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Demand Response in Deregulated Electricity Markets

Demand Response in Deregulated Electricity Markets. Clearwater, Fl. November 2004. C. Alvarez – N. Encinas Institute for Energy Engineering Universidad Politécnica de Valencia Valencia, Spain. Demand Response Tutorial.

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Demand Response in Deregulated Electricity Markets

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  1. Demand Response in Deregulated Electricity Markets Clearwater, Fl. November 2004 C. Alvarez –N. Encinas Institute for Energy Engineering Universidad Politécnica de Valencia Valencia, Spain

  2. Demand Response Tutorial • Session 1.- INTRODUCTION TO ELECTRICITY DEMAND RESPONSE (Carlos Álvarez) • Session 2. INTERNATIONAL EXPERIENCE (Nuria Encinas)

  3. SESSION 1 • CONTENTS 1. INTRODUCTION AND DEFINITIONS 2. DEMAND RESPONSE FUNDAMENTALS 3.INTERESTED AGENTS 4. MAIN ECONOMICAL ISSUES 5. DR PROVIDERS 6. CONCLUSIONS

  4. INTRODUCTION

  5. Ancillary Services Market Technical Restrictions Management Balancing Market INTRODUCTION Demand Response: Operation Organization Production Markets Bilateral contracts Normalized Future Products Market Daily Spot Market Difference Contracts Physical Contracts Programmed Energy Market Operator (PX) System Operator (ISO)

  6. DEFINITIONS WHAT IS ACTIVE DEMAND PARTICIPATION? DEMAND RESPONSE IS ALL ABOUT INVOLVING DEMAND SIDE IN THE PROCESS OF SETTING PRICES AND MAINTAINING THE QUALITY OF SUPPLY. MECHANISM: PRICE RESPONSIVENESS • ABILITY TO CONSUME OR NOT ACCORDING TO THE ELECTRICITY PRICE (BENEFITS) • ABILITY TO OBTAIN BENEFITS FROM ELECTRICITY PRICES (COST) THIS PROCESS TO REFLECT CUSTOMER PRICE RESPONSE IS USUALLY REFERRED AS DEMAND SIDE BIDDING

  7. DEFINITIONS • DEMAND RESPONSE WILL BE ORGANIZED BY SELLING AND BUYING DEMAND RESPONSE PRODUCTS (DRP) THAT CAN BE TRADED • DRP PRODUCT: DEMAND BID WITH TECHNICAL SPECIFICATIONS. • DRP BUYER: THE AGENT WHO ACCEPTS THE BID • DRP PROVIDER: END USER O CONSUMER WHO POSTS THE BID FOR ITS TRANSACTION IN AN ELECTRICITY ORGANIZED MARKET (SPOT, BILATERAL, ETC.).

  8. FUNDAMENTALS HISTORY OF DEMAND RESPONSE • UNTIL 1970s: PRICE IGNORED IN FORECASTING THE DEMAND • OIL CRISIS: LEAST COST PLANNING • LATE 1980s: DSM PROGRAMS (SUBSIDIES) • USA: PURPA LED TO GENERATION EXCESS • 1990S: MORE STATE REGULATED ACTIVITY • LATE 1990s: DEVELOPMENT OF COMPETITION: CUSTOMERS SEEK FOR LOW WHOLESALE RATHER THAN HIGH REGULATED PRICES • 2000s : REINFORCEMENT OF COMPETITION WITH THE AIM TO HAVE AND ACTIVE DEMAND PARTICIPATION: EUROPE (NETA, SCANDINAVIAN, ETC), USA (STANDARD MARKET DESIGN) AND OTHER

  9. CAPACITY IN NORMAL CONDITIONS CAPACITY IN EMERGENCY RESERVE VOLTAGE SUPPORT POWER FLOW BALANCE LOSS REDUCTION FUNDAMENTALS • BENEFITS PROVIDED BY DR

  10. FUNDAMENTALS WHY THE CUSTOMER DEMAND DOES NOT TRADITIONALLY PARTICIPATES IN PROVIDING THESE SERVICES?: BARRIERS • ECONOMICAL • TECHNICAL • STRUCTURAL and LEGAL • IGNORANCE • TRADITION • FINANCIAL COMPREHENSIVE RESEARCH IN THESE BARRIERS BY THE INTERNATIONAL ENERGY AGENCY

  11. FUNDAMENTALS • BREAKING THE BARRIERS: NEW CONTEXT Yesterday Tomorrow: distributed/on-site generation with fully integrated network management including DR

  12. FUNDAMENTALS DEMAND RESPONSE AS AN ADDITIONAL ELEMENT TO DISTRIBUTED ENERGY RESOURCES • DER: COMBINE LOAD CONSUMPTION FLEXIBILITY AND TECHNOLOGY BASED SOLUTIONS IN ORDER TO OPTIMIZE THE ENERGY REQUIREMENTS FOR A (SET OF) CONSUMER(S). • INCLUDES: • DISTRIBUTED GENERATION: • COMBINED HEAT AND POWER • WIND AND SOLAR • FUEL CELLS • STORAGE (ENERGY, HYDROGEN, PRODUCT, ETC.) • RESPONSE OF THE DEMAND

  13. PEAK SHIFT STRATEGIC SAVE, GROWTH VALLEY FUNDAMENTALS RESPONSE OF DE DEMAND: MOVING FROM THE TRADITIONAL DSM • TRADITIONAL DSM: • SYSTEM OPTIMIZATION • IT IS SEEN AS SOME KIND OF SUBSIDY • SUPPLY ORIENTED: HIGH COST FOR THE UTILITY • INTENSIVE USE OF LOAD CURTAILMENT HAS RESULTED IN CUSTOMER GIVE UP

  14. FUNDAMENTALS • NEW APPROACH: CUSTOMER ORIENTED • PRICE RESPONSIVENESS • CUSTOMERS MUST VOLUNTEER IN TERMS OF: • WHEN • HOW MUCH • AT WHAT PRICE THE CONSUMPTION POWER OR ENERGY WILL BE. • THERE MUST BE REAL BENEFITS FOR THE INVOLVED AGENTS IN THE DEMAND PARTICIPATION: NOT RESULTING FROM SUBSIDIES.

  15. DSM AND DR • PARTICIPATION OF THE DEMAND: DSM vs. DSB

  16. INTERESTED AGENTS • AGENTS OF THE ELECTRICITY BUSINESS POTENTIALLY INTERESTED IN DP: • POLICY MAKERS AND REGULATORS • MARKET OPERATORS • TRANSMISSION SYSTEM OPERATORS • LOCAL NETWORK OPERATORS • TRADERS AND RETAILERS • CUSTOMERS • THE BENEFITS OF THE DEMAND RESPONSE FOR ALL THESE AGENTS SHOULD BE CLEARLY DEMONSTRATED

  17. INTERESTED AGENTS POLICY MAKERS AND REGULATORS • SECURITY ENHANCEMENT • ENVIRONMENTAL BENEFITS • ECONOMIC EFFICIENCY IMPROVEMENT • GENERATORS MARKET POWER DECREASE • MARKET OPERATORS (PX) • PRICE VOLATILITY • RISK HEDGING

  18. INTERESTED AGENTS: TSO TRANSMISSION SYSTEM OPERATORS: • ANCILLARY SERVICES • CONGESTION AND TECHNICAL RESTRICTIONS • BALANCING • BLACK OUT PREVENTION • TRANSMISSION BOTTLENECKS • BETTER USE OF THE EXISTING CAPACITY LOCAL NETWORK OPERATORS (-GRIDS): ADDITIONAL PROBLEM WITH EMBEDDED GENERATION GENERATORS: MAY BE HELPED BY THE DEMAND TO AVOID HIGH PENALTIES

  19. EXAMPLE: LF CONTROL (UK) • NEED FOR RESERVE PRODUCTS: DEMAND RESPONSE • PRIMARY: 2s SUSTAINED 15 m (LOAD SHEDDING) • SECONDARY: 30 s SUSTAINED 30 m • RESERVE: • FAST (2m FOR 15 m, 25MW/m) • STANDING (BACK-UP, 3 MW)

  20. INTERESTED AGENTS • DISTRIBUTION SYSTEM OPERATORS: • QUALITY OF SUPPLY • DS CAPACITY • CORRECT PROBLEMS MOTIVATED BY DG (NON-UNIFORM) • TRADERS AND RETAILERS RISK MANAGEMENT/HEDGING NEW BUSINESS OPPORTUNITIES • CUSTOMERS • ECONOMIC BENEFITS RESULTING FROM: • PRICE REDUCTION • PAYMENT FOR LOAD REDUCTIONS • RELIABILITY IMPROVEMENT • THE BENEFITS OF THE DEMAND RESPONSE FOR ALL THESE AGENTS SHOULD BE CLEARLY DEMONSTRATED

  21. ECONOMIC PRINCIPLES • DEMAND RESPONSE COULD BE SEEN AS THE NATURAL CONTINUATION OF LCP (?) • CONSIDERING DR IN THE SAME WAY AS SUPPLY RESPONSE CAN LEAD TO ERRORS STUDY FUNDED BY EDISON ELECTRIC INSTITUTE: ECONOMIC PRINCIPLES OF DEMAND RESPONSE IN ELECTRICITY (L. E. RUFF. OCTOBER 2002) IMPORTANCE OF UNDERSTANDING AND CORRECTLY APPLYING DR CONCEPTS

  22. ECONOMIC PRINCIPLES THERE EXISTS A CONTROVERSY IN THE ECONOMIC WORLD REGARDING ECONOMIC INTEGRATION OF DR • MARKET STRUCTURES THAT ALLOW DEMAND RESPONSE WILL FIND REAL AND LASTING BENEFITS FOR SOCIETY AND CONSUMERS • INCREASING DR BY SUBSIDIES WILL INCREASE THE COST FOR THE SOCIETY. DEMAND RESPONSE HAS TO BE PROFITABLE ITSELF BY REDUCING COSTS AND SHOULD BE IMPLEMENTED THROUGH PRICE SIGNALS • REDUCING DEMAND A FEW HOURS BY A FEW PERCENTAGE CAN NOT PRODUCE LARGE BENEFITS. REDUCTION IN CONSUMER BILLS: RENT TRANSFER. NOT REAL BENEFITS FOR THE SYSTEM • REDUCTION IN PRICE SPIKES HAS NO SIGNIFICANT EFFECT ON THE NEED FOR OR COSTS OF NON-PEAK CAPACITY

  23. ECONOMIC PRINCIPLES • CONSUMERS MUST HAVE THE RIGHT TO SELL THE ELECTRICITY THEY OWN. PAYING SOMEBODY BECAUSE HE MAY HAVE BOUGHT MODE BUT HE DID NOT IS INEFFICIENT (?). • THE GOOD HAS TO BE BOUGHT (DSB ACCEPTED) BEFORE A REDUCTION IN THE DEMAND IS TO BE OFFERED BY CUSTOMERS: BASELINE CONSUMPTION LEVEL • CONFUSION IN TREATING DR AS A “RESOURCE”. • MARKET OPERATORS AND SYSTEM OPERATORS SHOULD ACCEPT AND FULLY INTEGRATE DEMAND RESPONSE, BUT NOT NECESSARILY BY USING THE SAME PRODUCTS AND MARKETS.

  24. ECONOMIC PRINCIPLES • THE ISO SHOULD OPERATE THE SYSTEM ASSURING THAT DEMAND RESPONSE IS EFFICIENTLY INCORPORATED IN A COMPETITIVE WAY. • IS THE WORK OF OTHER AGENTS (AGGREGATORS OR OTHER LOAD SERVING ENTITIES) TO DESIGN THE MECHANISMS (CONTRACTS AND TARIFFS TO MANAGE THE RISK AND PROVIDE THE DR SERVICES) • ISO: ANCILLARY AND CAPACITY MARKETS SHOULD TREAT DR AS GENERATION (?). • MARKET OPERATORS (PXs) TO INCORPORATE DSB IN DAY AHEAD AND OTHER FORWARD MARKETS, NOT AS A NEGATIVE SUPPLY

  25. PRICING MECHANISMS CONTRACTS AUCTION MARKETS TARIFFS ECONOMIC INTEGRATION: DEPENDS ON STRUCTURE BILATERAL AGREEMENTS: DR FOR LONG TIME HORIZON AUCTIONS: NEED TIME TO ACCOMMODATE TO IMPLEMENT OFFERS AND BIDS TARIFFS: POWER QUALITY ECONOMIC PRINCIPLES PAYMENT OF THE SERVICES PROVIDED BY DER AND THE DEMAND PARTICIPATION

  26. SERVICES TECHNICAL ALARMS MNGMT. (security company or Central services ) SECURITY MANAGEMENT (security Company) HOME/ LOCAL GATEWAY CHANNELS MAINTENANCE (Service Company ) PHONE TECHNICAL SECURITY MEDICAL ALARMS AUTOMATIC DEVICES PLC CENTRAL RECEPTION OF SERVICES ADSL OTHER SERVICES Leisure, .. CABLE NEO ENERGY MANAGEMENT AND COMFORT COMMUNICATIONS (Communications Enterprise) MEDICAL ALARMS THE SYSTEM DEMAND RESPONSE SHOULD BE CONSIDER IN THE FRAMEWORK OF OTHER SERVICES SUPPLY

  27. Assets Fuel switching Power factor correctionEnergy efficiencyDirect load control InterruptibilityDistributed generationPrice response Customers Residential Commercial Industrial DeliveryMechanismsDemand biddingBusiness rules Customer enrolment Smart meteringBaselinesNotificationSettlementsProgram management Actors Network businesses Retail businesses AggregatorsCustomers Market operatorsystem operator Regulators Outcomes Relief of network congestionImproved reliabilityContribution to capacity reserves Price elasticity/ hedgingReduced GHG emissions THE SYSTEM

  28. THE SYSTEM NEEDS FOR COMMUNICATIONS AND CONTROL SYSTEMS REQUIREMENTS FOR DEMAND RESPONSE APPLICATIONS: • TIME RESPONSE: • INSTANTANEOUS RESPONSE MAY BE PROVIDED BY LFR AND DEDICATED SYSTEMS (TRADITIONAL DSM) • PRICE BASED DR MAY REQUIRE SOME MINUTES TO COMPLETE THE INTERACTION • COMMUNICATIONS: MANY TECHNOLOGIES FOR FAST AND RELIABLE COMMUNICATIONS AVAILABLE AND WELL ESTABLISHED • PLC, GSM, TELEPHONE LINE, ADSL, GPRS

  29. THE SYSTEM DEMAND RESPONSE SYSTEM: AGENT INTERACTION • STANDARDS-BASED COMMUNICATIONS SOLUTION 2. VENDOR-INDEPENDENT COMMUNICATION PROTOCOLS AMONG THE DIFFERENT ENTITIES PARTICIPATING 3. USE OF EXISTING DATA TRANSMISSION. 4. BANDWIDTH OPTIMIZATION FOR MAXIMUM POSSIBLE SHARING OF RESOURCES TO ACCOMMODATE ALL SERVICES SUCH AS: - METERING. - OPERATION. - MONITORING & CONTROL. 5. SECURITY

  30. CUSTOMERS DEMAND RESPONSE RESOURCES WILL COME OUT FROM THE FLEXIBILITY ASSOCIATED TO THE END USER PROCESSES THIS PROCESSES AS WELL AS THE EQUIPMENT TO SUPPLY THE REQUIRED SERVICE LEVELS HAS TO BE INVESTIGATED IN ORDER TO DETERMINE THE AVAILABLE DEMAND RESOURCES DR CUSTOMER RESOURCES CAN BE ORGANIZED INTO DEMAND SIDE BIDS (FOR ENERGY REQUIREMENTS) AND DEMAND SIDE OFFERS (TO MAKE PROFITS FROM THE CUSTOMER FLEXIBILITY)

  31. CUSTOMERS CUSTOMERS: DEMAND SIDE BIDS • MAY PARTICIPATE IN TWO WAYS: GENERATING DEMAND SIDE BIDS OR GENERATING DEMAND SIDE OFFERS. • DEMAND SIDE BIDS: PRODUCED ACCORDING TO THE REAL BENEFITS THAT THE CUSTOMER IS GOING TO OBTAIN FROM THE ELECTRICITY CONSUMPTION: INCREMENTAL BENEFIT FUNCTION • THE CUSTOMER HAS TO IDENTIFY THE REAL BENEFITS THAT THE ELECTRIC ENERGY SUPPLY PRODUCES IN THEIR PRODUCTIVE/INDUSTRIAL PROCESSES, COMFORT, ETC.) • DECRASING FORM • NOT AN EASY TASK

  32. CUSTOMERS CUSTOMERS: DEMAND SIDE OFFERS • DEMAND SIDE OFFERS ARE DESIGNED TO MAKE PROFIT OF THE HIGH PRICES THAT MAY RESULT IN BALANCING, TECHNICAL RESTRICTIONS AND ANCILLARY MARKETS. • INVOLVE THE REDUCTION/INCREMENT IN ENERGY/POWER CONSUMPTION. DSO DIFFERENT TO GENERATOR OFFERS (TECHNOLOGY AND RESPONSE TIME) • PRODUCED ACCORDING TO THE REAL COST THAT THE IMPLEMENTATION OF THE CONTROL ACTIONS IMPLY: INCREMENTAL COST FUNCTION. THE COSTS MUST CONSIDER TECHNICAL EQUIPMENT, LOST OF PRODUCTIVITY, ETC. • INCREASING FUNCTIONS. NOT AN EASY TASK

  33. Day-ahead demand (global demand) MWh Customer buys energy At low prices Changes in the Customer demand Customer offers ↓ 1 24 Time(h) CUSTOMERS CUSTOMER RESPONSE IN DR PROGRAMS • TWO TYPES OF DEMAND CHARACTERISTICS: • TOTAL DEMAND OF A CUSTOMER: • BILATERAL CONTRACT • ELECTRICITY MARKETS • CHANGE IN THE DEMAND • CUSTOMER TASK: TO ARRANGE ITS DEMAND INTO DEMAND PACKAGES TO BE OFFERED OR BID

  34. CUSTOMERS • PROPERTIES OF A DEMAND PACKAGE (DP): • TRIGGER PRICE: F (CUSTOMER, END USE) • SIZE AND SHAPE OF THE DP BLOCK: (CUSTOMER, LOAD) • THE NOTICE REQUIRED FOR THE CHANGE IN THE DEMAND • ADDITIONAL LIMITATIONS • NUMBER OF OCCASIONS/SEASON, YEAR • TRADING OPPORTUNITIES

  35. CUSTOMERS SEVERAL FACTORS ARE RELEVANT TO ASSES LOAD FLEXIBILITY: • FINAL SERVICE SUPPLIED BY THE ELECTRIC LOAD • HEAT, COOL, ILLUMINATION • DUAL FUEL SYSTEMS • STORAGE CAPACITY: PARTIAL, TOTAL • ELECTRICITY • THERMAL ENERGY • PRODUCT • HYDROGEN, ETC • RATE OF LOAD SWITCHING: NATURAL ON/OFF LOAD SWITCHING • LOAD DISPATCH AVAILABILITY

  36. CUSTOMERS: EXAMPLE EXAMPLE OF CUSTOMER LOAD ORGANIZATION • End uses identification: • By analysing the total load curves in different periods • By non intrusive load monitoring (electronic, HAVC and lighting loads) • By laboratory experiences: offices and classrooms

  37. CUSTOMERS: EXAMPLE CUSTOMER LOAD ANALYSIS

  38. CUSTOMERS: EXAMPLE GENERATION OF DEMAND BIDS • UPV BIDS FOR THE DAY-AHEAD ENERGY MARKET • WINTER PEAK (JANUARY 29, 2002. BID FROM 12 TO 13H)

  39. CUSTOMERS: EXAMPLE DEMAND-SIDE OFFERS • SIMULATION RESULTS: COST-DEMAND CURVE • SUMMER PEAK, JULY 9, 2002. HOUR: 13-14H

  40. PARTICIPATION IN THE BALANCING MARKET: EXAMPLE

  41. COST OF THE ENERGY BOUGHT IN DAILY MARKET: 7,075 €/DAY

  42. ESTIMATED INCOME FOR JANUARY 8TH 2003: 5,874.52 €

  43. AGGREGATORS AGGREGATORS: • AGGREGATES SEVERAL INDIVIDUAL CONSUMERS • PARTIES THAT ARE NOT DIRECTLY INVOLVED IN PRODUCING, CONSUMING OR TRANSPORTING ELECTRICITY THEY HAVE THE EXPERTISE TO: • UNDERSTAND CONSUMER PROCESSES AND CONSUMPTION PATTERNS • UNDERSTAND THE NEEDS OF THE BUYER • AGGREGATE LOADSW FROM SEVERAL CONSUMERS TO GIVE AN USEFUL PRODUCT • ACCESS TO MARKETS OR OTHER NEGOTIATION • PROVIDE THE NECESSARY COMMUNICATIONS AND CONTROL

  44. SEARCH FOR MASSIVE DRR DEMAND SEGMENTATION FOR DRR PURPOSES SHOULD BE “CUSTOMER AND TECHNOLOGY” RATHER THAN “SUPPLY” ORIENTED. IT SHOULD BE BASED ON INFORMATION ABOUT: • ENERGY (ELECTRICITY, GAS,..) REQUIREMENTS AND USAGE PATTERNS; • PHYSICAL DESCRIPTION OF THE PROCESSES IN WHICH ENERGY IS USED; • FLEXIBILITY IN THE ENERGY USAGE; • ATTITUDE TOWARDS DRR INVESTMENTS (I.E. ECONOMIC CHARGES, CONSUMER ACCEPTANCE, ETC.)

  45. THE SEGMENT POTENTIAL HAS TO BE SIMULATED. EXAMPLE: High Education with sport facilities Mixed scenario: DR+DS+DG • Control AC load (60% from 10h to 14h) • Electrical storage (230 kWh; 10 to 20h) ► ΔPeak= -8.5% • DG: 50 kWp (PV; 10 to 20h)

  46. CONCLUSIONS • THE IMPLEMENTATION OF ELECTRIC ENERGY MARKETS IS DOUBTFUL WITHOUT THE ACTIVE PARTICIPATION OF THE DEMAND • BENEFITS OF RETAIL-LOAD PARTICIPATION: • LOWER PRICE VOLATILITY (DUE TO DEMAND ELASTICITY). • SYSTEM EFFICIENCY AND RELIABILITY • THE CONSUMER INTRODUCES ITS BENEFITS AND COSTS. • DEMAND CAN PARTICIPATE IN NEW MARKETS: • CUSTOMER DEMAND IS FLEXIBLE • PRICE OPPORTUNITIES

  47. CONCLUSIONS • OPERATORS SHOULD FACILITATE THE PARTICIPATION OF THE DEMAND: • ENERGY MARKETS • ANCILLARY SERVICES AND NETWORK CONSTRAINTS • DEMAND ≠ GENERATION • PAYBACK, LOAD CHANGES,.. → ADVANTAGES AND DRAWBACKS • IT IS NECESSARY TO PERFORM EXTENSIVE RESEARCH TO FIND THE DEMAND RESPONSE RESOURCES • LOAD RESPONSE MODELS • PRICE AND COST EVALUATION TOOLS TO PERFORM OFFERS AND BIDS

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