| 05/28/2008 - Dimming the lights: Demand Response in California |
|
By Don McLean, Vice President, Demand Response of Energy Advantage California's Shady Past: It’s not necessary to dig too deep into our collective memory to recall the energy crisis that Californians suffered starting in May 2000 when a heat wave hit the San Francisco Bay area, leaving almost 100,000 customers in the dark. Despite having adequate electricity generating resources and the fact that peak usage was actually lower in 2000 than in 1999 and 19981, Californians faced soaring power bills and rolling black outs—periodically shutting down areas of the state—until 2001. As the conundrums of sky rocketing energy costs and energy shortages were slowly unraveled, it became clear there were a few factors at play. The process of partial deregulation began in 1996, with April 1998 as the opening date for the electricity spot market. Retail prices for end users were regulated at 6.7 cents per kilowatt hour (kWh). At the same time, the major California electric utilities, Pacific Gas & Electric (PG&E) and Southern California Edison (SCE), were forced to buy required supplies for their end-users in the recently deregulated wholesale market at prices of over 50 cents per kWh. 2 The utilities were forced to absorb the difference that amounted to billions of dollars. The result was that these utilities were essentially regulated into bankruptcy. Initial price spikes in deregulated markets are a common occurrence and have been seen in Alberta, Ontario and Texas. What made the Californian case unique was the large scale market manipulation executed by Enron Corporation, along with a number of other energy companies. Enron had been manipulating the recently deregulated energy markets through a variety of tactics, including ‘megawatt laundering’, overscheduling transmission lines, and artificially limiting supply at peak demand times, forcing utilities to buy on the spot market where prices experienced intense upward pressure. Enron activities exacerbated what should have been manageable temporary price spikes. During this time California experienced the devastating effects of exaggerated energy price volatility and became intimately aware of the need to protect against future uncertainty. Since then climate change has moved to the top of California’s agenda and U.S. security and peak oil fears continue to weigh heavy in the air. These environmental and economic realities have created pressure and momentum to decrease the overall dependency on fossil fuel-fired electricity generation. Demand Response is defined as “actions taken by electricity end-users that result in short-term reductions in peak electricity demand”. According to the International Energy Agency (IEA) a five per cent reduction in demand would have reduced the highest wholesale prices experienced in California by 50 per cent.3 The IEA also states that Demand Response has been shown to reduce overall demand by at least six per cent. In California demand response and energy efficiency are the favored approaches for addressing electricity issues. The second Energy Action Plan, produced by California’s Energy Commission (EC) and Public Utilities Commission (PUC) in September 2005, set a target of meeting five percent Demand Response by 2007 and to make dynamic pricing tariffs available for all customers. California PUC Commissioner Rachelle Chong, in a November 2006 News Release, is quoted, “With simple incentives and new technologies, consumers can help keep the lights on in California”. California has introduced what appear to be simple and lucrative programs designed to increase customer participation in demand response. This article provides an overview of electricity demand response opportunities in California. It focuses on opportunities with the three large investor-owned utilities, namely San Diego Gas and Electric (SDG&E), PG&E and SCE. Summary of Programs Offered: Basic programs offered by all three utilities include: • Critical Peak Pricing – voluntary programs applied through utility rate schedules. • Demand Bidding Program – low risk voluntary programs whereby participants earn credits for reducing power use when requested. • Capacity Bidding Program – more lucrative contractual programs, which pay a capacity standby credit, but also carry penalties for non-performance. • Technology Assistance and Technology Incentive programs – financial assistance for identifying facility load shedding opportunities, and installing the controls equipment required to automate it. • Auto-Demand Response – can be thought of as a common demand response-enabling platform used by the utilities to communicate with end-user controls systems (initiated by the California PUC). In this article we are going to look at the Technology Assistance and Technology Incentive (TATI) Programs, and the Capacity Bidding Programs (CBP). Technology Assistance and Technology Incentive: The Technology Assistance and Technology Incentive Programs provide funding for (i) site audits to identify facility load shed capability; and (ii) to install controls equipment to automate the load shed. The incentive available for the Technology Assistance is $100 per kW of load-shed identified. The Technology Incentive is up to $250 per kW towards the off-set of installation and equipment costs of demand response measures. That means up to $10,500 in incentive would be available for a facility to identify and develop a 30kW demand response. For a 100 facility retail chain, that could represent $1,050,000. The full funding of the Technology Incentive programs is contingent upon the customer agreeing to participate in a demand response program for a minimum of 12 months. Capacity Bidding Programs (CBP): Features of the Capacity Bidding Programs are: • ‘‘Contractual” in nature, wherein the program offers both a standby and energy payment, but also includes penalties in the form of reduced payment in the event of non-performance. • The program operates during the period from May 1st to October 31st and allows participants to “nominate” their capacity reduction on a monthly basis. • CBP events can be called during weekdays from 11:00 a.m. to 7:00 p.m. • Events are triggered by electricity system constraints, and are designed to replace generation that would otherwise be brought online at a thermal rate of 15,000 btu/kWh. • Participants must have Internet access and interval meters. • Participants may participate as a direct participant or through an aggregator. • Participants may elect on a monthly basis (i) “day-ahead” or “day-of” notification; (ii) event commitment interval from 1-4, 2-6, or 4-8 hour intervals. • The program does not require participation of more than 24 hours in a month. It appears typical participation in the program with a 3.0 MW load would generate approximately $200,000 per year in ongoing Demand Response revenue. Conclusion: The three large investor-owned California utilities offer very similar programs. There are very lucrative Technology Assistance Technology Incentive programs that are designed to assist customers in identifying load shed opportunities and then to assist with costs of automating it. There is also a range of Demand Response Programs which seem to be designed to encourage customer participation. Programs range from those that are low-risk, voluntary rate-based programs to more lucrative contractual programs requiring greater customer commitment. The utilities have invested in software and communications platforms that can be used in conjunction with a control system of the customer’s choice, as long as it is Internet based. It appears that the Capacity Bidding Programs would be very well suited to a multi-facility retailer. According to Gregg Fishman, spokesperson California Independent System Operator, in a recent article with Leslie Berkman in the Press-Enterprise, over the past 12 months 400 mW (or the equivalent of a fossil fuel power plant) has been added to the grid through new DR participants . As we work towards reducing our dependency on fossil-fueled electricity and reduce the volatility of energy markets, Energy Advantage would be pleased to assist customers in identifying opportunities specific to their particular operation. Please contact Don McLean at 905 319-1717 ext. 246, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , or Jim Josephson at 704.944.3236, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Internet Sites:
1http://www.energy.ca.gov/electricity/PEAK_DEMAND_AND_RESERVE.PDF |