EE379K/EE394V Smart Grids: Smart Grid, A Contrarian View

1. EE379K/EE394V Smart Grids:Smart Grid, A Contrarian View Roger Duncan Research Fellow Energy Institute Ross Baldick, Department of Electrical and Computer Engineering Spring 2019

2. Outline • Smart Grid and Complexity • Cost effectiveness tests • Application to distributed energy resources • Platform Model Issues • Value of distributed energy resources • Conclusions

3. Complexity and Smart Grid • Probability of catastrophic failure increases with increasing complexity: • Flash Crash like NYSE • Complex rate structures are hard to communicate to customers: • Uber “surge” pricing • Privacy concerns: • Ownership and control • Proposed innovations in smart grid should be analyzed for implications of complexity.

4. Cost effectiveness tests • Broadly speaking, approach is a Benefit Cost Analysis • Example from California Standard Practice Manual: • Participant Test • Ratepayer Impact Measure • Total Resource Cost • Societal Test • Utility Test

5. Cost effectiveness tests • Described tests from California Standard Practice Manual (Oct, 2001), • Conservation and load management (C&LM) programs • evaluated on behalf of different stakeholders’ interests • Five tests to evaluate the cost-effectiveness of programs • Purposes: • To help ensure that ratepayer dollars are prudently spent (if the benefit/cost ratio is larger than orequaltoone, then the program is cost-effective) • To help programmanagersmakedecisionamongresource/program options (larger benefit/cost ratios deliver more benefits per dollar) • Each test calculates a ratio of some set of benefits divided by some set of costs, • Test is passed if ratio is greater than one.

6. FiveCostEffectivenessTests • Participant Test (PT) • Ratepayer Impact MeasureTest (RIM) • Total Resource Cost (TRC) • Societal Cost Test (SCT) • ProgramAdministrativeCostTest(PACT)

7. 1.Participant Test (PT) • Evaluates from the perspective of the participant (customer) • compares bill savings against incremental costs of the efficient equipment • measures a program’s economic attractiveness to customers • used to set rebate levels and forecast participation • Ignores benefit to the Utility or Society

8. 1.Participant Test (PT)

9. 2.Ratepayer Impact Measure Test (RIM) • Evaluates from the perspective of the non-participateofDSMprogram • Whathappenstoaverage price levels due to changes in utility revenues and operating costs caused by a program.

10. 2.Ratepayer Impact Measure Test (RIM)

11. 3.Total Resource Cost Test (TRC) • Evaluates from the perspective of an entire service territory • a program passes the testindicates total resource costs will drop, and the total cost of energy services for an average customer will fall • Most widely used test by regulatory bodies

12. 3.Total Resource Cost Test (TRC)

13. 4.Societal Cost Test (SCT) • Evaluates from the perspective of thewholesociety • A variation of the TRC • But also includes environmental externalities • avoided pollutants • water savings • detergent savings • other non-energy benefits

14. 4.Societal Cost Test (SCT) + collection costs + Res. savings+

15. 5.Program Administrator Cost Test (PACT) • Also known as the Utility Cost Test (UCT) • Evaluates from the perspective of the sponsoring utility or program administrator • Based on costs incurred by the utility • Excludes net costs incurred by the participant • The test ensures that the benefits to ratepayers will exceed the costs

16. 5.Program Administrator Cost Test (PACT)

17. Conclusion • Benefit-cost testing can be informative, and useful for decision-making • Reliance upon TRC for cost-effectiveness screening is very widespread,andit is the primary benefit cost test • Combines mostofthe perspectives:participant, rate payer, and utility • customers may be motivated by factors other than energy savings, and costs used in the tests are not necessarily directly tied to the energy benefits.

18. Categories of potential benefits of DER • Capacity • Energy • Reliability • Ancillary Services • Storage • Demand Response • Energy Efficiency

19. Examples of DER and related issues. • Demand side management, • Energy efficiency, • Tariffs to provide incentives.

20. Demand-SideManagement(DSM) • DSMencompasses mainlythreeenergy and demand-reducing activities: • Conservation: • Using less of a resource • Bymakinga behavioral choice or change • last for a short duration or may be incorporated into a habit or lifestyle • Energy Efficiency: • permanent installation of energy efficient technologies /elimination of energy losses in existing systems • Demand Response/ Load Management: • changing the patterns of energy use,at times of peak demand

21. Energy Efficiency and Smart Grid • Main Components of Building Energy Efficiency, in order of importance: • Building Envelope • Appliance Efficiency • Turning appliances on and off (Smart Grid)

22. Value of Solar Tariff • Avoided Peaker • Avoided Transmission • Avoided Fuel • Avoided Line Loss

23. Platform Business Model • Platform for services • Individual product increases in value with number of connections • Customer growth • Collect from both buyer and seller • Reduce transaction costs • New Products and Services

24. Platform Model in new Utility Business Models • Several “visions” promote a platform model for energy: • New York Reforming Energy Vision • LBNL Studies • Rocky Mountain Institute • California Proceedings • Transactive Energy model • But is a platform model relevant to the utility system?

25. Platform Model has Limited Applicability to Electric Distribution System • Customer Growth Limited • “Prosumer” – both buyer and seller will reduce utility market. • New Products and Services unproven.

26. Value of DER to Distribution System • Generally small • Location Dependent • Characteristics

27. Individual DER Value Decreases with increasing: • Market Penetration • Granularity of Measurement • “Greening” of the Grid

28. Smart Grid and distribution markets • Facilitates markets • Reduce transaction costs • May not be robust • Seasonal • Minimal platform system revenues

29. Summary • Reliability may go down due to complexity • Value of DER will decrease as market penetration increases: • Opposite to presumption in platform model. • Integration of Smart Grid with IoT and AI may lead to security and privacy issues

30. Homework Exercise:DueThursday, May 2. 1. In a high DER scenario values will move in the following direction: • Savings on utility bills will move UP • Financial incentives will move DOWN • Saved taxes will move DOWN • Customer Additional Cost Incurred will move DOWN • Avoided supply Costs will move DOWN • Program Administrative Costs will move UP

31. Homework Exercise:DueThursday, May 2. • Revenue Losses will move UP • Increased supply costs will move UP • Avoided supply costs will move DOWN • Avoided collection costs will move DOWN • Revenue Savings will move DOWN • Quantifiable Environmental Externalities will move DOWN

32. Homework Exercise:Due Thursday, May 2. • Given the above trends, review the following tests, assume the results are currently 1.0, and determine whether they would PASS (>1.0) or FAIL (<1.0) in a high DER scenario: • Participant Test • RIM test • Societal Test • Program Administrator (Utility) Test