Embed Size (px)
Citation preview
DEMAND RESPONSE
WHERE DO WE STAND, WHERE DO WE GO AND HOW DO WE GO
CHALLENGES, OPPORTUNITIES AND PERSPECTIVES
JOISA DUTRA
CIGRE – DEMAND RESPONSE SEMINAR
SÃO PAULO DECEMBER 15, 2016
ROADMAP
Disrupting the Use-of-Energy Markets
Demand Response Business Models
Informing DR Through Economics
Final Remarks
DISRUPTING THE USE-OF-ENERGY MARKETSFROM ASSET-BASE & ENERGY VALUE CHAIN TO USER-CHOICE SERVICES
DISTRIBUTED ENERGY RESOURCES: SETTING THE SCENE
• Emerging technologies are disrupting the energy supply chain
• Consumers’ behavior have changed and actively exercising choice
• Utilities & regulators remain applying “old framework” in how to react to DER disruptions
Key Facts
Three emerging questions in this energy landscape:
What are the new business models & players in the markets?
What are the (expected) policies guiding the market?
What to regulate: subject, role and how regulators will adapt?
CURRENT WISDOM: OLD FASHIONED ENERGY SUPPLY CHALLENGES
Supply
Remote supply
Network-based model
High volumes through connecting points
One direction business model flow
Demand
Clustered-class consumers
Busbar demand aggregation
Regional diversity
Production
T&D
Consumer
Legal Framework
• Rigid system planning• 100 years old value chain model• Asset-based regulations• Tariff-based services
Ownership Structure and Funding
• Public ownership• Concession-based PPP structures • Mortgage-based on public,
concessional and commercial financing
Public “coordination” environment: concession and licenses to operate
CURRENT WISDOM: MORE EFFICIENT ‘100 YEARS OLD’ BUSINESS MODELS
Asset costs and energy supply management
• Large T&D networks
• Utility scale generation
• Fuel supply and retail management
+Debt costs (rates)
• Public & concessional funding
• ECA/DFI & commercial financing
+Equity returns
• Public (limited)
• Private - network (moderate)
• Private –commodities supply (moderate +)
=Cost of services & allowed revenues
• Regulatory levies and fees
• Taxes
Networks
Concession (size) rent seeking
Guaranteed revenues
Commodities
Volume & capacity rent seeking
Guaranteed entry barriers
Trading & Retail
Energy volume management mark-ups
Supplier & customer capture
Business models thrive on asset returns and
fuel/supply management mark-ups
DISRUPTING THE CURRENT WISDOM: TECHNOLOGY AND BEHAVIORAL CHANGES LEADING TO “NEW” BUSINESS MODELS
Tech
nolo
gy
Dis
ruptions Fast, reliable & Mobile
Telecoms
Web-based IT
Bounded demand systems efficiency
Smart grid-customer interface
Small size renewables generating & storage
Big data
Beh
avio
ral C
han
ges IT Services Platform
Predominance of customer’s choices, not consumer
Clustered energy services, not supply
Millennium investor approach N
ew B
usi
nes
s M
odel
s Aggregator platform (yields seeker)
Shared-asset usage (joint & part-time)
Convergence of services trading
Blending financing
INTRODUCING “NEW” BUSINESS MODELS WRAPPED BY BIG DATA AND THE INTERNET OF THINGS: NAVIGATING IN UNCHARTERED WATERS
Customer
Choice of services Data ownership Data leasing
Big Data Platform Host
Multisector Multi-Customer Origination Storage
Matching Providers & Customers
Data Rights Management
IT Infrastructure Enablers
Telecoms Distributed ServersProviders and Customers
Data Acquisition
Energy Providers
Services Aggregators
Multi-sectors
Competition and
Regulations
Platform & Data
Challenges: Ownership,
Rights, Obligations and Civil Liberties Threats
Public “coordination” environment: concession, licenses and authorizations to operateUnregulated private IT platform operator (low cost with product & services differentiation)
DER PARADIGM: A NEW ECOSYSTEM FOR BUSINESS MODELS
Networks
Concession (size) rent seeking
Guaranteed revenues
Commodities
Volume & capacity rent seeking
Guaranteed entry barriers?
Trading & Retail
Energy volume management mark-ups
Supplier & customer capture?
Independent Assets & Services Owner
Partial asset sharing (revenues)
Low cost operator
Services Platform
Aggregation of supply & demand (data)
Low cost & high yield generator
Data, Services & Capital
“Bundling” capital, data & internet of things
High yield & customer capture
Asset costs and energy supply management
•Large T&D networks
•Utility scale generation
•Small scale renewable generation and storage
+Debt costs (rates)
•Public & concessional
•Quasi & commercial
•Creative financing
+Equity returns
•Public - limited
•Private - network (moderate)
•Private - supply (moderate +)
•Millennium investor (very high)
+Services Platform
•Private web platform operator
•Multisector agent
•Blended revenues (advertising & fees)
=Cost of services & allowed revenues
•Regulatory levies and fees
•Taxes
Emerging new ecosystem focused on customers'
choice.
COEXISTENCE OF BUSINESS MODELS?
Energy chain supplier
Authorized revenues
RoE – 10%
Equity costs
Debt costs
Asset-base
Services Platform
Market-driven fee
Blended yields (25%+)
Platform costs
Aggregated asset-base & usage
Retailer” & Trader Yields seeker
Regulated asset rent seeker
Product & Services Costs and
Differentiation advantage
DEMAND RESPONSE (BUSINESS MODELS)
DEMAND RESPONSE BUSINESS MODELS
Demand Response Encompasses a Large Category of Technologies and Applications
Different BM emerge in each category
Automatically activated in response to price signals
Manually in response to requests from the DR business
Via alternative dispatch signals.
PRICE - BASED DEMAND RESPONSE
(TOU, CPP, RTP)
Does not requirethe load to be
verifiable.
Dynamic Pricing(CPP, RTP):
technological constraints
institutional constraints (absence of spot prices
reflecting short-run marginal costs on a real-time basis).
Trade-off: more accurate prices
Complexity, higher
transaction costs
Efficiency
Pilot programs
How reliable it is as a dispatchableload?
Pilot programs tailores to criticalareas?
INCENTIVE-BASED DR
INCENTIVE-BASED
Demand-sidebidding, interruptibledemand, and direct
load
More fit to deal withsudden contingencies.
How to define the value of reduction?
Rate of adhesion
policy
Complementary
technologies
Market mechanisms
Consumerengagement
EFFECTIVENESS
DEMAND RESPONSE (DR) IN BRAZIL AS A RESOURCE
Potential for becoming a cost-effective source of flexibility for the system in the short, medium and long-term
IN BRAZIL:
Time Of Use Tariffs
(ToU)
Tariff Flags (LowVoltage)
Blue and Green Flags (High Voltage)
White Tariffs:
Voluntary adhesion
Requires smart meterInterruptible
Contracts (Past)
Who will be the contracting party ofDR programs?
How will the provider beremunerated?
THE NEED OF A NEW REGULATORY FRAMEWORK TO LAUNCH DEMAND RESPONSE AS A RESOURCE
Need for new Business Models
Competition and new players in retail.
Requires the provisionof comparable (to
generation) opportunity
More Accurate PriceSignals
CONTRACTINGFRAMEWORK?
Aggregators:
• Transaction costs (specially for smallconsumers).
• Customer interface management.
• Portfolio of residential consumers hasincreased value
Enablers: technology.
Access to markets
Compensation
Demand growth for electricity grows
sales and revenue growth.
DG: Net metering scheme
DR: ToU tariffs
Transitional Arrangements
Consumer empowerment
New revenue streams for Utilities: more focused onelectric service provisions
DERs: comparableopportunities to those of
generation
More accurate price signals
Customer-side business models
Market design
• Energy• Capacity• Ancillary• Services
OUR APROACH
GOVERNANCE OF THE TRANSITION
Challenge: disruptive changes, pace of technology innovation, a new paradigm.
A dynamic framework for assessing priorities and recommendations, and
acting on them to provide a sound regulatory and competitive
environment must be drawn.
Requires a comprehensive and
integrated strategy
• active engagement of external stakeholders.
• interagency dialogue
The executive power: leadership role in orchestrating the interaction of
multiple stakeholders
• Acknowledge all stakeholders as strategic players.
Integrated view of short, intermediate, and long-term
objectives involving various actors and sectors.
Aneel “Chamada 20” R&D is animportant step in this direction –
necessary but not sufficient.
QuadriennialEnergy Review
(QER): An interagency Task Force,
which includes members from all relevant executive departments and
agencies (agencies) to develop an integrated
review of energy policy that integrates
all of these perspectives.
INFORMING (AND IMPROVING EFFECTIVENESS OF) DR THROUGH ECONOMICS
CONSUMER ENGAGEMENT CAN BE FOSTERED BY INSIGHTS COMING FROM ECONOMICTHEORY
� Understanding ConsumerElasticity is key for unlockingthe potential of DRs and SG Technologies.
� Behavior Science can shedsome (a lot!) light.
Economic Theory
can provide insights on
Economic Theory
can provide insights on
Market Mechanisms Market Mechanisms
Pricing IncentivesPricing Incentives
Empirical techniques Empirical techniques
Field Experiments Field Experiments
CONSUMER ENGAGEMENT CAN BE FOSTERED BY INSIGHTS COMING FROM ECONOMICTHEORY
Economic Theory
can provide insights on
Economic Theory
can provide insights on
Market Mechanisms Market Mechanisms
Pricing IncentivesPricing Incentives
Empirical techniques Empirical techniques
Field Experiments Field Experiments
Experiments are Key to Inform the Implementation and Learning From It
ECONOMICS + BEHAVIORAL SCIENCE
Programdesign
Pilot/
Experiment
ConsumerResponse
Results
ProgramEvaluation
Long-term/ General
Equilibrium
BEHAVIORAL SCIENCE HELPS TO UNLOCK DR POTENTIAL
EconomicTheory, network engineering andbehaviorscience canhelp unlock thefull potential ofSG technologies
Economics: In a general equilibrium setting peak and off-peakprices will depend on consumer adhesion and response rate.
How will consumers react to incentives? Price is not the maindeterminant af electricity demand.
Behavior Science is crucial in understanding and engaging end-users for and optimal program design and evaluation.
FINAL REMARKS
KEY MESSAGES
The (ongoing) process of weakening the traditional
value chain barriers expose incumbents and
leads to a cream skimming process
The entitlement of franchise(e) to supply
energy is ending
Isolated perspective myopia: new businesses
involving multiple sectors are evolving and capturing
profitable mark-ups/margins
New business models ecosystem is emerging as
key feature of demand response
Value is being squeezed through the emergence of
combined low cost operator and service
differentiation
Incompleteness of regulations and
unwillingness of regulators to evolve
Positioning, rivalry and tension could characterize
relationship among stakeholders
Coexistence of “Old" and “New” models are
expected to stay for a while
FGV CERI AND WORLD BANK ENERGY, LATIN AMERICA AND CARIBBEAN (LCR) PARTNERSHIP
� This presentation is part of a series of works being developed under a collaboration between FGV CERI(the Center for Studies in Regulations and Infrastructure-CERI at Fundação GetulioVargas ) and the World Bank (WB) to address key topics related to infrastructure investments in Brazil.
� The ideas discussed in these slides were presented by Prof. Joisa Dutra in São Paulo during the Demand Response event sponsored by CIGRE in São Paulo (December 15, 2016). They capture some of the thinking & perspectives current in discussions at FGV/CERI and the WB.
