The smart grid business case l.jpg
This presentation is the property of its rightful owner.
Sponsored Links
1 / 26

The Smart Grid Business Case PowerPoint PPT Presentation


  • 82 Views
  • Uploaded on
  • Presentation posted in: General

The Smart Grid Business Case. John Caldwell Edison Electric Institute. A Potential Roadblock to Smart Grid: Regulatory Ambivalence. Approved Portland General Electric AMI (5/2008) Duke Energy Ohio Infrastructure Modernization (5/2010) Oklahoma Gas and Electric Smart Meters (7/2009)

Download Presentation

The Smart Grid Business Case

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


The smart grid business case l.jpg

The Smart Grid Business Case

John Caldwell

Edison Electric Institute


A potential roadblock to smart grid regulatory ambivalence l.jpg

A Potential Roadblock to Smart Grid:Regulatory Ambivalence

Approved

  • Portland General Electric AMI (5/2008)

  • Duke Energy Ohio Infrastructure Modernization (5/2010)

  • Oklahoma Gas and Electric Smart Meters (7/2009)

  • Texas – New Mexico Power AMI (7/2011)

  • Conditional

  • Idaho Power AMI (2/2009)

  • Pacific Gas and Electric (3/2009)

  • American Electric Power Smart Grid Pilot (3/2009)

  • New York – Smart Grid Initiatives of 6 Utilities (7/2009)

  • Baltimore Gas and Electric AMI (8/2010)

  • Rejected

  • Hawaiian Electric Company Inc. Smart Meter Pilot (7/2010)

  • Duke Energy Indiana Smart Meters (11/2009)

  • Commonwealth Edison Alternative Rate Plan for Smart Grid Funding (5/2011)


The regulator s perspective three questions that will probably be asked l.jpg

The Regulator’s PerspectiveThree Questions That Will (Probably) Be Asked

  • Sounds wonderful – but will it “put bread on the table”? (Will it produce tangible, monetary benefits or savings to the ratepayer?)

  • Are we “shooting craps”?

    • How probable is it that the benefits stream will occur?

    • Are the benefits contingent on some other activities (e.g., demand response)?

  • Will the “check be in the mail”? (How will the benefits be realized by the ratepayer?)

    • Will they be passed through automatically in a rate tracker?

    • Will they not be passed through until the next rate case?


The business case challenge l.jpg

The Business Case Challenge

Broad and Inclusive

Rigorous and Defensible

  • All Benefits

    • Ratepayer

    • Societal

    • Platform

  • Must Take “Long View”

  • Potential Transformational Impacts Considered

  • Costs are Specific

  • Benefits are:

    • Trackable,

    • Measurable

    • Verifiable

  • Projections are Reasonable

  • Risks are Accounted For


Preparing the business case general principles l.jpg

Preparing the Business CaseGeneral Principles

  • For each smart grid application, create “long list” of benefits

  • Characterize benefits

    • By recipient (e.g., shareholder, customer, societal)

    • By contingency (what else must occur for these benefits to be realized?)

    • By measurability

    • By verifiability

  • The value chain in each business case must be oriented to its relevant beneficiary

    • For the utility: shareholder benefits

    • For the regulator: ratepayer benefits

    • For the taxpayer: societal benefits


Smart grid benefits and costs not the same for everyone l.jpg

Smart Grid Benefits (and Costs) Not the Same for Everyone!


Ami the complete business case consumer perspective l.jpg

Benefits

Peak/Off-Peak Pricing

Change in Consumer Surplus (Not Savings!)

Deferred Generation Capacity

Reduced O&M

Meter Reading

Call and Billing Centers

Outage Response

Energy Theft / Meter Errors

Enhanced Receivables Recovery

Costs

Peak/Off-Peak Pricing

Change in Producer Surplus? (No!)

Marketing / Administrative Costs

Capital Costs for New Meters

O&M for New Meters

Billing / Customer Information Systems Upgrade

AMI: The Complete Business CaseConsumer Perspective

Incremental expenditures and savings are tracked by year, and converted into net present value. Length of study period should correspond with service life of principal assets.


A good deal l.jpg

A Good Deal???

Suppose Starbuck’s sells a medium cup of coffee for $2.00 and you buy two cups a day, five days a week. . .

. . . but then they raise the price to $3.00, so now you only buy one cup a day, five days a week.

CONGRATULATIONS!!! Starbuck’s has saved you 25% on your coffee costs!


Savings benefits an example l.jpg

Savings ≠ Benefits!An Example

Assumptions:

  • Flat rate energy price of 4.1 cents/kWh

  • Two consumption behaviors

    • Peak (2:00 PM – 7:00 PM Weekdays): 1.33 kW/hour

    • Off-Peak (All Other Hours): 0.85 kW/hour

  • Introduce peak / off-peak rate

    • Peak: 4.9 cents/kWh

    • Off-Peak: 3.7 cents/kWh

  • Price elasticity

    • Peak: -0.6

    • Off-Peak: -0.1


Peak pricing example l.jpg

Peak Pricing Example

On-Peak Demand Curve

Flat Rate

Supply Curve

Off-Peak Demand Curve


Peak pricing example consumer loss calculation for on peak period l.jpg

Peak Pricing ExampleConsumer Loss Calculation for On-Peak Period

On-Peak Demand Curve

On-Peak Price

Lost value of reduced electricity consumption.

Loss from purchasing electricity at new, higher price.

Original Flat Rate

New Usage

Old Usage


Peak pricing example consumer benefits calculation for off peak period l.jpg

Peak Pricing ExampleConsumer Benefits Calculation for Off-Peak Period

Off-Peak Demand Curve

Benefit of additional usage at new, lower price.

Original Flat Rate

Savings from old usage level at new, lower price.

Old Usage

Off-Peak Price

New Usage


Consumer benefits calculation summary l.jpg

Consumer Benefits Calculation Summary

Off-Peak Benefits

Savings from original usage at lower price

(Old Price – New Price) x (Original Hourly Consumption) x (# of Off-Peak Hours)

Benefit from additional usage

½ x (Old Price – New Price) x (New Hourly Consumption – Old Hourly Consumption)

x (# of Off-Peak Hours)

On-Peak (Negative) Benefits

Losses from new usage level at higher price

(Old Price – New Price) x (New Hourly Consumption) x (# of On-Peak Hours)

Lost benefit from curtailed usage

½ x (Old Price – New Price) x (Old Hourly Consumption – New Hourly Consumption)

x (# of On-Peak Hours)


Consumer surplus calculation results l.jpg

Consumer Surplus Calculation Results

Savings = $ 328.90 – 309.90 = $19.00

Consumer Surplus = [($0.041-$0.037) x (0.85 + 0.5 x (0.86-0.85)) x 7,456] – [($0.049-$0.041) x (1.16 + 0.5 x (1.33-1.16)) x 1304] = $11.41

Conclusion: Savings calculation overstates consumer benefits estimate by 66%!


A note on producer surplus l.jpg

A Note on Producer Surplus

  • Consumer Savings = Lost (Producer) Revenue

  • But Loss in Producer Surplus is Less Than Loss in Revenue

  • The Benefits Stream Parallels that for Consumers (i.e., Gain During Off-Peak Hours, Loss During On-Peak Hours)

    • Off-Peak Benefits

      • Serve original load - at higher price!

      • Serve additional load (at higher price)

    • On-Peak (Negative) Benefits

      • Serve reduced load – at lower price!

      • Lost benefit of curtailed usage


Peak pricing example producer loss calculation for on peak period l.jpg

Peak Pricing ExampleProducer Loss Calculation for On-Peak Period

Supplier Price When Customer Billed on Flat Rate

Lost margin from reduced electricity sales.

Supply Curve

Loss from selling electricity at new, lower price.

Supplier Price When Customer Billed on Peak Rate

Peak Rate Usage

Flat Rate Usage


Peak pricing example producer benefits calculation for off peak period l.jpg

Peak Pricing ExampleProducer Benefits Calculation for Off-Peak Period

Supply Curve

Supplier Price When Customer Billed on Off-Peak Rate

Margin from additional sales at new, higher price.

Increased margin from selling electricity at new, higher price.

Supplier Price When Customer Billed on Flat Rate

Flat Rate Usage

Off-Peak Rate Usage


Supplier benefits calculation summary l.jpg

Supplier Benefits Calculation Summary

Off-Peak Benefits

Increased margin from original usage at higher price

(New Price – Old Price) x (Original Hourly Consumption) x (# of Off-Peak Hours)

Increased margin from additional usage

½ x (New Price – Old Price) x (New Hourly Consumption – Old Hourly Consumption)

x (# of Off-Peak Hours)

On-Peak (Negative) Benefits

Margin losses from new usage level at lower price

(New Price – Old Price) x (New Hourly Consumption) x (# of On-Peak Hours)

Lost margin from curtailed usage

½ x (New Price – Old Price) x (Old Hourly Consumption – New Hourly Consumption)

x (# of On-Peak Hours)


Producer surplus calculation results l.jpg

Producer Surplus Calculation Results

Lost Revenue = $ 328.90 – 309.90 = $19.00

Producer Surplus = [($0.037-$0.036) x (0.85 + 0.5 x (0.86-0.85)) x 7,456] – [($0.057-$0.049) x (1.16 + 0.5 x (1.33-1.16)) x 1304] = - $9.50

Conclusion: Margin loss (negative producer surplus) is half of revenue loss.


Why energy savings is a bad metric l.jpg

Why Energy Savings is a Bad Metric

  • It ignores the value of energy consumed

  • It ignores collateral costs that may be incurred by consumers if energy use is shifted

  • It ignores the corresponding losses incurred by producers from lower sales (however, these can be ignored if business case is from consumer perspective only)

Consumer Surplus is the appropriate metric for measuring the direct impact of changes in energy consumption behavior.


But does this mean that real time pricing is a bad thing not necessarily l.jpg

But Does This Mean that Real-Time Pricing is a Bad Thing?Not Necessarily!!!

  • Consumer surplus could (and usually does) increase

  • Future rate increases (and perhaps even current rates) will be reduced due to deferred capacity expansion and/or lower capacity charges

  • Traditional non-TOU pricing is a form of hedging (i.e., energy provider pays for energy in real time, while customer does not), which may result in a “hedge premium” that can be removed or reduced with TOU pricing


And what about that starbuck s deal here s the real impact of the price increase l.jpg

. . . And What About that Starbuck’s Deal?Here’s the Real Impact of the Price Increase

Lost value of reduced coffee consumption

New Price

Demand Curve

Loss from purchasing coffee at new, higher price

Original Price

$2.10

$2.70

$2.50

$2.30

$2.90

New Quantity

Old Quantity

Loss from Purchasing Coffee at Higher Price

5 cups x $1.00/cup = $5.00

Lost Value of Reduced Coffee Consumption

Cup 6: $2.90 - $2.00 = $0.90

Cup 7: $2.70 - $2.00 = $0.70

Cup 8: $2.50 - $2.00 = $0.50

Cup 9: $2.30 - $2.00 = $0.30

Cup 10: $2.10 - $2.00 = $0.10

Total Loss: $7.50


Sample ami business case ratepayer s perspective l.jpg

Sample AMI Business CaseRatepayer’s Perspective

Assumptions: 20-year meter life, 8% discount rate, 20% residential customer enrollment in peak / off-peak rate.


Some final lessons l.jpg

Some Final Lessons

  • Don’t oversell the case! (It’s only as strong as it’s weakest link.)

  • Different stakeholders will have different business cases. Don’t ignorethe distinctions!

    • Multipliers multiply confusion (and grief!). Smart grid investments may create positive job multipliers, but reductions in staff due to automation may produce negative job multipliers

  • Phantom benefits will only haunt the case: best if they are measurable and trackable!

  • There’s no such thing as a risk-free investment. Acknowledge it in the case, and be willing to share it!


Who bears the risk l.jpg

Who Bears the Risk?

Rate Case for Cost Recovery / Guaranteed Reduction in Revenue Requirements Over Time

High Risk

Rate Case for Cost Recovery / Rate Tracker for Savings and Benefits

Rate Case for Cost Recovery / Rate Case for Savings and Benefits

Performance- Based Ratemaking?

Rate Tracker for Cost Recovery / Guaranteed Reduction in Revenue Requirements Over Time

Utility

Rate Tracker for Cost Recovery / Rate Tracker for Savings and Benefits

Rate Tracker for Cost Recovery / Rate Case for Savings and Benefits

Low Risk

Customer

High Risk


Thank you l.jpg

Thank You!

Questions?

John Caldwell

202-508-5175

[email protected]


  • Login