ACI conference - Demand Response Business Modeling Workshop

Next Generation Demand Response

Business Modeling Workshop

November 2014

Presenter:

David Dobratz, P.E., CEM

Supervisor, Direct Install & Load Response

Connecticut Light and Power / Northeast Utilities

Co- Presenter:

Ryn Hamilton

Ryn Hamilton Consulting

Introduction

2

Regulation – Federal and State Policy/Regulation

Maturation – Maturing Role of Demand Response

Other – Advances in computing, control and communications; Standards (e.g., OpenADR)

Premise – Provides premise for business model dynamics

Steps – Defines the basic steps of the value creation chain

Market – Makes an assessment of market climate and Identifies key market entities

Roles – Identifies role and position of market entities

Technology & Monitoring – Load Duration Monitoring, Monitoring Intelligence, Enabled Equipment

Teams – Break into teams, each representing a market entity

Exercise – Teams will be given a profile for the entity they are representing (business objectives and a variety

of business model options and strategies, to use in the exercise)

Presentations – Resulting business models will be briefly presented to the workshop participants as a whole

and correlated on a summarization matrix

Summarize – Aggregate findings will be discussed.

Market Climate

Building the Business Case

Business Modeling Exercises

ISO-NE interprets Order 745* to include excessive penalties on DR for under performance.

May 2014 the D.C. Circuit Court stunned observers by overturning FERC’s foundational Order 745.

Stakeholders petition court unsuccessfully. FERC and Justice Dept. have until December 16, 2014 to file an

appeal.

ISO-NE gives guidance that if the overturning of Order 745 is up held, ISO-NE will discontinue Demand

Response from its market design.

*Order 745 was so significant because it created a level playing field with generation by guaranteeing compensation based on the

market clearing locational marginal price that generators receive.

FERC recognized broader definition of Demand Response to include ancillary services which address grid

contingencies and short term imbalances in energy markets.

DR 3.0’ and smart grid introduce 2-way communications and intelligent load management to the

distribution network.

Demand Response Provider achieves recoverable asset status for specialized service

PJM has proposed a novel approach to assure a continued role for Demand Response

Market Climate

3

4

Demand Response Disruption - Order 745 Overturned

This order was the result of a petition led by the Electric Power Supply Association based on objections to Demand Response compensation based on locational marginal cost.

This court decision exceeded the scope of the plaintiff’s case by ruling expansively on jurisdictional issues and the role of Demand Response in wholesale markets.

There is no consensus about when this matter will be settled or what the outcome will be. ISOs/RTOs are responding differently to the possibility that Order 745 will not be reinstated.

FERC’s hallmark action on Demand Response was Order 745 (2011) that transformed energy markets by requiring that Demand Response be paid the locational marginal clearing price; in other words, the same price as generation.

The D.C. Circuit Court overturned Order 745 in May 2014. FERC and numerous

other parties (state commissions, grid operators, Demand Response providers,

industrial customers and consumer advocates) came together to request a rehearing

by the entire eleven member court (the decision was based on the opinion of three justices). The

court denied this request. FERC and the U.S. Solicitor General (Department of Justice) must

decide by December 16, 2014 whether to appeal this ruling to the U.S. Supreme Court.

5

Demand Response Paradigm Shift

The definition of Demand

Response has broadened to

specifically include ancillary

services which address grid

contingencies and short term

imbalances in energy markets..

Changes in electric usage by

end-use customers from

their normal consumption patterns

in response to changes in the price

of electricity over time, or to

incentive payments designed to

induce lower electricity use at times

of high wholesale market prices or

when system reliability is

jeopardized. Federal Energy Regulatory Commission

Source: ISO-New England

Amount curtailed

6

Evolution of Demand Response

1 2 4 5

1960 - 1970

Declining

electric load

factors due to

rapid

adoption of

air

conditioning.

High peak

demands

relative to

average

demand is

increasing

electricity cost

and reducing

reliability.

1970s

Utilities

introduce first

generation of

Demand

Response

programs to

provide

electric load

reductions

during system

emergencies.

These include

needle peaks

and pockets of

T&D

congestion.

1990s

Electric

industry

restructuring

ends many

vertical utility

monopolies,

and Demand

Response

programs are

abandoned.

The legal

framework for

Demand

Response in

wholesale

power markets

emerges.

2005

Utility

Demand

Response

programs are

resuscitated –

the advent of

‘DR 1.0’.

Energy Policy

Act requires

changes to

wholesale

power markets

that put DR on

an equal

footing with

generation.

2011

Regulations

establish

specific rules

and payment

structures.

‘DR 2.0’ brings

enhanced

communication

automation.

Legal challenge

to FERC

jurisdiction over

Demand

Response.

6

2014

Utility and

wholesale DR

programs

expand, and

the role of

ancillary

services

expands.

‘DR 3.0’ and

smart grid

introduce 2-

way com-

munications

and intelligent

load mgmt to

the distribution

network.

Beyond

Demand

Response

provides a

greater share of

ancillary

services.

Growing role

for ancillary

services.

Regulations and

standards

accelerate

adoption and

promotion of

enabling

technologies.

6 3

7


Demand Response

has evolved into a

more dynamic

resource.

A new category,

ancillary services,

enters the

conversation (next

slide).

Demand Response

can be categorized as

reliability products

(capacity market),

price responsive

demand (energy)

ancillary services

which safeguard

reliability.

Rate structures

offered by utilities

that reflect cost of

service at different

times

Customers respond

by reducing

electric use based

on time of use or

critical peak

pricing structures

Non-Dispatchable

(load modify)

Price Responsive Demand

Reliability (Capacity)

Ancillary Services

Time Varying Rates

Energy Efficiency

Grid balancing services have been historically provided by ancillary fossil fuel generators

Response required within seconds to minutes of notification

Demand Response provides only a small percent of this resource now, but this will increase

Price Responsive Demand is predictable change in electricity consumption in response to electricity prices in the energy market.

Commitments to delivery energy at some forward date, such as three years

When this capacity becomes available it is dispatched to meet system reliability needs

Load shedding is normally required within 1-3 hours of notification

Dispatchable

(supply-side)

8


Ancillary services support the

reliable operation of the transmission

system as it moves electricity. The

kinds that could potentially be

provided by Demand Response:

Operating Reserves. Supply

electricity when the grid has an

unexpected need for more power

(reduced use) on short notice in

contingency situations.

Regulation. Corrects for short

term changes in electricity use

that could affect the stability of

the power system. This is part of

normal system operations.

Changes in the power industry are creating a greater need for demand-side resources to serve moment-to-moment grid operational needs.

The use of Demand Response for ancillary services is a

refinement of an existing tactic.

Ancillary service must respond as quickly as an

ancillary power plant would, from seconds to 30

minutes.

Controlled loads that can be modulated can provide the

same quality of operating reserves and regulation

resource as a generating unit.

Ancillary services in organized markets are under the

purview of FERC which has issued several orders to

enable demand side resources to participate.

9


10

Regulatory Drivers

What is the Next Evolutionary Step?

The markets and programs that Demand Response participates in are regulated at the Federal and State level. This shapes rules for participation.

State regulatory commissions govern utility operations.

Utilities, including those with statewide programs, file individual program tariffs with their respective commissions.

FERC regulates independent system operators and regional transmission operators.

These ISOs and RTOs file individual tariffs that must be approved by FERC.

Market rules

are based on

ISO tariffs.

CL&P’s program

rules and time-

varying rates are

based on their

tariffs with the

PURA.

Shapes ISO

markets, pilots

and initiatives,

some of which

are in

collaboration

with other

regulatory

authorities

Shapes NU

programs, pilots

initiatives and

collaborations

For example…

For example…

11

Regulatory Drivers


The Federal Energy Regulatory Commission regulates the nation’s Independent System Operators and Regional Transmission Operators. Together they serve two-thirds of all electric customers.

[ERCOT is not under FERC jurisdiction]

12

Regulatory Drivers


FERC has been a strong proponent of Demand Response, creating rules intended to

provide a level playing field with generation.

Individual ISOs/RTOs file program tariffs with FERC, which govern how Demand Response

participates in wholesale markets, including the method of compensation.

Three ISOs/RTOs have capacity markets (ISO New England, New York ISO and PJM) that

pay incentives to attract investment in exchange for a commitment to stand ready to provide

energy into the market. The remaining ones have energy-only markets that only pay for the

energy provided.

Differences exist between various ISOs/RTOs, as well as within individual states in a

particular market. ISO New England includes the six northeast states and have a tradition of

collaborative action on energy matters. In contrast, the 13 PJM states have a much looser

affiliation but an active RTO.

13


Overturning of Order 745 is upheld

State Mandates for Grid Modernization/efficient use of infrastructure, compliance

with EPA section 111(d)

Implications at the State level for regulating Demand Response; Rate Tariffs,

Demand Markets (PJM whitepaper), Direct Load Control integration

Advances in computing power, intelligent control and communications networks

(data)

Enabling the Maturing Role of Demand Response

Premise for Business Case Modeling Dynamics

Maturing Role of Demand Control

14


Basic Steps of the Value Creation Chain

Value Creation

Chain

Demand

Response

Enabled

Equipment

Control and

operational

awareness at

customer

facilities

Aggregation of

data and

communications

at LSE Level

Efficient

use of

demand

15

Building the Business Case Market Climate Assessment

More Active Control Participation on the Demand Side

Scenarios

LSE directly

manages demand

LSE passively

meeting demand

ISO/RTO manages

grid with supply-

side and demand-

side mechanisms

ISO/RTO

manages grid

with supply-side

mechanisms

Economics Recoverable Asset

Based Rate Tariff Based

Avoided Capacity

Charges Based

Wholesale

Market Based

Examples Direct load control of

DHW heaters Rates like kVa billing PJM White paper

CURRENT

STATE

Customers' demand

management role Hybrid:

Active/Passive Active Active Passive

LSEs' demand

management role Active Passive Active Passive

ISO/RTO demand

management role Passive Passive Active Active

*Under scenario “D” LSEs are Representatives of aggregate demand at the nodal level and Natural Managers

of substation and circuit infrastructure .

A B C D

16


Market Entities - Role

Value Creation

Chain

Demand

Response

Enabled

Equipment

Control and

operational

awareness at

customer

facilities

Aggregation of

data and

communications

at LSE Level

Efficient use

of demand

Feature Digital signal

control

Load control and

end-user facility

awareness

Data transfer and

information

management

Reduced

costs

Market Entity Equipment

provider

Demand Response

provider

Communications

and control

providers

End users and

LSE

Action Sales, installation

and compatibility

Provides load

reduction

availability and

executes reduction

commands

Facilitate data

communications

and situational

awareness

Efficient use

of demand

Customer interface

or LSE interface Customer Customer LSE

Customer and

LSE

17


Market Entities – Strategic Direction (arrows)

Value

Creations

Threshold

Volume

Customization

Strategic direction and existing position help to inform business modeling decisions*.

* Business Modeling decisions for workshop exercises:

Market Focus decisions: Direct Load Control? or Rate Based? or Hybrid?

Strategic decisions: Mergers, Acquisitions, Partnerships, etc.

Equipment

Providers

Profitability normally

requires:

High volume

Moderate

standardization

Demand

Response

Providers

Business model

normally based

on:

Relatively

high volume

Moderate

customization

Communications

and control

providers

Requires:

Low volume

High customization

18


Technologies: Load Duration Monitoring

Equipment is running coincidently, cycling controls can harvest this available load through cycling controls

Only 5% of annual hours

represents 64% of peak load

19

Technologies


Data Collections, Logging and Analysis = Forecasting of Load Reduction Availability

Equipment Status – Relative to real time position on Load Duration Curve

Climatic conditions, time of day, occupancy – Relative internal condition change rate

(temperature gain, CO2 gain)

Daylighting sensing, time of day – Relative to fixture dimming/daylight harvesting

Process monitoring – Relative to fluid flow rates, batch process temperature dead-band set

points, refrigeration dead-band set points

Monitoring Intelligence

20


Technologies

Energy Management System (EMS) interface with microprocessor controlled equipment

Demand control strategies leveraging EMS and enabled equipment

Microprocessor based VFD, chiller and RTU controls

Electronically dimmable lighting controllers (e.g., fluorescent ballasts, LED

drivers)

Process Equipment

Enabled Equipment

21

Business Modeling

More Active Control Participation on the Demand Side

Scenarios

Direct Load

Control

Rate

Based

HYBRID

[PJM Model]

End-use customer Passive/Active Active Active

Load serving entity Active Passive Active

RTO/ISO Passive Passive Active

Role Matrix: End-Use Customers and Load Serving Entities

A B C

22

Role Matrix: Market Entities

Value Creation

Chain

Demand

Response

Enabled

Equipment

Control and

operational

awareness at

customer facilities

Aggregation of

data and

communications

at LSE Level

Efficient use

of demand

Feature Digital signal

control

Load control and

end-user facility

awareness

Data transfer and

information

management

Reduced

costs

Market Entity Equipment

provider

Demand Response

provider

Communications

and control

providers

End users and

LSE

Action

Sales,

installation and

compatibility

Provides load

reduction availability

and executes

reduction commands

Facilitate data

communications

and situational

awareness

Efficient use

of demand

Customer interface

or LSE interface Customer Customer LSE

Customer and

LSE

Business Modeling

23

Business Modeling Market Entities – Real World Examples

Figure 1 – Energy Demand System Network of Rooftop Units

The Energy Demand System is OpenADR4 compliant

Equipment Provider

24

Business Modeling

Market Entities – Real World Examples

Demand Response Provider

25

Business Modeling


Demand Response Provider

26

Business Modeling


Communications and Control Provider

27

Business Modeling

Market Entities: To be Used in Interactive Portion of Workshop

Utilities Customers

Small LSE Large LSE Small

Commercial Large

Manufacturer

Equipment Providers Communication / Controls Provider DR Providers

HVAC

Based Ancillary

Device Based Large

Device Based Large Communication /

Data based Large

Established Small

Established Start-up

28

Business Modeling

Workshop - Example

29

Business Modeling Workshop - Example

30

Business Modeling Workshop - Example

31

Business Modeling

Workshop - Interactive Process

Teams: Break into teams, each representing a market entity

Roles – Leader (n=2), Emissaries (n=2), Liaisons (n=2)

Representation: Teams will be given a profile for the entity they are representing

(business objectives and a variety of business model and strategy options, to use in

the exercise)

Part 1- Each team chooses options then develops Mission Statement and

Business Headline without interfacing with other teams

Part 2 – Each emissary engages two liaisons to gather Mission Statement and

Business Model Headline information. This information is used to modify

Mission Statement and Business Model Headline.

Business Models: Resulting business models will be presented to the workshop

participants as a whole and correlated on a summarization matrix.

Summary: Aggregated findings will be discussed with the group.

Business Modeling Exercises

32

Thank you!

David Dobratz, P.E., CEM

Supervisor, Direct Install and Load Response

Connecticut Light and Power / Northeast Utilities

[email protected]

Documents

ACI conference - Demand Response Business Modeling Workshop