Tutorial on Demand Response In Deregulated Electricity Markets: International Experience

Monday, November 29th 2004

IASTED PES 2004

Clearwater, FL

Tutorial on Demand Response In Deregulated

Electricity Markets: International Experience

Nuria Encinas Redondo

Instituto Ingeniería EnergéticaUniversidad Politécnica de Valencia

Monday, November 29th, 2004

CLEARWATER, FL 2

Table of contents

1. Introduction2. Actual Status

• USA• DR programs

• England and Wales• NETA

• Rest of Europe3. Current Research Efforts

• EUDEEP• IEA DSM, Task XIII, Task XV

4. Conclusions


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1.- Introduction Agents are interested in

Demand Response: Policy Makers And Regulators Market Operators Transmission System Operators Local Network Operators Traders And Retailers Customers

There are still barriers to overcome:

Economical Technical Structural and Legal Ignorance Tradition Financial

World wide efforts are being done to achieve a massive deployment of DR

Actual status Research efforts


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2.- Actual status2.1.- USAFERC: RECOMMENDED ROLE OF ISOS AND RTOS ISOs should facilitate both emergency load management

actions and economic curtailments until market structures and signals are clear.

Many current programs provide subsidies (by necessity) These indicate barriers or muted incentives to participation

Tools to achieve the goal should include: Forward contracts for reliability interruptions Meaningful reward/penalty features Proper valuation of the capacity represented by interruptions

ISOs/RTOs must work with FERC and state regulators to ensure:

Demand response is a part of the standard market design Standardized customer baselining practices Consistent payment approaches


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I- Special pricing options

Provide hourly information to enable customer to modify their consumption according to prices

Small modification from traditional structures Based on Real Time Pricing Special Time of Use

Examples Two part tariff:

• usage at the margin=billed at RT price Encouraging of RT Pricing through incentives:

• Technical assistance• Caps during first months

TOU+especial peak days pricing


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II- Programs offering payments for load reductions

Payments credits in exchange of load reductions in particular periods of time

Different types: Request criteria decided by Program Administrator needs (usually for

emergency)• Voluntary load reductions (without penalizations)• Mandatory load reductions (with penalizations)• Tailored programs (for large consumers)

Request criteria by market price• triggered when market price reaches a limit

– Day-ahead market– Forecast of Real Time price

Programs without notification• Scheduled event days• total monthly reductions


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III- Payments for DG productions

Payments or services in exchange of generation or load reduction using a separately metered self-generator.

Triggering Usually for administrators needs With or without penalizations according to capacity payments

Examples Rolling Blackout protection Capacity Incentives Interruptible service for Stand-by generation


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IV- Programs offering services for participation

Special services for load reductions instead of payments Technical assistance Blackout protection

Examples Optional Bidding Mandatory curtailment Technical assistance incentives


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V- Programs that promote direct market participation

Interface for customers to present their offers of reduction to markets

Administratos acts as tradding agent in markets:• Energy market (day-ahead, hour-ahead)• Balancing market• Reserves market

Usually designed for large customers

Examples Participating load program Balancing up load Replacement Reserve Day-ahead Demand Response Economic Load Response Hourly ahead Dispachable load


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V- Other Programs

Remote controlled thermostats but with possibility of customer overriding Energy Smart Thermostat Program

Profiled responses as market one for aggregators direct load control for final consumer Example:

• Real-time profiled response


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Participation on programs (I)

Enrollments by type of consumers

Enrollments by consumer size

Industrial46%

Manufacturing14%

Commercial21%

Institutional8%

Others11%

> 1 MW53%500 – 1000 kW

27%

100 – 500 kW12%

< 100 kW8%


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Participation on programs (II)Performance System

Category Example Enrolled customer (potential reduction)

Maximum reduction (average)

demand peak

Special Real Time Pricing Real Time Pricing (Georgia Power)**

1700 cut. (5000 MW)

1000 MW 15380 MW Special Pricing Options Special Time of Use

Emergency Demand Response (NYISO) **

1711 cust. (668 MW)

668 MW 30000 MW

Emergency Load Response (PJM) **

(548 MW) (39 MW) 53000 MW

Demand Buy Back Program (PGE)*

26 cust. (230 MW )

(100 MW) 3408 MW Voluntary

Energy Exchange (PacifiCorp) *

44 cust. (67.2 MW)

67.2 MW 8549 MW

Demand Response (01-03, ISO-NE) **

(109.7 MW) 109.7 MW 25500 MW Mandatory

Base Interruptible (SDG&E,SCE,PG&E) *

(41,5 MW) 41,5 MW 44000 MW

Negotiated Buyback (PacifiCorp) *

3 cust (35.1 MW )

35.1 MW 8549 MW

Request decided by Program

Administrator needs

Tailored Negotiated Buyback

(PGE) * 2 cust.

(56 MW) 56 MW 3408 MW

Request criteria by market price

Price Response (01-03, ISO-NE) **

(55.81 MW) 25500 MW

20/20 Customer Challenge (PacifiCorp) *

115598 cust. (19.1 MW)

8549 MW

Programs offering

payments for load

reductions

Without notification Scheduled Load Reduction

(SDG&E,SCE,PG&E) * (4 MW) 4 MW 44000 MW

Programs offering payments for DG production Rolling Blackout Reduction

(SDG&E) * (60 MW) 3,031 MW

Programs offering services for participation Optional Binding Mandatory

Curtailment (SDG&E,SCE,PG&E) *

(16,5 MW) 44000 MW

Programs that promote direct market participation

Economic Load Response (PJM) **

(343 MW) (16 MW) 53000 MW

Other Programs Real Time Profiled Response

Program (ISO-NE)***

(142.9 MW) 25500 MW


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Participation on programs (III)

Performance System



demand peak


1700 cut. (5000 MW)



1711 cust. (668 MW)

668 MW 30000 MW


(548 MW) (39 MW) 53000 MW


26 cust. (230 MW )



44 cust. (67.2 MW)

67.2 MW 8549 MW




(41,5 MW) 41,5 MW 44000 MW


3 cust (35.1 MW )

35.1 MW 8549 MW


Administrator needs


(PGE) * 2 cust.

(56 MW) 56 MW 3408 MW



(55.81 MW) 25500 MW


115598 cust. (19.1 MW)

8549 MW

Programs offering

payments for load

reductions




(SDG&E) * (60 MW) 3,031 MW



(16,5 MW) 44000 MW



(343 MW) (16 MW) 53000 MW


Program (ISO-NE)***

(142.9 MW) 25500 MW

Performance System



demand peak


1700 cut. (5000 MW)



1711 cust. (668 MW)

668 MW 30000 MW


(548 MW) (39 MW) 53000 MW


26 cust. (230 MW )



44 cust. (67.2 MW)

67.2 MW 8549 MW




(41,5 MW) 41,5 MW 44000 MW


3 cust (35.1 MW )

35.1 MW 8549 MW


Administrator needs


(PGE) * 2 cust.

(56 MW) 56 MW 3408 MW



(55.81 MW) 25500 MW


115598 cust. (19.1 MW)

8549 MW

Programs offering

payments for load

reductions




(SDG&E) * (60 MW) 3,031 MW



(16,5 MW) 44000 MW



(343 MW) (16 MW) 53000 MW


Program (ISO-NE)***

(142.9 MW) 25500 MW


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2.2.- England and Wales: NETA

Futures contracts

Spot Markets

Balancing Mechanism

Settlement Mechanism

Long-Term

Short-term

1 hour ahead

After delivery time

Final Program + Adjustment bids and offers

OTC with SO

OTC between parties


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BILATERAL CONTRACTS

Over-the-counter • Forward markets• Direct contracts

The Most Important Power Exchanges: UK Power Exchange (UKPX)

• Futures Contracts• Spot Market

Automatic Power Exchange (UK APX)• Spot Market• Planned: future contracts

International Petroleum Exchange• Futures Contracts

Power Exchanges:•Futures contract•Spot Markets

the same group


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Trading evolution (OTC)


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Trading Volumes (Power Exchanges)

During first 2 years only 2% of energy in the spot market


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BALANCING Volumes

During first years only 5% of energy in the the balancing market


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SETTLEMENT MECHANISM

FP

REAL S. Sell Price

FP

REAL

MW

S. Buy Price

System imbalance


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SETTLEMENT MECHANISM Prices


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Possibilities for the demand

Power Exchanges and OTC Direct participation in the Short, medium and long term trading

Balancing markets Direct Offers and bids Contract with the SO

Frequency Response: Commercial

• Primary response• Secondary response

Reserves: Fast Reserve (<2min) Standing Reserve (<20min)

Reactive Power: Enhance Reactive Power


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Participation

Offers and bids in balancing market:small participation <1% Ancillary services:


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2.3.- Rest of Europe

Nordic countries (I) Market structure

Involved Countries:• Norway, Sweden, Finland and Denmark

Structure:• Financial markets

• Bilateral contracts (OTC)

• Nord Pool– Elspot: Day-Ahead market

– Elbas: Hour market

• Regulating power market


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Nordic countries (II)

DR possibilities and participation Day-ahead bids: Elspot Hour-ahead bids: Elbas Balancing offers and bids: regulating market Reserves: regulating market

• Fast active disturbance reserve (controllable loads)

• Slow active disturbance reserve

Frequency control (with automatic disconnection of loads)• Frequency controlled disturbance reserve


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3.- Research efforts

3.1.- International Energy Agency Agency objective:

Seek to promote the effective operation of international energy markets and encourage dialogue with all participants

Initially focused on strategic oil reserves

Currently includes:• Fossil fuels

• Electricity

26 Member countries


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IEA Demand-side Management Program

Tasks: Task I: International Database on DSM Technologies and Programs

Task II: Communications Technologies for DSM

Task III: Co-operative Procurement of Innovative Technologies for Demand

Task IV: Development of Improved Methods for Integrating Demand

Task V: Investigation of Techniques for Implementation of DSM Technology in the Market Place

Task VI: Mechanisms for Promoting DSM and Energy Efficiency in Changing Electricity Businesses

Task VII: International Collaboration on Market Transformation

Task VIII: Demand-Side Bidding in a Competitive Electricity Market

Task IX: The Role of Municipalities in a Liberalized System


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IEA Demand-side Management Program

Tasks(II): Task X: Performance Contracting Task XI: Time of Use Pricing and Energy Use for Demand Management

Delivery Task XII: Cooperation on Energy Standards Task XIII: Demand Response Resources Task XIV: Market Mechanisms for White Certificates Trading Task XV: Network Driven DSM


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IEA dsm TASK XIII

Goals Define and build turn-key DRR infrastructure model including Business Model,

Business Rules, Enabling Technology, Standards and Implementation Plan Deliver DRR into “any” emerging or existing liberalized electricity market

Subtask1. Finalize global and country-specific objectives2. Define the DR resource base and market characterization3. Market potential of DRR4. Demand response valuation5. Role and value of enabling technologies6. Characterize priorities and barriers, and develop solutions and recommendations7. Develop DRR network of methods, tools and applications8. Deliver products and Intellectual Property to IEA DSM program and project

participants


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3.2.- EU-DEEP

The birth of a European Distributed EnErgy Partnership that will help the large-scale implementation of distributed energy resources in Europe

A European Project supported within the Sixth Framework Programme for Research and Technological Developement

39 partners and 15 countries

Project begining: January 2004 Finishing: 2007


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DR within EUDEEP (I)

In WP1 Market segmentation.

• From the customer point of view• Three levels of segmentation:

– First level: Residential, Commercial & Industrial– Second level: economic activity – Third level: Considering uses of energy

Segments potential evaluation (ranking)• Ranking combination of three different rankings:

– Distributed Generation– Distributed Storage– Demand Response

• Characterization of segments also considering DR:– Energy supply, end uses, Demand flexibility, storage options, etc.

Examples Factors: size, attitude, demand flexibility, load patterns, etc.


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DR within EUDEEP (II)

In WP3 Evaluation of Local Trading Strategies

• Impact of DR applications in load curves

• economic apraisal

• Market possibilities

Through modelling of characteristic customersand simulating combinations of strategies: DG+DS+DR


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3.3. EFFLOCOM

Energy eFFiciency and Load curve impacts of COMercial development in competitive markets

A EU SAVE program

6 partners, 5 countriesSINTEF Energy Research, NorwayECO-Tech, NorwayEDF, FranceEnergy Piano, DenmarkElectricity Association, EnglandVTT, Finland

Project period: July 2002-August 2004


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3.4. BusmodBUSiness MODels in a world characterised by distributed generationEU-EESD project Objectives:

Analysis of current methodologies and distributed generation characteristics. Definition of different business scenarios in a deregulated distributed generation electrical

power market. Anticipation of future actors participating in deregualted electricity markets. Design of a methodology allowing feasibility studies related to distributed generation, through

a systematic procedure. 7 partners, 5 countries

IBERDROLA (Spain) LABEIN (Spain) VUA (The Netherlands) ECN (The Netherlands) UMIST (United Kingdom), SINTEF Energy Research (Norway), EnerSearch (Sweden).


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3.5. PIER Demand Response Research Center Promoted by the California Energy

Commission Led by Lawrence Berkeley National Laboratory

Main objective: Develop, prioritize, conduct, and disseminate research

that develops broad knowledge that facilitates DR Activities:

Create a research roadmap for DR in California Establish multi-institutional partnerships Foster connections with stakeholders through outreach

efforts Sustain long-term attention to DR research topics Conduct research, development, demonstrations, and

technology transfer

Research Categories:

Policies, programs, and tariffs

Utility markets, technology, and systems

Customer and end-use technology and systems

Consumer and institutional behavior


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3.7. Demand-Side Working Group (DSWG)

Created and Chaired by Ofgem, UK Objective:

identify and assess any practical and/or commercial obstacles to demand side participation in the wholesale electricity trading arrangements

Activities Reviews and assesses options and potential opportunities for the demand to

participate in wholesale market. Identifies practical and/or commercial obstacles inhibiting effective

demand side participation in the wholesale market; Determines measures for the removal of these obstacles Evaluates and proposes a timescale over which the necessary

improvements to demand side participation in the wholesale electricity trading arrangements can be addressed.


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4. Conclusions Demand Response is an active subject in the energy industry

Stakeholders have been interested and developed DR structures

World wide research efforts try to overcome actual obstacles to reach a massive deployment

Research efforts are focused in the demand-pull approach:

The customer is the cornerstone of DR

IEA, EU Commission

Tutorial on Demand Response In Deregulated Electricity Markets: International Experience

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