Demand Response: What It Is and Why It’s Important

Demand Response: What It Is and Why It’s Important 2007 APPA National Conference San Antonio, Texas June 26, 2007 11:00 a.m. to Noon Glenn M. Wilson Director of Utilities 295 Meridian Street Groton, CT 06340 860-446-4000

The Three Pillars • Energy Efficiency – Managing energy consumption and energy assets • Demand Response – Managing load shape • Supply Management – Managing the supplier relationship and risk Courtesy of ISO-NE

What is Demand Response? • Customers reducing their electricity consumption in response to either: • high wholesale prices or • system reliability events • Customers being paid for performance based on wholesale market prices Courtesy of ISO-NE

Why is Demand Response Important? • Reliability Benefits – Resource available to help “keep the lights on” during extreme emergency conditions • Capacity Resource – Can be implemented quickly, where needed – Can be used to satisfy a capacity obligation • Customer Benefits – Paid for performance and improve load shape Courtesy of ISO-NE

Program Types • Reliability (Demand) Programs – Customers respond to System Reliability Conditions as determined by ISO Control Room • Price Programs – Customers respond to Wholesale Prices as determined by the Market Courtesy of ISO-NE

Discussion Topics • Why is demand participation in the electricity market needed? • What is the Forward Capacity Market (FCM) and how does it work? • What has been the interest in participating in the Forward Capacity Auction? Courtesy of ISO-NE

Demand Participation in Markets is Needed • The load factor of the New England electricity system has been steadily declining over time resulting in: – peaky loads, higher energy and capacity costs, and higher average rates. • A small amount of demand participation in markets can go a long way in mitigating peaks, lowering costs, and ultimately lowering electricity prices to final consumers. • “Markets are the most efficient way to encourage the development of cost-effective Demand Resources.” (Henry Yoshimura, ISO-New England) Courtesy of ISO-NE

ISO-NE Summer Peak Load FactorsHistory 1980-2006, Forecast 2007-2016 Courtesy of ISO-NE

Why Should Demand Resources Participate Inthe FCM? New England Load Duration Curve (2006) Courtesy of ISO-NE

Forward Capacity Market Background • The Forward Capacity Market (FCM) will be used to procure capacity to meet New England’s forecasted demand and reserve requirements three years into the future. – The design of the FCM resulted from a Settlement Agreement signed on March 6, 2006. • FERC approved the Settlement Agreement on June 16, 2006. – Detailed FCM Rules were filed with the FERC on February 15, 2007. • FERC approved the qualification and auction process on April 16, 2007. • Generation and Demand Resources may participate in the FCM. Courtesy of ISO-NE

Eligible Resources • Supply Resources – Traditional Generation (Oil, Coal, Natural Gas) – Intermittent/Renewable Generation (Hydro, Wind, Solar) • Demand Resources – Energy Efficiency – Load Management – Distributed Generation – Demand Response Courtesy of ISO-NE

Forward Capacity Auction Objectives • The FCM uses a competitive Forward Capacity Auction (FCA) process to determine which resources to buy, how much to buy, and how much to pay. • The FCA will be used to select a portfolio of Generation and Demand Resources to meet Installed Capacity Requirements. • All resources that clear the auction are paid the market-clearing price ($/kW-month), subject to performance incentives and penalties. • To encourage investment, new resources can receive a long-term commitment (up to 5 years). Courtesy of ISO-NE

Show of Interest Results • To participate in the first FCA (scheduled for February 2008), Project Sponsors had to submit an application called a “Show of Interest” form. • ISO New England received more than 400 Show of Interest forms from new Generation and Demand Resources totaling over 12,400 MW. – Over 10,000 MW from new Generation Resources. – Over 2,400 MW from new Demand Resources, including energy efficiency, load management, distributed generation and demand response. Courtesy of ISO-NE

Demand Resources Show of InterestMW by State and Resource Type 80% of the proposed MWs are from non-utility suppliers such as energy services companies, third-party energy suppliers, equipment vendors and retail customers. Courtesy of ISO-NE

Early Observations: • Significant potential for Demand Resources to participate in the Wholesale Electricity Markets – The strong showing with regards to the New Demand Resource Show of Interest is very encouraging. – Not all the projects that submitted Show of Interest forms will qualify, clear and perform. – However, the level of interest demonstrates the effectiveness of the Forward Capacity Market to attract investors and bring about the development of the most cost-effective capacity resources. Courtesy of ISO-NE

How Can Customers Participate? • Reduce Electricity Consumption – Shut down a manufacturing process – Turn off discretionary lighting, motors, etc. – Raise HVAC temperatures – Use Lighting Controls (i.e., Dimming) – Use an Energy Management System • Start Emergency Generator – Transfer load from the Grid to an Emergency Generator • Combination – Start up Emergency Generator and reduce load at the same time (Real Time Demand Response only). Courtesy of ISO-NE

Demand Response(continued) Courtesy of ISO-NE

Demand Response(Continued) Courtesy of ISO-NE

Real-Time Demand Response Courtesy of ISO-NE

Real-Time Price Response Courtesy of ISO-NE

Day-Ahead Option Courtesy of ISO-NE

DR Program Enrollments 2/2006 – 2/2007 Courtesy of ISO-NE

Typical Emergency Generator ConfigurationOperating during System Reliability Events (OP4 Action 12) Courtesy of ISO-NE

Distributed Resources • Energy Independence Act (Public Act 05-01) – Distributed Generation • Qualifying Projects – Combined Heat and Power – Peak Shaving – Installed and Operating after July 21, 2005 • Incentives – $450 or $500 per kW Courtesy of ISO-NE

Distributed Resources • Energy Independence Act (Public Act 05-01) • Emergency Generation – $250/kW Southwest Connecticut* – $200/kW Remainder of Connecticut – Must enroll in ISO-NE Demand Response Program Additional $50/kW only available for units operational before April 30, 2008 Courtesy of ISO-NE

Enrollment Process – Who’s Involved • Retail Customer • Enrolling Participant – Local Utility – Competitive Supplier – Demand Response Provider • Internet Based Communication Service (IBCS) Provider • ISO New England – ISO New England issues payments to Enrolling Participants and Demand Response Providers, not Retail Customers directly Courtesy of ISO-NE

ISO-NE Load Response Qualifying Projects • ≥ 100 kW curtailable load (single site or in aggregation) • Demand Response Program (mandatory) • Price Response Program • Enrollment through utility or other curtailment service provider Curtailment Methods • Manual • Automatic • Emergency Generation Courtesy of ISO-NE

ISO-NE Load Response(continued) Courtesy of ISO-NE

Peak Demand Savings Available from CEEF and EIA Programs (in kW) Courtesy of ISO-NE

Lost C&LM Summer Peak Savings Unless C&LM Funding is RestoredFuture C&LM Peak Demand Savings (MW) That Would Be Lost, Annual and Cumulative Courtesy of ISO-NE

Courtesy of ISO-NE

Demand Response: What It Is and Why It’s Important