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Competitive Procurement of D3 Resources

This presentation provides an overview of the competitive procurement of D3 resources, discussing foundation issues, types of competitive procurement in the U.S., and lessons learned. It highlights the advantages and challenges of treating D3 as a resource and explores examples of competitive procurement in various regions. The presentation also covers the impact of D3 on reducing costs, transmission congestion relief, and distribution system upgrades. The text language is English.

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Competitive Procurement of D3 Resources

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  1. Competitive Procurement of D3 Resources D3 Expert Stakeholder Workshop 3 March 2011 Chris Neme, Energy Futures Group Paul Peterson, Synapse Energy Economics 3 March 2011

  2. Presentation Overview 2 2 • Foundation Issues • Types of competitive procurement in U.S. • Lessons learned 2

  3. Introduction Foundation Issues 3 3 3

  4. D3 Provide Multiple Benefits 4 4 • System Peak Capacity • Transmission Capacity • Distribution System Capacity • Energy • Usually clean, carbon-free Some at prices much lower than supply alternatives 4

  5. D3 Investment In U.S. 5 5 • Increasing rapidly • Not just New England and California any more • Impacts are measurable • Policies and trends (some examples in extra slides) But lots more to be done… 5

  6. Treating D3 as a “Resource” 6 6 • Equivalent to power plants, poles/wires, BTUs • Available at competitive prices • Not just a policy objective or obligation! • Requires changing/creating market structures • Revenues available to any competitive D3 supplier • Paid by all customers – just as for supply alternatives • Some progress in U.S., but more needed • Examples of market competition to follow • But much of US still treats D3 as just a policy goal 6

  7. Advantages 7 7 • Venue to bring D3 innovations to market • Not just a choice of “obligated entities” • Diversifies funding options for D3 • Not at whim of government policy • Not reliant on unregulated suppliers’ balance sheets • Can by-pass “artificial” government caps • funding caps or obligation levels • Strengthens cap-and-trade & carbon pricing • Removes market barriers to low-cost system resources • Lowers overall cost-per-tonne of carbon reductions 7

  8. …But Not Panacea 8 8 • D3 choices today affect D3 options in the future • Markets provide near-term price signals • Inadequate foundation for long-term needs • Profit-maximizing leads to cream-skimming • Inadequate foundation for long-term needs • Market can be adjusted to better address long term • But may still need/want “performance-based obligations” • As complementary policy More on all this later… 8

  9. Introduction Competitive Procurement of D3: U.S. Experience 9 9 9

  10. Range of Examples 10 10 • “Forward” capacity markets • Transmission congestion relief • Distribution system upgrade deferral • Efficiency utility • Standard Offer In all cases, all costs are allocated to all customers 10

  11. ME VT WA MT ND MN NH OR WI NY ID SD RI MI CT WY PA NJ IA OH NE DE NV IL IN WV MD UT VA CO KS MO KY CA NC TN AZ AR SC NM MS AL GA TX LA FL New England ISO and PJM Territories • FCMs cover regions with installed generation capacity on the order of: • About 1/4 of the EU-27 member states combined installed capacity • The combined installed generation capacity of Poland, Germany and Belgium MA DC LEGEND ISO New England territory PJM territory - covers all or most of the state PJM territory - covers part of the state

  12. Forward Capacity Markets 12 12 Example: New England ISO • Focus: system peak capacity for reliability • Bidding to deliver 3 to 8 years in future • Declining price auction • Efficiency, DR, DG compete with power plants • Contracts up to 5 years at clearing price • receive $ for longer lived measures thru future auctions • Reliability planning and M&V requirements • Costs allocated “pro rata” to energy suppliers More on this example in the afternoon 12

  13. Capacity Market Results—New England ISO 13 13 13

  14. D3 Reduces Cost of Reliability ISO-NE Calculation for a single year:* • D3 reduced costs by ~$290 million • Savings >15% of total cost Note: substantial savings in PJM capacity auctions, too. * FCA-1 Installed Capacity Requirement = 32,305 MW • 2,554 MW of demand resources cleared • Surplus of 2,047 MW at floor price of $4.50/kW-month • Without D3, auction clears between $5.63 to $5.25 14

  15. System Load vs. Forecast Thunderstorms move through South Western CT 15

  16. D3 Resources are Reliable: ISO-NE Real-Time DR Obligation and Performance by Load Zone * Additional meter data corrections to address data quality issues will adjust the net performance. The values noted above adjust for known problems and anomalies. 16

  17. Cumulative PJM Capacity Revenues ($42 billion) But The Money Also Flows To High-Carbon Resources and Windfalls to Existing Plants …..(more on that later!) Coal--Existing Gas--Existing Hydro-Existing Nuclear-Existing Oil-Existing Demand Response 17 Source: Market Monitoring Analytics (PJM) Communications

  18. Transmission Congestion Relief 18 18 Example: New England ISO (SW Connecticut) • Focus: buying time while transmission line being built • 2002 Gap RFP purchased 84 MW, including: • over 10 MW of emergency generation • 4 MW of energy efficiency • 2004 Gap RFP for 300 MW of quick start resources • included firm load reductions & emergency generation • Paid for by all transmission customers in CT 18

  19. Distribution Upgrade Deferral 19 19 Example: Con Edison (New York City) • Focus: local distribution peak reductions • Goal: 149 MW across several areas by 2012 • Up-Front Decision to use demand resources • Estimated to be less expensive • Avoid major disruptions in city (e.g. digging up streets) • Efficiency, DG, storage, fuel-switching all allowed • Competitive bidding by ESCOs to deliver • Extensive M&V • Costs born by all customers thru regulated (e.g., distribution network operator) tariffs 19

  20. Distribution Deferral Results 20 20 Graph courtesy of Con Ed 20

  21. Distribution Deferral Results 21 21 Graph courtesy of Con Ed 21

  22. Efficiency Utility 22 22 Example: Vermont • Focus: Capacity, T&D and Energy Reductions • Heaviest focus on energy • Competitive bids from ESCOs • 3 year contract, with 3 year renewal option • Fixed budget from customer billing surcharges • Hold-back portion of payment unless goals met • Energy suppliers cannot bid (concern about conflicts) • Keys to bid: • Magnitude of savings proposed (ability to deliver other goals too) • Believability of bid • Independent evaluation of results • Costs paid by all customers thru volumetric surcharge on energy bill (e.g., on DNO portion of bill in UK) 22

  23. Efficiency Utility Results 23 23 23

  24. Efficiency Utility Results 24 24 24

  25. Standard Offer 25 25 Example: PSE&G (New Jersey) • Focus: Energy savings • Started 1994; last offer for bids in 2005 (still paying) • Offered weighted avg. ~$0.05/kWh savings delivered • Time differentiated prices • Efficiency only • Payment every year measures remain installed • Long-term contracts • 10 years for lighting, 15 years other measures • Extensive M&V 25

  26. Standard Offer Results 26 26 • Savings ~1500 GWh/year in 2000 • Payments ~$1 billion to date • Dominated by large C&I lighting retrofits • Cheaper than supply alternatives, but over-paid • C&I lighting programs typically <$0.03/kWh • Again, costs paid by all customers via non-bypassable charge (e.g., DNO portion of bill) 26

  27. Lessons Learned Lessons Learned 27 27 27

  28. D3 Resources Can Compete 28 28 But… • Need access to forward contracting • paid by all consumers (just like supply alternatives) • Need “level playing field” market rules • comparable to supply alternatives • Need to be paid for all attributes delivered • peak capacity, T&D deferrals, energy, carbon reduction • Far fewer D3 participate if only 1 or 2 markets accessible • Need to minimize transaction costs • e.g., balance EM&V precision vs. cost 28

  29. Long-Term Commitment Critical 29 29 • ESCOs need to develop new business models • requires certainty & stability • Takes several years to ramp up some D3 initiatives • Many D3 measures provide savings for 10+ years • Alternative is problematic • price premiums for D3 that is delivered • cream-skimming • sub-optimal levels of cost-effective D3 • no foundation for deeper savings needed later 29

  30. Reflect All Goals in Market Structure 30 30 • Competitive bidding produces cheapest resources • Separate markets/bids for more expensive measures • Like different FITs for different renewables • Other goals need to be reflected in structure too • E.g., different markets/bids for low income 30

  31. Not a Panacea (revisited) 31 31 • Difficult to optimize markets for long-term needs • Need multi-fuels perspective • Most markets emphasize retrofits • Hard to address lost opportunity markets w/many suppliers • Need other approaches to get all cost-effective D3 • Supplier or other types of obligations—performance based! • Codes, standards and/or other regulations 31

  32. This Afternoon...More on Forward Capacity Markets and D3 • Emerging D3 Resources • Forward Capacity Market Design • Market Mechanics of Participation • Benefits & Challenges for D3 • Capacity Market Results (Good & Bad) • Lessons learned

  33. Contact Meg Gottstein, Principal mgottstein@raponline.org; mobile: +1 209 304 5931

  34. Extra Slides • Introductions • US EE Policies-Trends • States with EEPS • Spending on EE via Regulated (e.g, DNO) Tariffs • US Historic Energy Intensity • EE results—annual savings • Long term impacts (peak loads) • Distribution Referral Results for EE • PJM-ISO/NE map & extra FCM graphs

  35. Introduction Introductions 35 35 35

  36. Energy Futures Group 36 36 Efficiency Expertise • Policy Development • Program Design • Building Codes • Evaluation • Cost-Effectiveness Range of Clients • Government Agencies • NGOs • Regulators • Utilities Clients in 15 states/provinces plus regional, national and international organizations. 36

  37. Synapse Energy Economics 37 37 Areas of Expertise • Energy and Environment • Electricity Markets • System Planning • Renewable Resources • Greenhouse Gas Policy • Utility Tariffs and Regulation Range of Clients • Federal, State and Local Government • Advocates • NGOs • Foundations Clients across the US and Canada and few utility clients.

  38. States w/EEPS 38 38 Source: ACEEE, State Energy Efficiency Resource Standard Fact Sheet, Updated December 2010 38

  39. U.S. Spending on EE via Regulated (e.g. DNO) Tariffs 39 39 Source: ACEEE, 2010 State Energy Efficiency Scorecard 39

  40. 40 40 40

  41. Improving Trend in New England 41 41 41

  42. EE Results 42 42 42

  43. Long-Term Impacts 43 43 43

  44. Distribution Deferral Results 44 44 • 89 MW reduction thru May 2010 • Relative to goal of ~97MW • Capital savings of $221 million • Includes $85 million in expansions never needed • Acquisition costs of $134 million (including admin/M&V) • Total benefits of $461 million • Includes value of energy and other savings • Almost all savings from efficiency measures • Mostly lighting • No DG initially, but some projects now in pipeline 44

  45. Distribution Deferral Results 45 45 Graphs courtesy of Con Ed 45

  46. Capacity Markets Results 46 46

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