LONGTERM RESOURCE ADEQUACY: DEMANDRESPONSE OPTIONS

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LONG-TERM RESOURCE ADEQUACYDEMAND-RESPONSE
OPTIONS

• ERIC HIRST
• Consultant in Electric-Industry Restructuring
• Oak Ridge, TN
• Eric_at_EHirst.com www.EHirst.com
• November 2002

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THREE PROBLEMS WITH THIS ASSIGNMENT

• Concept of long-term resource requirement is
  antithetical to competitive markets
• What other products are purchased so far ahead of
  use with such ambiguous product definition?
• For what other products does government mandate
  purchase?
• FERCs proposed long-term resource adequacy
  (LTRA) requirements, in SMD NOPR, vague and at
  odds with other parts of SMD
• FERCs opposition to ISO ICAP programs unclear

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ASSIGNMENT IS SIMPLE IN ONE SENSE

• Demand-response resources/programs developed for
  shorter term should qualify as long-term
  resources
• No need to develop new programs to ensure LTRA
• Challenge is to treat demand resources comparably
  (not necessarily identically) to supply resources
• ISO operating and market rules accommodate supply
  idiosyncrasies, need to do same for demand
  resources

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KEY RESOURCE COULD BE DEMAND CURVE FOR
CONTINGENCY RESERVES
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ISSUES TO CONSIDER ...

• Forecast horizon
• Certification requirements
• Qualifying resources
• Interruptible loads and direct-load control
• Dynamic pricing
• Load participation in contingency-reserve markets
• Energy efficiency
• Seasonal v annual requirements
• RTO role in markets
• End-use infrastructure requirements
• Metering and communications

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ISSUES TO CONSIDER

• RTO resource rights
• Retail customer/LSE obligations
• Minimum resource size
• Customer baseline level
• Payments
• Capacity
• Energy
• Penalties
• Other ??

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UNCERTAINTY OVER RESOURCES INCREASES WITH
FORECAST TIME
Plans
??
Physical resources
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WHAT CONSTITUTES CERTIFICATION AND WHEN?

• Resource Plan (long-term)
• How does RTO review and approve plan?
• Return to the days of utility IRP?
• Physical Resource (short-term, e.g., month ahead)
• Demonstration of actual load reduction within
  time limit (ramp rate), metering and
  communications equipment
• Annual or seasonal demonstration or delivery when
  called upon

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WHICH DEMAND RESOURCES CAN QUALIFY?

• YES
• Interruptible loads and direct-load control
  (participants in existing DR and ICAP programs)
• Bids into contingency-reserve markets

• NO
• Dynamic pricing ? Probably not
• Energy efficiency, passive nature prohibits
  system operator dispatch of resource
• These resources show up in load forecast

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DEMAND RESPONSE MORE VALUABLE AS LOAD REDUCTION

• Consider LSE with 100 MW peak demand, 15 reserve
  requirement, and 10 MW of contracted load
  reduction
• If the 10 MW qualify as LTRs, then LSE needs
  another 105 MW of qualifying resources
• If the 10 MW reduce peak demand, then LSE needs
  only 103.5 MW of qualifying resources

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HOW TO TREAT SEASONAL LOADS?

• Some load reductions are weather or season
  dependent
• Some are coincident with system peaks
• How to value such time-dependent load reductions?
• Calculate annual value based on hourly values of
  system LOLP and potential load reduction, similar
  to traditional utility system planning

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METERING AND COMMUNICATIONS DEPENDS ON TYPE OF
RESOURCE

• Interruptible Load
• Meters hourly
• Communications Receive, confirm, and act upon
  RTO instructions (pager, telephone, email, fax)
• Does RTO need to know load response in real time?

• Contingency Reserves
• Meters 1-minute recording
• Communications Receive and act upon RTO dispatch
  instructions
• Does RTO need to know load response in real time?

Who pays for this equipment?
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RTO RIGHTS

• Number of times per year (or season)
• Maximum duration of each interruption
• Minimum advance notice
• These limits generally do not apply to generators
  and reduce the value of demand resources
• Point in emergency sequence (OP-4) that resource
  is called

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LSE/CUSTOMER OBLIGATIONS

• Prompt reporting of availability status
• Maintenance of metering and communications
  equipment
• For participation in contingency-reserve markets,
  submission of daily availability bids (/MW-hr)

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PAYMENTS AND PENALTIES

• LTRs (both supply and demand) receive monthly or
  annual reservation/capacity payments, /MW-month
• When dispatched, supply paid for energy at spot
  energy price and load does not pay for unconsumed
  energy at same price
• (Ruff argument, no double payment)
• Noncompliance vs. underperformance penalties
• Stiff noncompliance penalty is quid pro quo for
  capacity payments
• Underperformance penalty should be cost based

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MANY OF THESE FACTORS APPLY TO OTHER
DEMAND-RESPONSE PROGRAMS

• Minimum resource size
• Aggregation
• Frequency, duration, advance notice of deployment
• Customer baseline level
• Easier to determine for contingency reserves

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COMPARISON AMONG DR TYPES ...
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COMPARISON AMONG DR TYPES
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MY BOTTOM LINE

• LTRA is a political necessity because of aversion
  to price spikes and deficiencies in current
  market designs
• LTRA not compatible with competitive wholesale
  energy markets
• Demand resources can and should qualify as LTRs
  and participate in such markets
• Build on experience with existing ISO and utility
  programs
• Ensure comparability with treatment of generation