Demand Responsive Load Programs

1. Demand Responsive Load Programs Charles Goldman E. O. Lawrence Berkeley National Laboratory CAGoldman@lbl.gov NEDRI/FERC Demand Response Focus Group Springfield, MA September 19, 2002

2. Outline of Presentation • Wholesale Markets and DR Resources • Program Experience/Results in New England (& New York) • Demand Responsive Load Program Strategies • 2003 Programs proposed by ISO-NE • “Strawperson” program designs from NEDRI Technical Consultants • Key Policy and Program Design Questions

3. Wholesale Markets and DR Resources: Objectives, Design Principles, Key Issues

4. All of New England SWCT Customers 241 MW Demand-Response Class 1 Price-Response Class 2 182.9 107.3 75.6 92.2 85.3 6.9 ISO-NE 2002 Program Results Data as of: 07/31/02

5. Costs and Benefits of NYISO Programs: Summer 2001 Results • Estimated market benefits to all consumers are large relative to incentive costs • Need standardized methods to evaluate market benefits Source: Neenan Associates, NYISO PRL Evaluation, 2001

6. ISO- NE Programs proposed for 2003 • Day-Ahead Demand Response (new) • Real-Time Demand Response • Based on existing Class 1 program • DR must respond within 30 minutes and 2 hr of ISO request to interrupt • Real-Time Price Response • Based on existing Class 2 program • Real-Time Profiled Response (new) • Non-interval metered loads

7. Day-Ahead Demand Response • Submit offer in day-ahead market (minimum increment of 1 MW) • Minimum bid of $50/MWh with maximum bid of $500/MWh • If resource is interrupted day-ahead, resource is financially bound for accepted interruption • Resources would be eligible for ICAP credit • In real-time, deviations from day-ahead are charged/credited at real-time LMP

8. Day-Ahead Demand Response: Major Issues • Program Duration (2 vs 3 years) and Start Date • Eligible Participants • Current NEPOOL requirements may serve as barrier to entry • Create separate Demand Response Provider category • Role of onsite generation • Consider utilizing “model” rules for local generators (“output-based”) • Allow participation in multiple DR programs • Performance Compensation • Pay Higher of accepted bid or DA-LMP (not just DA-LMP) • Bidding process (whole increments vs. any reduction > 1MW)

9. Real-Time Demand Response (“Emergency” Program) • DR must respond to ISO interrupt notice within 30-minutes or up to 2-hours • Require the Internet-based communication system • Receive real-time LMP for interrupted (measured against the base line) with: • Guaranteed minimum payment of $150/MWh and $100/MWh for up to 2 hours (for 30 minute or 2 hour notice response) • Resource eligible for ICAP credit • Call by ISO on a zonal or system wide basis

10. Real-Time Demand Response: Major Issues • Emergency programs are good marketing platform • Need higher floor price that better reflects customer value of lost load • Higher of Real-time LMP or $500/MWh minimum for 30 minute notice or $350/MWh for 2 hour notice • Eligible Participants (I.e. NEPOOL participant requirements) • Role of onsite generation • Allow participation in multiple DR programs

11. Real-Time Profile Response • No interval metering required (I.e., residential and small C/I) • Load capable of interruption on demand (with 30-minutes) • Aggregated (super-thermostats, pool pumps) • Receive real-time LMP for interruption (statistically determined) with guaranteed minimum payment of $100/MWh • Response determined through statistical means (research meters) • Call by ISO on a zonal basis based upon day-ahead • Resources would be eligible for ICAP credit

12. Real-Time Profile Response: Major Issues • ISOs have less operational experience with DR programs targeted at non-interval metered customers • Resource potential in New England: cost-effectiveness? • Overcoming technical/market barriers – role of public benefit funds • “Optimal” program designs • Incentive Payments – NE is low compared to NY and PJM • Operational Trigger – Emergency vs. Economic • M&V methodology • Eligible technologies – Direct load control only (NE) vs un-specified (NY and PJM)

13. Real-Time Price Response Program • Receive real-time LMP for interrupted (measured against the base line) with guaranteed minimum payment of $100/MWh • Can use Internet-based communication system, Low Tech or Super Low Tech options • Call by ISO on a zonal basis based upon day-ahead

14. Real-Time Price Response: Issues • Customer perception of and satisfaction with current operation of the program • Alignment of program goal/objective with customer perception and marketing • Overall market size and interest level • Perceived benefits vs. costs (if have to pay full cost of the IBCS) • Importance of the “low tech” option

15. What do customers want in DR programs? • Timely and certain payments for performance • Minimal downside risks (e.g. performance penalties) • Relatively certain stream of benefits in order to make “business case” for investment • Easy to enroll and participate (Low “hassle factor) • Useful “toys”: enabling technology that can be used to manage energy costs • Customized, tailored service offerings • Clear program goals that align with their business interests or priorities

16. Key Policy and Program Questions • How well have existing ISO-NE Demand Response programs worked? • Strengths/weaknesses • Suggestions for improvement • Going forward, what types of PRL programs are needed or desired by end users and other market participants? • Program objectives - Relative magnitude of demand response resources (DRR) needed to ensure efficient wholesale markets?

17. Key Policy and Program Questions (cont) • How do you pay for the enabling DR technology infrastructure necessary to capture consumer market benefits of PRL? • Is the provision of demand response resources an attractive business opportunity for load aggregators? • Are there disincentives that limit interest of potential load aggregators? • What types of customer loads/resources should be eligible to participate in PRL programs • Role of on-site generation

18. Background Slides

19. Characteristics of Innovative LSE PRL Programs • Substantial customer response at high offer prices • Multiple program options & features offered under a single “brand” • LSE/customer share benefits (often not transparent to customer) • Lots of customer care & education • Use of customer-specific baselines • Variety of forward contracting options • Motivated or “incented” LSEs

20. Transitional Load Reduction Pricing (#3) • Incentives decoupled from wholesale market • Provides opportunity for simpler program structure and more predictable incentives • Can be achieved through any number of specific program designs - e.g., load bids with price floors, call-option programs with reservation payments, etc. • Pros: potential for significant DR impact from risk averse customers • Cons: less direct impact on market than Options 1 and 2; additional uplift charges; seen as “preferential” to loads

21. Benefits of PRL Programs Price Price 2 3 P2 P2 Collateral Savings Participants Demand P 4 PL P1 P1 1 Supply Q0 Q2 Q1 Load Q2 Q1 Load 1 Demand (Q1) at Retail rate (P1) Retail demand supplied at higher wholesale price (P2) 2 Reduction in participants demand due to higher price 3 LBMP after scheduled load reduction Source: Neenan Associates, NYISO PRL Evaluation 4