Economic Demand Response
Sheldon FultonExecutive 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 DRWhat 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 DRWhat 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 Objectives1. 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 DRParticipants 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
An energy offer is assumed to represent the marginal energy cost for a generator at a specific level of output
Balances demand level by stacking up supply offers
All generators in the offer stack receive a uniform market clearing price
DemandPrice
Market Clearing Price
MWh
Zero bid offers
Market Scale Mismatch
Quantity
Demand
Supply
Market is the interactions between groups of buyers (the demand side) and sellers (the supply side)
Price
Cost
SELLER
250
200
150
100
0
BUYER
Value
1000
900
800
700
600
DR Value Considerations
Reliability
Notice Period
Day-ahead
Automatic
Voluntary
Mandatory
DR Load Segment
Intermediate Peak
Alberta Electricity Market
13
Comparative Markets 2005
Alberta 2005 - Price vs Load
0
3000
6000
9000
12000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2005 Alberta Load
2005 Alberta Spot Price
Alberta 2005
Ontario 2005 - Price vs Load
0
3000
6000
9000
12000
15000
18000
21000
24000
27000
30000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2005 Ontario Load
2005 Ontario Spot Price
Ontario 2005
14
Alberta 2006 - Price vs Load
0
3000
6000
9000
12000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2006 Alberta Load
2006 Alberta Spot Price
Alberta 2006
Ontario 2006 - Price vs Load
0
3000
6000
9000
12000
15000
18000
21000
24000
27000
30000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2006 Ontario Load
2006 Ontario Spot Price
Ontario 2006
Comparative Markets 2006
15
Alberta 2007 - Price vs Load
0
3000
6000
9000
12000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2007 Alberta Load
2007 Alberta Spot Price
Alberta 2007
Ontario 2007 - Price vs Load
0
3000
6000
9000
12000
15000
18000
21000
24000
27000
30000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2007 Ontario Load
2007 Ontario Spot Price
Ontario 2007
Comparative Markets 2007
16
Alberta 2008 (Jan to Sep)
0
3000
6000
9000
12000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
h]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2008 Alberta Load
2008 Alberta Spot Price
Alberta 2008 (Jan to Sep)
0
3000
6000
9000
12000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
h]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2008 Alberta Load
2008 Alberta Spot Price
Ontario 2008 (Jan to Sep)
0
3000
6000
9000
12000
15000
18000
21000
24000
27000
30000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
h]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2008 Ontario Load2008 Ontario Spot Price
Ontario 2008 (Jan to Sep)
0
3000
6000
9000
12000
15000
18000
21000
24000
27000
30000
100% 90% 80% 70% 60% 50% 40% 30% 20% 10%
[MW
h]
0
100
200
300
400
500
600
700
800
900
1000
[$/M
Wh
]
2008 Ontario Load2008 Ontario Spot Price
Comparative Markets 2008
Increasing High Prices
Value of Economic DR
Value by 5% Increment - 2006
Value by 5% Increment - 2007
Value by 5% Increment - 2008
Ontario & Alberta - 2006Value = (Hourly Price * Hourly Demand)
0%
5%
10%
15%
20%
25%
30%
35%
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
Alberta 2006 % Value
Ontario 2006 % Value
Ontario & Alberta - 2005Value = (Hourly Price * Hourly Demand)
0%
5%
10%
15%
20%
25%
30%
35%
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
Alberta 2005 % Value
Ontario 2005 % Value
Ontario & Alberta 2008 (Jan to Sep) Value=(Hourly Price * Hourly Demand)
0%
5%
10%
15%
20%
25%
30%
35%
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
Alberta 2008 % ValueOntario 2008 % Value
Ontario & Alberta - 2007Value = (Hourly Price * Hourly Demand)
0%
5%
10%
15%
20%
25%
30%
35%
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
Alberta 2007 % Value
Ontario 2007 % Value
Alberta’s Price SignalAESO Alberta Hourly Electricity Pricing Apr 1-20 2008
4000
4500
5000
5500
6000
6500
7000
7500
8000
8500
Lo
ad
(M
W)
$0
$100$200
$300
$400$500
$600
$700
$800$900
$1,000
AE
SO
$/M
Wh
Load Price
AESO Alberta Hourly Electricity Pricing Apr 8-9 2008
6000
6500
7000
7500
8000
8500
Lo
ad
(M
W)
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
AE
SO
$/M
Wh
Load Price
April 9 2008 System Demand & Prices
0
100
200
300
400
500
600
700
800
900
1000
04/09/2008 01 04/09/2008 04 04/09/2008 07 04/09/2008 10 04/09/2008 13 04/09/2008 16 04/09/2008 19 04/09/2008 22
6000
6300
6600
6900
7200
7500
7800
8100
8400
8700
9000
Price ($) System Demand (MW)
April 9 10:00AM:Demand: 8137MWsPrice: $990.00
A Closer Look (April 9th, 2008)
AESO Merit Order Offer Stack For 10:00am April 9 2008
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
Generation Offered (MW)
Pri
ce
Price
7848 $114
7962 $281
8029 $465
8125 $700
8220 $800
8300 $1,000
8239 $990
Δ 80 MW $200
Δ 175 MW $300
Δ 270 MW $535
Δ 338 MW $719
Δ 452 MW $886
Sub-Group on
Economic DR
Scope of WorkConduct 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 Individual
IPCAASheldon Fulton
Vittoria Bellissimo
ADC Colette Kearl
UCA Ron Henderson
PICA Raj Retnanandan
AESO Laura Letourneau
IPPSA Evan Bahry
Generator TBD
Pricing OptionsHow 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?• 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
3. 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:
[email protected] / 403 966 2300
[email protected] / 403 966 2700
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