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Avoided Cost and E3 Calculator Workshops. Energy and Environmental Economics, Inc. October 3, 2005. Review of E3 Avoided Costs. Background Overview of the Methodology Valuation of Peak Hours Utility-specific Data. Information on New Avoided Costs.

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Avoided cost and e3 calculator workshops l.jpg

Avoided Cost and E3 Calculator Workshops

Energy and Environmental Economics, Inc.

October 3, 2005


Review of e3 avoided costs l.jpg

Review of E3 Avoided Costs

  • Background

  • Overview of the Methodology

  • Valuation of Peak Hours

  • Utility-specific Data


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Information on New Avoided Costs

Spreadsheets and reports can be downloaded free from the E3 website:

http://www.ethree.com/cpuc_avoidedcosts.html


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Avoided Cost Objectives

  • Goals:

    • Provide objectively derived estimates of avoided costs that are suitable for evaluating PUC funded programs

    • Develop a transparent and repeatable costing methodology that does not rely on either proprietary data or models

  • Deliverables:

    • Transparent and defensible avoided cost methodology

      • Separate presentations with proposals for each cost component

      • Make use of existing studies and data to the extent possible

    • Provide software to update estimates of avoided costs

    • Provide a report describing methodology, results, and data to support estimates


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Summary of Project Requirements

Forecast values (2004-2023) for:

Annual

Monthly

Hourly

Vary by

Values

Values

Values

Location

Traditional avoided costs

Electric generation

X

R

Electric T&D

X

R

R

Natural gas procurement

X

R

R

Natural gas transportation

X

R

R

Additional avoided costs (gas and electric)

R

Environmental externality

X

Reliability adder

X

Demand Reduction Benefit

X

R

X = RFP Requirement; R = E3 Recommendation


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Electric Avoided Cost Dimensions

Dimensions of the Electric Avoided Cost

(8760 Hours from 2004 to 2023)

Utilities

PG&E

SCE

SDG&E

Voltage Level

Transmission

Primary

Secondary

Climate Zones | Planning Areas

PG&E: 9 | 18

SCE: 8 | 5

SDG&E: 4 | 1


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Prior Electric and Gas Avoided Costs


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Prior Electric and Gas Avoided Costs

Electric ($/kWh)

Gas ($/Therm)

Source:

Energy Efficiency

Policy Manual

p 24-25

11/29/01


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The New Costing Framework

200?: 2.84% * $60.00/MWh = $1.70/MWh of load


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Conceptual Framework

Electric Avoided Costs / Benefits

TotalBenefita,h,t=GenMCa,t,y+ Externalitya,t,y + TransMCa,t,y + DistMCa,t,y

+ Reliabilitya,t,y + DemandReductionBenefita,t,y

Gas Avoided Costs / Benefits

TotalBenefita,t,y=Commoditya,t,y+ Transportationa,t,y + Externalitya,t,y

+ DistMCa,t,y + DemandReductionBenefita,t,y (if available)

Where a = area, t = time dimension (e.g., hour, TOU period), y = year.


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Electric

Formulation of Avoided Cost

Natural Gas

Commodity

Commodity

Period 1 (2004-2008)

Platt’s / NYMEX

Period 2

Transition

Period 3 (2008-2023)

LRMC

Period 1 (2004-2008)

NYMEX

Period 2

Transition

Period 3 (2008-2023)

Long-run Forecast

1 + Ancillary Services (A/S)

1 + LUAF + Compression

+

Market Multiplier

T&D Costs

+

1 + Energy Losses

Environment

+

  • “NYMEX” = “New York Mercantile Exchange”

  • “LRMC “ = “Long-run marginal cost” = all-in cost of a combined cycle gas turbine (CCGT)

  • “LUAF “ = “Loss and unaccounted for”

T&D Costs  (1 + Peak Losses )

+

Environment  (1+ Energy Losses)


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Components that Contribute to Shape


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Components with Peak Shape

  • Energy and capacity

  • Ancillary Services

  • Market Elasticity

  • Transmission and Distribution Capacity

  • Losses

  • Emissions


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Inputs that Vary by Utility

  • Energy and capacity (A/S, environment)

    • Northern and Southern California

  • T&D

    • Varies by 16 climate zones in the State

  • Losses

    • Average and peak losses by IOU


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Commodity Shape: Example NP15

Average of Hourly Values by Month

Average of period 4/1/1998 through 3/31/2000 – Matched by Daytype


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Market Price Forecast Results

  • Annual Average Forward Price Estimate

Market

LRMC

Market Prices Updated as of October 15, 2003


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Example of Capacity Separation

  • Integral of the light blue area is the capacity cost.


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Energy Losses by TOU Period


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A/S Cost Computation

  • Average of A/S costs as share of total energy costs, during non-crisis period (8/99-5/00, 8/01-7/03): 2.84%

  • Apply 2.84% to shaped hourly energy price

    • 2004: 2.84% * $45.57/MWh = $1.29/MWh of load

    • 2005: 2.84% * $46.65/MWh = $1.32/MWh of load

A/S Costs are the same multiplier for the entire state.


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Market Elasticity Estimates

Market Multiplier

(On Peak RNS = 5%)

Market Elasticity

On-Peak: 8am to 6pm, Working Weekdays, May to October

Off-Peak: All Other Hours


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T&D Formulation

T&D Capacity

Cost ($/kW-yr)

Year

Utility

Planning Area

T&D Capacity

Cost ($/kW-hr)

Year

Hour

Utility

Planning Area

Climate Zone

Voltage Level

(1 + Losses)

Utility

Voltage level

Peak

Allocation

Hour

Climate Zone

Item

=

*

*

Dimension


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Dominguez Hills

Foothill

Rural

Santa Ana

Ventura

Climate zones and planning areas

CEC Title 24

Climate Zones


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SDG&E

SCE

PG&E

$77.76

$36.00

$70.00

$21.00

$38.00

$5.00

$5.00

T&D Avoided Costs by Planning Division


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Calculation of the PCAFs is based on Load Duration Curve of Each Area

Load Duration Curve

PCAF weights are assigned proportionally to how high the load is compared to the peak.

Only highest load hours (top standard deviation) receive any weight.


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Allocation of T&D Based on Temperature by Climate Zone

Drives

Drives

T&D

Capacity Cost

Loads

Temperature

Load Information Missing or Difficult to Obtain in Many Areas

T&D

Capacity Cost

Temperature

Use temperature as a proxy for load, and as the basis for allocating costs to hours of the year.


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T&D AllocationActual Load vs. Temperature

Fresno

Similar analysis done on 33 PG&E areas as part of CEC Title 24 development

Yellow

8am to 10pm


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PCAF / Load Relationship Shown Chronologically


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Example Results for PG&E Stockton based on TMY Weather


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Peak Losses


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Environmental Cost Formulation


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Emission Prices & Plant Heat Rates

  • Includes NOx, PM-10, and CO2 emission credit prices

  • Lower bound of heat rate is set at a 6,240 heat rate, upper bound is set at a 14,000 heat rate


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Putting the Components Together:Base Case Results


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Total Electric Avoided Costs

Shape is Based on PG&E’s San Jose Planning Division


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3 Day Snapshot of Disaggregated Electric Avoided Costs

Avoided Cost is Based on PG&E’s San Jose Planning Division


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Comparison of Efficiency Programs

  • Levelized Avoided Cost ($/MWh) over 16 Year Life for All Devices

  • AC Load Shape Based on SEER 12 to SEER 13 Change in Fresno

  • New Avoided Costs are based on PG&E, Climate Zone 13, Secondary

  • Based on hourly simulated AC data, proxy outdoor lighting, flat refrigeration


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