Economic DR Objectives
1. Reliably predict uptake (MW) by hour
2. Compensate curtailment in an appropriate manner
3. Standardized and efficient measurement and
verification
4. Full understanding and management of feed-back
loops
5. A series of complementary DR Programs targeted at
the various categories of Economic DR
Categories of DR
1. Load Shedding
2. Load Shifting
3. Distributed Generation
Voluntary DR
 Participants are notified of need for demand
curtailment and can select whether or not to curtail
without commitment in advance
 Participants are notified of the need for demand
curtailment and must offer in specified curtailment
proposals. Once offers are accepted, participants
are obligated to curtail demand as proposed.
Contractual DR
 Once participants have qualified for the DR Program
they are obligated to curtail their demand on execution
of the trigger signal.
 Participants receive an “availability” payment for
committed MWs and hours; must be consuming in
order to receive payments
The AESO Hourly Market
Balances demand level by stacking up supply offers
An energy offer is assumed to represent the marginal energy cost for a
generator at a specific level of output
Demand
Price
Market Clearing
Price
Zero bid offers
MWh
All generators in the offer stack receive a uniform market clearing price
Market Scale Mismatch
Market is the interactions between groups of buyers
(the demand side) and sellers (the supply side)
Cost
Value
250
1000
S
E
L
L
E
R
Demand
200
900
800
150
Price
700
B
U
Y
E
R
600
100
Supply
0
Quantity
DR Value Considerations
Automatic
Notice Period
Day-ahead
DR
Load Segment
Intermediate
Voluntary
Mandatory
Peak
Alberta Electricity Market
Comparative Markets 2005
Ontario 2005 - Price vs Load
Ontario
2005
30000
1000
27000
900
2005 Ontario Load
21000
[MW]
800
2005 Ontario Spot Price
700
18000
600
15000
500
12000
400
9000
300
6000
200
3000
100
0
100%
[$/MWh]
24000
0
90%
80%
70%
60%
50%
40%
30%
20%
10%
Alberta
2005
Alberta 2005
- Price vs Load
12000
1000
2005 Alberta Load
900
2005 Alberta Spot Price
800
9000
[MW]
600
6000
500
400
300
3000
200
100
0
100%
90%
80%
70%
60%
50%
40%
30%
20%
13
10%
0
[$/MWh]
700
Comparative Markets 2006
Ontario 2006 - Price vs Load
Ontario
2006
30000
1000
27000
900
2006 Ontario Load
21000
[MW]
800
2006 Ontario Spot Price
700
18000
600
15000
500
12000
400
9000
300
6000
200
3000
100
0
100%
[$/MWh]
24000
0
90%
80%
70%
60%
50%
40%
30%
20%
10%
Alberta 2006
- Price vs Load
Alberta
2006
12000
1000
900
2006 Alberta Load
2006 Alberta Spot Price
800
9000
[MW]
600
6000
500
400
300
3000
200
100
0
100%
90%
80%
70%
60%
50%
40%
30%
20%
14
10%
0
[$/MWh]
700
Comparative Markets 2007
Ontario 2007 - Price vs Load
Ontario
2007
30000
1000
27000
900
2007 Ontario Load
[MW]
800
2007 Ontario Spot Price
21000
700
18000
600
15000
500
12000
400
9000
300
6000
200
3000
100
0
100%
[$/MWh]
24000
0
90%
80%
70%
60%
50%
40%
30%
20%
10%
Alberta 2007
Alberta
2007- Price vs Load
12000
1000
2007 Alberta Load
900
2007 Alberta Spot Price
800
9000
[MW]
600
6000
500
400
300
3000
200
100
0
100%
90%
80%
70%
60%
50%
40%
30%
20%
15
10%
0
[$/MWh]
700
Comparative Markets 2008
Ontario 2008 (Jan to Sep)
30000
1000
2008 Ontario Load
2008 Ontario Spot Price
[MWh]
24000
900
800
21000
700
18000
600
15000
500
12000
400
9000
300
6000
200
3000
100
0
100%
0
90%
80%
70%
60%
50%
40%
30%
20%
10%
Alberta 2008 (Jan to Sep)
12000
1000
900
800
700
[MWh]
600
6000
500
400
300
3000
200
100
0
100%
90%
80%
70%
60%
50%
40%
30%
20%
16
0
10%
[$/MWh]
2008 Alberta Load
2008 Alberta Spot Price
9000
[$/MWh]
27000
Increasing High Prices
Value of Economic DR
Value by 5% Increment - 2006
Value by 5% Increment - 2007
Value by 5% Increment - 2008
Ontario & Alberta - 2005
Value = (Hourly Price * Hourly Demand)
35%
30%
Alberta 2005 % Value
25%
Ontario 2005 % Value
20%
15%
10%
5%
0%
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
% of total value in each 5% interval of hours
Ontario & Alberta - 2006
Value = (Hourly Price * Hourly Demand)
35%
30%
Alberta 2006 % Value
25%
Ontario 2006 % Value
20%
15%
10%
5%
0%
100
95
90
85
80
75
70
65
60
55
50
45
40
35
% of total value in each 5% interval of hours
30
25
20
15
10
5
Ontario & Alberta - 2007
Value = (Hourly Price * Hourly Demand)
35%
30%
Alberta 2007 % Value
25%
Ontario 2007 % Value
20%
15%
10%
5%
0%
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
% of total v alue in e ach 5% inte rv al of hours
Ontario & Alberta 2008 (Jan to Sep)
Value=(Hourly Price * Hourly Demand)
35%
30%
Alberta 2008 % Value
Ontario 2008 % Value
25%
20%
15%
10%
5%
0%
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
% of total value in each 5% Interval of Hours
25
20
15
10
5
Alberta’s Price Signal
AESO Alberta Hourly Electricity Pricing Apr 1-20 2008
8000
7500
7000
6500
6000
Load
5500
5000
4500
4000
Price
$1,000
$900
$800
$700
$600
$500
$400
$300
$200
$100
$0
AESO $/MWh
Load (MW)
8500
AESO Alberta Hourly Electricity Pricing Apr 8-9 2008
$1,000
8500
$900
$800
$700
$600
7500
$500
$400
7000
$300
$200
6500
Load
6000
Price
$100
$0
AESO $/MWh
Load (MW)
8000
A Closer Look (April 9th, 2008)
1000
9000
April 9 2008 System Demand & Prices
900
800
8700
April 9 10:00AM:
Demand: 8137MWs
Price:
$990.00
8400
700
8100
600
7800
500
7500
Price ($)
System Demand (MW)
400
7200
300
6900
200
6600
100
6300
0
04/09/2008 01
6000
04/09/2008 04
04/09/2008 07
04/09/2008 10
04/09/2008 13
04/09/2008 16
04/09/2008 19
04/09/2008 22
$1,000
AESO Merit Order Offer Stack For 10:00am April 9 2008
$900
$800
$700
Δ 80 MW
$200
Δ 175 MW
$300
Δ 270 MW
$535
Δ 338 MW
$719
Δ 452 MW
$886
8300
$1,000
8239
$990
8220
$800
8125
$700
$500
8029
$465
$400
$300
7962
$281
$200
7848
$114
$100
Price
1,
25
9
1,
43
2
1,
86
5
3,
87
4
4,
55
2
5,
88
1
6,
62
0
7,
12
4
7,
40
7
7,
58
6
7,
76
4
7,
94
1
8,
03
3
8,
22
0
8,
63
7
73
2
$0
88
Price
$600
Generation Offered (MW)
Sub-Group
on
Economic DR
Scope of Work
 Conduct market analysis to determine the value and
appropriate timing and quantity of Economic DR; and
 Conduct a consultation to develop product design
alternatives, including design work on: contracts,
pricing mechanism, and rules governing contract
performance and pricing elements.
 Design work would be completed as part of a
comprehensive DR plan for the Alberta Market, giving
consideration to costs to implement, benefits and
impacts.
Sub-group Structure
Entity
IPCAA
ADC
UCA
PICA
AESO
IPPSA
Generator
Individual
Sheldon Fulton
Vittoria Bellissimo
Colette Kearl
Ron Henderson
Raj Retnanandan
Laura Letourneau
Evan Bahry
TBD
Pricing Options
 How would DR be priced?
 Availability payments?
 Utilization payments?
 How does the remainder of load compensate the
curtailed load?




Exercisable option contracts?
Price Insurance?
System benefit charge?
Alternatives?
Product Design
 What would DR products look like?
 Voluntary/Contractual?
 Seasonality?
 On-peak/Off-peak?
 How is the value relationship between Economic DR
and Reliability DR defined?
 Product design work needs to occur in parallel
Key Factors for Commercial DR Product Design
1.
Contract – Product to be transacted
•
•
•
•
What is being traded?
Who are the buyers and sellers?
Buyer’s & seller’ rights & obligations
Terms & conditions
2.
Pricing Mechanism – How is price determined?
•
•
•
•
•
•
3.
How do buyers & sellers interact?
What is the “purpose” of the price signal?
How is pricing to be done?
Interactive bid-offer, auctions, competitive RFOs
What are the key pricing fundamentals?
What is the life time of the product being traded?
- Economic - Physical
Rules governing contracts & pricing
•
•
•
•
•
•
What are the “rights” and “obligations”
- Of buyers
- Of sellers
How is “delivery” achieved?
What constitutes “title transfer”?
What is the mechanism for measurement and verification?
Performance assurance
Transparency and disclosure of pricing
Questions?
Please feel free to contact IPCAA at:
 Sheldon.Fulton@IPCAA.ca / 403 966 2300
 Vittoria.Bellissimo@IPCAA.ca / 403 966 2700