Counting the Capacity
that Didn’t Hatch: The Rate Mitigation Effects of DSM Programs
December 12, 2013
Jenny Edwards| Program Manager • CEE Innovation Exchange
Page 2
Requires a better understanding of the system wide revenue benefits of DSM programs
Counting the Capacity
that Didn’t Hatch: The Rate Mitigation Effects of DSM Programs
December 12, 2013
Jenny Edwards| Program Manager
Page 4
Requires a better understanding of the system wide revenue benefits of DSM programs
Energy Efficiency as a System Resource…
• Efficiency Costs recovered through rates and
“trued up” regularly
• Utilities are incentivized to meet and exceed
targets
• Costs are often more transparent to customers
than traditional capacity additions & incentives
• Savings from avoided costs are less visible
Energy Efficiency Context
• Analyzed 20-year program data from Xcel Energy
• Conducted a backward-looking scenario analysis
to compare capacity options
• Focused on additional revenue requirements for
two scenarios: DSM and No DSM
• Revenue requirements are distinct from rates
Minnesota DSM Case Study
Page 7
The Resource Wedge
Additional Revenue Requirements = Σ Annual Additional Costs ÷ Total Sales
Customer Charge $8/mo
Energy Charge $0.08/kWh
Demand Charge $15/kW
Riders $0.003/kWh
Example Utility Bill
What is cost of itemized power plant capacity?
Page 9
• Lower Resource Costs
• Fewer Sales
DSM Scenario Power Plant Scenario
• Higher Resource Costs
• More Sales
0.24 ¢/kWh 0.66 ¢/kWh
Additional Revenue Requirements = Σ Annual Additional Costs ÷ Total Sales
Cost Considerations
• Conservation and Load Management Program Costs
• Indirect Impact Program Costs
• Incentives & Lost Revenues
• Capital & Financing Costs
• Shareholder Returns
• Fuel Costs
• O&M
• T&D maintenance
DSM Scenario Power Plant Scenario
Page 11
-
250
500
750
1,000
1,250
1,500
1,750
2,000
Cap
acit
y (
MW
)
Incremental Demand Savings
Cumulative Offset Capacity
Power Plant Offsets from DSM
Page 12
-
250
500
750
1,000
1,250
1,500
1,750
2,000
Cap
acit
y (
MW
)
250 MW
Power Plant Offsets from DSM
Cumulative Offset Capacity
250 MW
250 MW
250 MW
250 MW
250 MW
250 MW Assumed Combined Cycle Power Plants
Page 13
$-
$200
$400
$600
$800
$1,000
$1,200
No
min
al $
/kW
Combined Cycle Overnight Capital Costs
Source: AEO Assumptions
Years when plants came online
Page 14
Capital Revenue Requirement Calculations
Page 15 Source: EIA Electric Power Producer Price
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
$2
01
1/M
MB
tu
Historical Natural Gas Fuel Costs
Page 16
Results
$1.14 Billion
Total Cost $4.16 Billion
Natural Gas Power Plants
DSM Programs
580,855 GWh Total Sales 629,212 GWh
0.24 ¢/kWh Addl Revenue 0.66 ¢/kWh
Incentives 23%
Program Costs 77%
Page 17
Scenario: Coal Plant Displacement
Page 18
-
250
500
750
1,000
1,250
1,500
1,750
2,000
Cap
acit
y (
MW
)
250 MW
Power Plant Offsets from DSM
500 MW
250 MW
250 MW
250 MW
250 MW Add one 500-MW Coal Plant
Page 19
Scenario: Coal Plant Displacement
Coal Capital
42%
Coal Operatio
n 19%
Gas Capital
18%
Gas Operatio
n 19%
Transmission 2%
$4.89 billion
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
DSMResource
Gas Only Coal + GasR
eve
nu
e R
eq
uir
em
en
ts
(¢/
kWh
)
0.78 ¢/kWh
Page 20
Scenario: Avoided Transmission Lines
Page 21
Scenario: Avoided Transmission Lines
$4.30 billion 0.68 ¢/kWh
0.000.100.200.300.400.500.600.700.800.90
Rev
en
ue
Re
qu
ire
me
nts
(¢/
kWh
)
Capital Costs 33%
Fuel 54%
O&M 8%
Transmission 5%
Page 22
Scenario: Average Measure Life
Page 23
10-Year Measure Life
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
DSM Resource Gas Only 10-yr MeasureLife
Rev
en
ue
Re
qu
ire
me
nts
(¢/
kWh
)
Capital Costs 30%
Fuel 58%
O&M 9%
Transmission 3%
$3.26 billion 0.53 ¢/kWh
Page 24
20-Year Measure Life
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
DSMResource
Gas Only 10-yrMeasure Life
20-yrMeasure Life
Rev
en
ue
Re
qu
ire
me
nts
(¢/
kWh
)
$4.50 billion 0.71 ¢/kWh
Capital Costs 31%
Fuel 58%
O&M 9%
Transmission 2%
Page 25
Summary of Scenario Results
0.24
0.66
0.78
0.68
0.53
0.71
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
DSM Resource Gas Only Coal + Gas NewTransmission
Lines
10-yr MeasureLife
20-yr MeasureLife
Rev
en
ue
Re
qu
ire
me
nts
(¢/
kWh
)
• System wide avoided revenue requirements are 3-4 times higher than DSM program costs
• DSM programs allow customers to save on the energy they do use, as well as the energy they don’t
• Includes total DSM costs, but only power plant costs recovered during the 20-yr time frame
• One specific example, but relevant for other DSM programs, especially those just beginning.
• Conditions going forward will be different
Summary
www.mncee.org/Innovation-Exchange/Resource-Center
Jennifer Edwards | Program Manager
(612) 335-5873
Megan Hoye | Engagement Coordinator
(612) 244-2417
www.mncee.org/Innovation-Exchange/Resource-Center
Questions?