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Real-Time Pricing and Demand Response – 5 Basic Facts about Power Markets and RTP

Real-Time Pricing and Demand Response – 5 Basic Facts about Power Markets and RTP. CEC Workshop March 15, 2002 Steven Braithwait Christensen Associates. 1. Wholesale and Retail Power Markets are Disconnected. PJM Hourly Wholesale Costs – Summer 2000. Load-weighted Average Price. $300.

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Real-Time Pricing and Demand Response – 5 Basic Facts about Power Markets and RTP

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  1. Real-Time Pricing and Demand Response – 5 Basic Facts about Power Markets and RTP CEC Workshop March 15, 2002 Steven Braithwait Christensen Associates

  2. 1. Wholesale and Retail Power Markets are Disconnected PJM Hourly Wholesale Costs – Summer 2000 Load-weighted Average Price $300 $250 $200 $/MWh $150 $100 $50 $- 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Cumulative Percentage of Hours Wholesale Price Ld-Wtd Ave

  3. A Market-based Approach Connects the Wholesale and Retail markets • Offer customers dynamic prices that reflect hourly wholesale costs (e.g., RTP, TOU with “critical price”) • Allow customers and aggregators to participate in the wholesale market (e.g., demand bidding)

  4. 2. Customer Experience with Dynamic Pricing: They Like TOU and RTP* • Gives them choices • When to consume • Opportunity to expand at low prices and reduce load at high prices • Lets them manage their energy costs • *Customers do not like one-part RTP (spot pricing with markup to recover revenue) • Risk from bill variability • Prices can be much higher than wholesale prices • Self selection due to class-wide revenue neutrality

  5. 3. Customers Respond to Prices • 25 years of TOU experience • Literature shows remarkable consistency of price response • More intensive users respond the most • 10 years of RTP experience • Significant, consistent price response • Variability across customer types • Technology can expand responsiveness

  6. Examples of Customer Price Response • Georgia Power Company RTP • Duke Power RTP • NYISO Emergency DR Program • Residential “Critical Price” TOU

  7. RTP at Georgia Power Company • 1,700 C & I customers • 5,000 MW of peak demand • Day-ahead (75%) & hour-ahead (25%) • Load response: 500 – 1,000 MW (at prices of $.50 – $2.00/kWh)

  8. GP RTP Load Response (DA): Moderate Prices(Load response = 230 MW; 8% of reference load) Reference load Load on moderately high-price day $.28 < P < $.35

  9. GP RTP Load Response (DA): Very High Prices(Load response = 500 MW; 20% of reference load) Load onhighest-price day Highest DA prices

  10. Wide Range of RTP Price ElasticitiesSIC 20 Food Products

  11. Most Price Responsive Customers • Electricity intensive (e.g., most intensive industrials; residential customers with most major appliances) • Enabling technology (e.g., on-site generation; storable production process; automatic controls)

  12. Duke Power Hourly Pricing Experience (per Tom Taylor, Rates and Regulation) • 100 industrial customers; 1,000 MW • Total load response when Price > $.25/kWh • 200 MW, or 20% of expected load • 20 customers reduced load by > 5% • Significant price elasticities for 25% of customers

  13. NYISO Emergency DR Program • Two-hour notice; $500/MWh or LBMP • 300 customers; 8,000 MW • Summer 2001 load response • 400 MW; 3% of total load in key regions • Price elasticity: - 0.09

  14. Residential “Critical-price” TOU • GPU pilot study (1997) – treatment and control groups • TOU rate, plus critical price($.50/kWh) • Interactive communication system • Customers pre-select thermostat settings and circuit priority at different price triggers • Utility can send critical price signal • Similar programs at AEP, Gulf Power

  15. “Critical-price” TOU Rate Design 0.5 Critical price 0.4 0.3 Rate 6173 Standard Rate 0.2 Rate 9122 0.1 0 1 8 14 18 20 24

  16. Load Response – Typical Weekday(25% in peak period) 3.00 2.50 2.00 Control Average Hourly Usage: kWh/hr. 1.50 Treatment 1.00 Peak 0.50 S S OP OP 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

  17. Load Response – Critical Price(Nearly 50% in peak period) 4.00 3.50 3.00 2.50 Control Average Hourly Usage: kWh/hr. 2.00 Treatment 1.50 Peak 1.00 S S 0.50 OP OP 0.00 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

  18. 4. RTP is a Natural Pricing Strategy in a Competitive Commodity Market • Customers have a choice of price structures • Price structures include combinations of: • fixed prices • spot prices (day-ahead and real-time), and • forward contracts for risk management Two-part RTP is a natural combination of spot pricing and forward contracts – manages customer and supplier risk

  19. 5. Two-Part RTP is a Win-Win Opportunity • RTP customers: • Benefit by responding to market prices • Protected from bill volatility by CBL “forward contract” • Suppliers: • Guaranteed same revenue from CBL usage as under standard tariff • Any incremental usage priced at marginal cost to serve • All customers (the market): • Revenue-neutral (no cross subsidies) • Economic efficiency gain (.5 to 2% of base revenue) • HLPR screening tool – EPRI & SchlumbergerSema

  20. Two-Part RTP has Additional Advantages for California • Addresses some of California’s biggest energy problems: • Need for demand response in high-cost hours • Need to recover revenue in excess of market prices • Barriers to economic growth from high prices

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