March 10, 2008
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Transcript of March 10, 2008
March 10, 2008
Day-Ahead Load Response Program (DALRP) Proposal
Review with Markets Committee
Contact Information:Herb [email protected]
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution2
Outline of Review
Overview of DALRP – Impacts on Real-Time LMP
Issue of Static Customer Baseline – Rules Flaw
Effect of Revised ISO Rules
EnerNOC’s Alternative Proposal
Examples
Summary
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution3
Overview of DALRP – Benefits to Load
Intent of the DALRP– participation of demand side resources in the DA market
competitively with supply– ability of DR resources (facilities) to decide, based on
opportunity costs, when to offer load reduction into the market
Since DALR is not integrated into the clearing of the day-ahead energy market, DALR load reductions only affect real-time prices
EnerNOC has previously shown to Markets Committee– real-time demand reductions impact marginal price at any
time; cost reductions are not limited to only high-priced hours – DALR resources reducing consumption in real time prevent
the need for dispatch of a higher-cost unit, effectively lowering LMP and reducing overall system cost
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution4
– Using 2007 ISO-NE control area day-ahead demand/price data and fuel index, calculated implied heat rate as a function of demand
– Using results of regression, estimated impact of 1 MW reduction on LMP at various dispatch heat rates
Estimated LMP Impact of Demand Reductions
0.45
0.50
0.55
0.60
0.65
0.70
0.75
7,500 8,500 9,500 10,500 11,500 12,500Marginal Heat Rate
Imp
act
on
LM
P
(cen
ts/M
Wh
)
Marginal Impact of Demand Reduction
Poly. (Marginal Impact of Demand Reduction)
Real-time Impact of DALRP
Real-time demand reductions can impact marginal price at any time
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution5
Value of DALRP to Market
– Using analysis from previous slide, estimated value of reductions on net cost to serve real-time load (~10% according to Annual Market Report)
– Note: Assumed that DALR resource was able to respond 24x7
Estimated System Benefit of a DALR MW
$0
$10,000
$20,000
$30,000
$40,000
$50,000
8.00 9.00 10.00 11.00 12.00 13.00Heat Rate Threshold (MMBTU/MWh)
Est
imat
ed R
edu
ctio
n o
f C
ost
to
Ser
ve R
T L
oad
Real-time demand reductions substantially reduce the cost to serve load
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution6
Rules Flaw – Issue of Static Customer Baseline
Market Participants can engage in strategic behavior under the current structure of the DALR program
– cleared days (ie, days when participating in DALRP) are not used in Customer Baseline (CB)
– CB is locked over successive clearing days
– offers at minimum floor price clear on most days
– market participants can earn inappropriate payments by establishing and locking in a high CB
• CB can be “gamed”
EnerNOC agrees the rules flaw MUST and CAN be fixed
– address the flaw; ie, CB methodology
– don’t proscriptively constrain ability of market participants to participate
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution7
Effect of Revised ISO-NE Rule Change
On February 7 ISO-NE implemented revised minimum offer price for DALRP
Result of revised minimum offer price:
– Participants not clearing on successive days
– Any previously static customer baselines (CBs) have been refreshed
ISO-NE version addresses potential for strategic behavior, but precludes demand resources from clearing in the market; through March 1
• In CT, DA price > min. offer price in 20 of 187 program hours (10.7%)
• In ME, DA price > min. offer price in 2 of 187 program hours (1.1%)
ISO-NE version precludes demand resources from providing system
benefit through downward pressure on real-time prices
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution8
Alternative DALRP Proposal – Possible Approaches
EnerNOC raised two approaches with the Markets Committee representing possible long-term solutions
– Alter CB methodology to force inclusion of recent data, as necessary
• For example, baseline incorporates at least x of y trailing days worth of data, including DALRP cleared days as necessary
– Impose administrative limit on resource clearing frequency (e.g., x days per week/month)
Neither approach was discussed or voted upon by the ISO or NEPOOL
– Note: EnerNOC proposed a interim solution – a lower indexed threshold price
EnerNOC believes that changes to the mechanics of the CB calculation both narrowly focus and fully address the rule flaw
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution9
Mechanics
– CB calculated over trailing 45 program-day window using existing weighted-average methodology
– CB must include at least 15 program days
– If 15 or more non-cleared program days exist in the 45-day window, CB calculated using all of those days (no cleared days included)
– If 15 non-cleared program days do not exist in the 45-day window, CB calculation first uses all non-cleared program days then incorporates most-recent cleared program days until minimum 15 program days reached
This alternative proposal ensures dynamic CBs while allowing demand response resources to continue to actively participate in the market
EnerNOC’s Alternative DALRP Proposal
Alter CB methodology to force inclusion of recent data
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution10
Example 1: resource clears 30 of 45 program days in trailing 45 program-day window– CB calculated using 100% non-cleared program days’ data
Example 2: resource clears 35 of 45 program days in trailing 45 program-day window– CB calculated using 10 non-cleared program days in window
plus 5 most recent program days
EnerNOC Alternative DALRP Proposal –
Application of Methodology
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution11
Baseline Illustration – Seed Period Gaming
Strategic behavior originally presented by ISO enabled by gaming of “locked” CB and “seed period” (first five days of enrollment -> create initial CB); we modeled how such behavior would play out under each strike price/CB scenario
Graph on following slide -- key takeaways:
– Existing CB with $50 strike price (orange line) reflects seed period problem – customer has measured, but not actual, load reduction
– Existing CB with heat rate-indexed strike price (purple line) adjusts over time (offer does not clear 70% of days), but slowly
– Proposed baseline (red line), which gives a higher weight to more recent data, adjusts to actual load profile (even with 100% cleared offers)
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution12
Seed Period GamingExisting and Proposed Baselines
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1/2 1/9 1/16 1/23
MW
Existing Baseline, $50 Strike Price Existing Baseline, Revised Strike PriceProposed Baseline Actual Demand
Baseline Illustration – Seed Period Gaming
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution13
Baseline Illustration – Permanent/Seasonal Load Reductions
Assuming same customer would participate as often as possible (as in the past), we modeled how permanent/seasonal changes in load play out under each strike price/CB scenario
Graph on following slide -- key takeaways:– Existing CB with $50 strike price (orange line) reflects problem of
“locked” baseline – customer has measured, but not actual, load reduction
– Existing CB with heat rate-indexed strike price (purple line) is slow to pick up permanent changes to load profile• Customer participates ~50% of time (ISO-NE hub price,
backcasted threshold price)– Proposed baseline (red line) is quick to pick up permanent load
profile changes, refreshing CB even during a period of frequent customer participation
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution14
Permanent or Seasonal Load ReductionExisting and Proposed Baselines
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
7/28 8/4 8/11 8/18 8/25
MW
Existing Baseline, $50 Strike Price Existing Baseline, Revised Strike PriceProposed Baseline Customer Demand
Baseline Illustration – Permanent/Seasonal Load Reductions
© 2008 EnerNOC, Inc. All Rights Reserved – Strictly Confidential, Permission Required for Distribution15
Proposed Baseline - Summary
Proposal is designed to be as similar to existing and (ex. gaming) effective baseline methodology while directly addressing underlying program issues:– Proposed CB is as accurate as existing CB since it is based on current
CB (weighted average of historical data), small changes for accuracy (more weight given to recent data, event days included if insufficient data)
– Proposed CB addresses strategic behavior discussed by ISO even over periods of frequent participation; no more “locked” CB
Guarantees program payments are appropriate; resources reducing usage as measured against a contemporary baseline
Restores substantial market benefits that demand resources can provide that are precluded by ISO-NE’s proposal
Not discriminatory (i.e., allows demand response resources to participate like supply resources—whenever market prices justify action)