Presentation on theme: "Resource Adequacy Public Utility Law Seminar August 3, 2012 Katie Coleman, Andrews Kurth LLP andrewskurth.com."— Presentation transcript:
Resource Adequacy Public Utility Law Seminar August 3, 2012 Katie Coleman, Andrews Kurth LLP andrewskurth.com
Andrews Kurth1 What is “Resource Adequacy”? The discussion is typically focused on “more generation.” Resource adequacy is really about meeting peak demand and having some additional insurance, or “reserves,” for contingencies. Resource adequacy can be pursued by increasing generation or reducing peak demand.
Andrews Kurth3 Existing Demand Response ERCOT has significant demand participation from industrial customers compared to other markets. Medium/large commercial customers participate in ERS, utility load management programs. Fewer residential and small commercial customers provide demand response. Contract terms and pricing can create demand inelasticity. Administrative and technical complexity.
Types of Demand Response Passive Demand Response Loads voluntarily curtail when prices are above their individual value of lost load (VOLL). This can be done in real-time or day-ahead. 4CP avoidance Load Resources Loads provide certain ancillary services and are reserved day-ahead by ERCOT, like generation. Up to 1,400 MW of Responsive Reserve Service (RRS), formerly “LaaR.” Can provide Non-Spinning Reserve (NSRS) as well. 4Andrews Kurth
Types of Demand Response ERS (formerly EILS) Loads receive a capacity payment to curtail during Energy Emergency Alert (EEA) Level 2. PUC Rule recently added flexibility to contract terms and renewals. Pilot for 30-minute service. Utility Load Management Programs Part of energy efficiency mandate; operated by regulated utilities. Not part of competitive market Appears to compete with ERS/EILS for participation. Andrews Kurth 5
Brattle Report on Demand Response Brattle Report suggests that more demand response may be needed to meet reliability objectives under energy-only market design. Report estimates current penetration at 4%, believes up to 15% could be achieved. Reduce potential for involuntary load shed by maximizing customers’ to voluntarily curtail usage when prices are high. As demand response becomes more predictable, it can play a larger role in the reserve margin calculation. According to Brattle, one key is loads participating in the market, including contributing to price formation. Andrews Kurth6
What Could We Change? Allow demand response to set prices In concept, Loads in SCED will allow loads to actively set prices and be paid similar to generation. Goal is to make load participation different from passive demand response/avoiding a high price. Minimize non-market/capacity-based programs (utility load management, ERS) Brattle recommends against expanding these programs. Programs can simplify and encourage participation, but may distort market signals. Andrews Kurth7
What Could We Change? Increase efficiency of passive demand response Administrative demand curve may increase passive response and improve efficiency from price formation standpoint. Prices would increase gradually based on reliability measures taken by ERCOT, up to ultimate price cap. Brattle recommends price cap that approximates average ERCOT VOLL. Would require study, but Brattle approximates $9,000/MWh. Increase demand response from smaller customers Advanced meters may help; makes pricing and usage more transparent. Interest in demand response or avoiding high prices from residential and commercial customers may encourage REPs to develop new, innovative retail products. Andrews Kurth8
Alternatives? Increased demand response central to Brattle Report recommendation on energy-only design (“Option 1”). Relies on market dynamics to ensure reliability. Brattle identifies this as the most efficient design. Brattle characterizes the recommended changes as “Easy.” May take some time, market changes to increase DR. Alternatives include backstop generation procurement (“Option 3”) or a forward capacity market (“Option 5”). These options rely more heavily on mandates than market forces. Regulators would set required reserve margin, implement centralized capacity procurement to achieve margin. Changes would be complex, time-consuming. Moving away from pure market will sacrifice efficiency. Will need to figure out how to integrate demand response in these market designs. Andrews Kurth9