Avoided Cost and E3 Calculator Update Workshop

1
Avoided Cost and E3 Calculator Update Workshop

• March 14-15, 2006

2
Agenda Day 1

• Introduction 1000 1025
• Discussion of major issues
• Peak definitions 1025 1140
• Load shape development 1140 1200
• Lunch break
• Critical and super peak periods 100 230
• Break
• Capacity adder and peak reshaping 245 430
• Natural gas price update 430- 500

3
Agenda Day 2

• Housekeeping from Day 1 930 945
• Miscellaneous issues 945 - 1100
• Application of E3 tool
• Recommendation for future tools
• Overhead double counting
• EE forecast in resource plans (net vs. gross)
• Applicability to demand response
• Other
• Recap of consensus / non-consensus 1100 1200
• Lunch
• Action Plan / Next Steps 100 230
• Break
• Load shape development 245 500

4
Introduction

• Scope and purpose for the 2006 update (ALJ
  Gottstein)
• See handout entitled Purpose and Scope of 2006
  Update (per December 27, 2005 ALJ ruling)
• Workshop focus and approach (E3)
• Near term changes for rebalancing, tracking
  achievements and performance basis setting.
• Recommendations for longer term changes for the
  2009-2011 program cycle.
• Broader consistency across proceedings/ resource
  types?
• Help to identify phase III issues.
• Working workshop second half of day 2 (load shape
  development)
• Approach to discussion
• Brief summary of E3 findings and recommendations
• Summary of party positions and discussion
• Identify areas of consensus / non consensus
• Alternatives for ALJ consideration
• Consider both near term and long term

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Peak Definitions

• Peak definitions for EE are needed for
• MW goals,
• tracking the achievements of goals,
• evaluation of portfolios to reach goals, and
• determining performance basis.
• Consistency within EE applications
• Consistency with peak definitions for other
  resources or in other proceedings (DR, DG, RA).
• Consider both near and longer term definitions as
  well as the data requirements.

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Peak Metrics 1
DEER kW Available for measures in the DEER database. For temperature sensitive measures, peak demand is defined as the average grid level impact for the measure from 2pm to 5pm on peak days. Pro Is currently used by utilities for measures where DEER kW is available, though there are some differences among utilities. Both SCE and SDGE report DEER kW for all programs. PGE states that only 60 of its program impacts are based on measures in the DEER database (the rest calculated from larger, complex projects) Cons Not available for all measures. DEER kW is derived using building simulation tools based on prototypical buildings and as such has some limitation in terms of accuracy.
Summer on peak kW Based on old utility studies, or can be calculated from hourly end use or impact shapes Pro Readily available from old utility studies, which often used load research data and conforms with utility time of use period definitions. Con On peak periods vary for each utility, so the reported on peak demand reduction for the same measure could differ across utility service territory (even if all other things were equal) On peak demand estimates from the TOU studies can differ from the DEER kW estimates. This fact prompted SDGE to report DEER kW (also referred to as Deemed kW) for all of their programs.
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Peak Metrics 2
Load Factor based kW (CEC kW) Annual energy reductions multiplied by a fixed conversion factor. Pro Easy to estimate. Requires little additional MV effort. Con Does not recognize the fact that peak load factors vary by measure, and could therefore allow an overemphasis on poor peak-load-factor measures such as residential CFLs.
Resource Adequacy (RA) consistent peak kW Early discussions centered around requirements for Demand Response which currently counts peak load as the average reduction over 48 hours of operation, 4 summer months, 4 days per month, 3 hours per operation. According to the newly adopted RA counting rules, the RA value of energy efficiency is 115 of its monthly coincident peak impact. Pro Might reflect the actual avoided costs of capacity if resource adequacy (RA) counting rules were to apply to energy efficiency measures. Con RA rules are interim. Requires hourly data. Unclear which hours should be designated as the peak period dispatch hours, or the single hour monthly coincident peak. PGE also cautions that peak impacts calculated from an RA perspective could be significantly lower than peak impacts estimated from past and current methods.
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Peak Metrics 3
Coincident peak kW Requires hourly load shapes and specification of peak hours. For PGEs end use shapes, the peak hours were identified as the five top system load hours in each month. Monthly coincident peak kW average load during the five peak hours. Coincident peak is the average July through September monthly peak kW. Pro Provides the most precise metric of peak or critical peak load reduction. Con Requires hourly load data which is not currently available. May be a challenge for MV ex-post estimations.
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E3 Recommendation for EE Proceedings

• E3 recommends two options for determining peak
  demand reduction in the near term
• Report DEER kW (deemed kW) where available, and
  utility best estimates in other cases.
• Use load factors by end use categories.
• Longer term (not addressed in the Draft Report)
• Move toward a concident peak measure that uses a
  weighted average of many hours.
• The number of hours will depend upon the extent
  to which the impact data and cost data are
  aligned. The better the alignment, the fewer
  hours needed.

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Summary of Party PositionsPeak Definitions and
Load Shapes
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Peak Definition across applications

• Discuss as a group

Peak MW Application Granularity needed Potential Peak Definitions
Resource Adequacy Single coincident hour each month
Long term planning Single annual peak?


12
Load shape development

• Requirements for
• Peak kW metric
• EE valuation
• Representation of EE in other applications
• Calibration issues
• Working session to develop action plan, second
  half of day 2.

13
Load Shapes

• E3 recommends a research effort to develop
  calibrated load shapes for use in the 2009-2011
  program cycle.
• Shapes should be impact shapes (not building
  shapes) that are hourly in resolution
• Shapes should reflect diversified impacts at the
  grid level and reflect run time averages
• Potential data sources
• DEER
• CEUS?
• Building simulations, such as those used for
  Title-24.
• Issues
• Calibration
• Alignment of loads with generation costs

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Sample Impact Shape Results

• Res A/C is the PGE residential end use shape
• DEER AC eff is the DEER impact shape
• Both shapes normalized so that total annual
  reductions sum to 1.0

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Sample Commercial Impact Shape

• Office Cool is the PGE end use shape (CZ 13)
• DEER Chiller Eff is the corresponding impact
  shape
• Note that the DEER reduction is 0 in the second
  chart

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Comparison of TOU Shares

• Commercial shares are comparable
• Normalized Residential DEER shape has higher
  on-peak , partly because of negative amounts in
  other periods.

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Summary of Party PositionsLoad Shapes
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Need for critical or super peak periods

• Definitional needs
• kW and TOU shares for use in other proceedings?
• Recommended definitions
• Valuation issues
• Adders to TOU average avoided costs?
• Short term options and long term ideal

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E3 Recommendation

• Critical peak metric not necessary for
  non-dispatchable (EE) programs.
• Super peak periods could reduce the
  undervaluation of measures like Res AC that occur
  with the use of TOU average costs. BUT this
  would require that utilities could develop super
  peak impact profiles. E3 recommends that super
  peak periods not be used in the near term because
• Shape development would be difficult
• The examples in the Draft Report are based on
  PGEs building end use shapes, not impact shapes
• Value could be added directly to programs such as
  Res AC without the construction of super peak
  periods.

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Super Peak ResultsPGE Generation Avoided Costs
Building End Use Shapes

• CZ13
• CZ3

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Summary of Party PositionsCritical Peak Periods
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Capacity adder and peak reshaping

• Capacity Adder
• Need to increase peak avoided costs?
• Methods to calculate a capacity adder
• Peak Reshaping
• TOD profiles
• Methods to allocate capacity adder to hours
• Phase 3 issues?

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Draft Report

• E3 does not believe the LRMC methodology should
  be modified to require entrant of a CT
• If the price shapes must accommodate a CT, the
  capacity adder would be 40-50/kW-yr.
• This may represent a fundamental change in
  methodology
• The LRMC is a full hedged physical product, so no
  hedge value adder is needed
• TOD factors should not replace the PX shape
  because
• They lack granularity
• Represent a fundamental change to the avoided
  cost methodology --- move to phase 3.

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Draft Report Residual Capacity Adder

• Using flat annual gas price
• Using daily spot gas prices

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Impact of 50/kW-yr capacity adder on EE valuation

• Average avoided costs and hourly shapes
• Average avoided costs using TOU shapes

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Summary of Party PositionsCapacity Adder Peak
Reshaping
27
Natural Gas Update

• Updated natural gas forecast with EIA Outlook
  2006 forecast and the CECs IEPR forecast
• NYMEX values were not updated in the report
  (but should be updated with the most recent
  data available)

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Gas Price Change

• New forecasts are about 6-9 higher than the
  existing prices.

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Generation Avoided Cost Change

• Updated gas price increases electric generation
  avoided costs by 4-5
• The electric avoided cost increase is dampened by
  OM and capital costs that do not change.

SP-15
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Latest NYMEX Forecasts
Note 60 day average prices for all contract on
or after April 2006 have been calculated using 60
calendar days of data up to 3/10/2006, as
available.
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Summary of Party PositionsNatural Gas Update
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Day 2

• Other Issues
• Application of E3 tool
• Recommendation for future tools
• Overhead double counting
• EE forecast in resource plans (net vs. gross)
• Applicability to demand response
• Other
• Action Plan / Next Steps
• Load Shape Development

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Draft Report

• No need to depart from E3 calculator in near term
• E3 requires no modifications to conform to SPM
• Overhead cost double counting is a caused by
  reporting rules.
• Calculator improvements such as links to DEER and
  load shapes should be held until the next program
  cycle when new load shape data is available.

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Summary of Party PositionsTool-related Comments
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Summary of Party PositionsOther Issues