How to Build a Green Distributed Power Market Restructuring Roundtable Boston, MA June 21, 2002 - PowerPoint PPT Presentation

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How to Build a Green Distributed Power Market Restructuring Roundtable Boston, MA June 21, 2002

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How to Build a Green Distributed Power Market Restructuring Roundtable Boston, MA June 21, 2002 Fran Cummings Principal XENERGY Inc. Burlington, MA – PowerPoint PPT presentation

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Title: How to Build a Green Distributed Power Market Restructuring Roundtable Boston, MA June 21, 2002


1
How to Build a Green Distributed Power
Market Restructuring Roundtable Boston, MA June
21, 2002
  • Fran Cummings
  • Principal
  • XENERGY Inc.
  • Burlington, MA
  • (781) 273-5700 x 202
  • fcummings_at_xenergy.com

2
Main Points Today
  • Why does this issue keep coming up?
  • DP DG storage DR EE
  • most small renewables fuel cells.
  • Time is ripe -- proceedings, pilots, papers
  • Other states (CA, TX, NY ).
  • DTE MTC ISO NERTO FERC
    Discos.
  • Trade association interest (NECA, SEBANE ).
  • Focus on two of DTEs issues
  • Disco Involvement in Distributed Resources.
  • Standby rates and other charges.

3
Whats New?
  • Grid Enhancement Communication Technologies
  • ISO LSE Demand Response Programs (NEDRI)
  • Transmission System Planning Expansion (NERTO)
  • Distribution Planning Pilots
  • MA
  • NY
  • Renewables (MTC, RPS, GIS)
  • Solar to Market Initiative
  • Premium Power DG
  • Security Focus
  • Next 2 slides key points from Cowart talk for
    today

4
Security Policies for a Resilient Network
  • Risks
  • Site Security Risks
  • Proximity of Resource to Load
  • Fuel Delivery and Storage Risks
  • Size as a Security Consideration
  • Technological and Multi-Systems Vulnerability
  • What is a Resilient Network?
  • Inherent deterrence
  • Focused protection of critical features
  • Accent on distributed resources
  • Graceful failure and recovery.

Source RAP, Electrical Energy Security
Policies for a Resilient Network, Part II, April
2002 (www.rapmaine.org)
5
Security The Cowart Efficient Reliability Rule
  • Proposed PUC, FERC, or RTO security upgrades and
    reliability investment decisions that will, by
    administrative action, impose substantial costs
    on consumers and other market participants should
    first be tested by the following standard
  • 1. The relevant market is fully open to
    demand-side as well as supply-side resources
  • 2. The proposed investment or standard is the
    lowest cost, reasonably-available means to
    correct a remaining market failure and
  • 3. Benefits from the investment or standard will
    be widespread and thus appropriate for support
    through broad-based funding.
  • To ensure that these standards are met, proposed
    investments should be tested in an open season
    bid process that is genuinely open to competitive
    applications from supply, wires, and demand-side
    resource providers.

Source www.rapmaine.org/EfficientReliability.pdf
6
Disco Involvement in Distributed Resources
7
Disco Views of the Future Threats
Opportunities
Disco Role in Distributed Resources
  • No sources of new revenue
  • More responsibilities without due compensation
  • Continual cost cutting
  • Competitive bypass
  • New revenue sources
  • Positive stakeholder relations
  • Significant investment
  • Reduction of social obligations

CROSSED WIRES SCENARIOS FOR THE FUTURE OF THE
ELECTRIC DISTRIBUTION BUSINESS XENERGY Scenario
Workbook
Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
8
Disco Views of the Future (selected) -- from
XENERGY Crossed Wires Study
Disco Role in Distributed Resources
  • Distribution will continue to be a monopoly, but
    with the risk of by-pass.
  • Competition customer choice will continue to
    expand, but
  • 10 years from now, the regulated company will
    still be responsible for a large share of the
    load, and power cost adjustment clauses will be
    the norm.
  • Regulated distribution companies will own DG
    storage devices on their systems in 5 years.
  • Virtually all customers will be under time-of-use
    pricing and metered hourly.
  • Technology will be more intelligent on both sides
    of the meter

Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
9
wires.net - 1 of 4 Future Scenarios
Disco Role in Distributed Resources
  • In this future, technology advances result in
    lower costs and substantially improved prospects
    for distributed generation and electricity
    storage.
  • These new technologies appeal strongly to
    consumers, since they offer an economic
    alternative to central power production.
  • These alternative technologies finally become
    disruptive enough to the electric distribution
    business that the need for traditional regulation
    is challenged.
  • As DP begins to increase its market share, discos
    recognize for the first time a real threat to the
    monopoly franchise.
  • Such competitive threats simultaneously spark new
    technology innovations in power delivery and in
    central plant production.
  • With full competition, the marketplaceinstead of
    regulatorsbegins to sort out
  • where distributed generation makes the most
    sense, and
  • where network service continues to be the most
    economic means to provide electric service to
    customers.

10
Scenario Matrix
Disco Role in Distributed Resources
Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
11
Summary of 4 Scenarios
Disco Role in Distributed Resources
Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
12
wires.net Scenario
Disco Role in Distributed Resources
Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
13
wires.net Scenario
Disco Role in Distributed Resources
Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
14
wires.net Scenario
Disco Role in Distributed Resources
Source Crossed Wires, XENERGY Electric
Distribution Business Study (EDB)
15
Can distributed benefits offset standby
charges? (All DG is local?)
Disco Role in Distributed Resources
Source Distribution-Level Opportunities
Barriers for Distributed Renewables, XENERGY,
12/2001 (actual values will depend on location
other factors).
16
Illustration of potential distributed benefits
(rough calc based on EPRI method)
Disco Role in Distributed Resources
Source Distribution-Level Opportunities
Barriers for Distributed Renewables, XENERGY,
12/2001 (actual values will depend on location
other factors).
17
Illustration of potential distributed benefits
from renewable DP
Disco Role in Distributed Resources
Source Zaininger Engineering Co., Inc.
18
Role of Disco (any parallels with RTO/ITC roles?)
Disco Role in Distributed Resources
  • Over what should the Disco have a monopoly?
  • Should regulated investment be only a backstop?
  • Should Disco wait for competitors? Issue RFP?
  • Is it possible to compare the alternatives (level
    field)
  • regulated TD owner,
  • merchant distribution companies,
  • generation (central, distributed) demand
    response?
  • How to achieve independence from Disco owners
  • ISO ---gt IDO - Independent Distribution
    Operator?
  • RTO ---gt LDO - Local Distribution Organization?
  • Or how far should RTO planning extend toward
    local level?

19
Standby Rates and Other Charges
20
Nature of the Conflict between TD and DP
Standby Rates
  • The economics of most DP projects depend to some
    degree on avoiding some TD costs.
  • (Its tough to compete with large central
    generation.)
  • New DP facilities can offer important economic
    benefits to the distribution system.
  • When -- and where -- these distributed benefits
    are high enough, then win-win outcomes are
    possible in which all parties can share in the
    net benefits. However,
  • A zero-sum game emerges to the extent these
    benefits are insufficient to offset the standby
    charges.
  • Challenges assessing goals allocating costs
    benefits.

21
Principles when a Win-Win is available
Standby Rates
  • Need to share the benefits to the TD system
  • DP owner?
  • Disco?
  • Other ratepayers?
  • Need to measure the distributed benefits
  • Methodologies?
  • Collect publish info?
  • Need to determine process, responsibility of
    disco
  • Disco respond to customer DP proposals?
  • Disco issue RFP to attract DP activity where TD
    expansion is needed?

22
Principles for Zero-Sum part of the problem
Standby Rates
  • If cost-based standby rates are applied to DG
    capacity, an adjustment is needed to reflect the
    diversity of generating resources on the feeder
    or system.
  • Need to consider risk of worsening impact if high
    rates induce uneconomic physical disconnection
    from wires.
  • Policy should be based on the full range of
    public policy benefits, including
  • customer choice,
  • energy efficiency fuel diversity,
  • technological innovation,
  • avoidance of local -- global -- environmental
    impacts.

23
How much TD cost does a DG owner cause? Pay for?
Standby Rates
  • What level of TD capacity is required to back up
    the customers DG?
  • Capacity of on-site DG (one generator? all?)
  • Contract Demand (required level? customer
    election?)
  • ( customer must specify maximum demand it
    plans to impose on the Company .)
  • Load expected to be imposed on grid in case of DG
    outage(s)?
  • Based on probability of outages for all
    generators on the feeder or system.
  • Load actually imposed on grid, if any?
  • Based on actual frequency of outages for
    customers DG, after offsetting generator outage
    with load reductions successfully arranged within
    the affected portions of the TD system.
  • This could be a penalty that makes possible a
    lower base charge for the rest of the time.
  • This would provide an incentive to minimize grid
    use during times of peak TD load.
  • Highest of the above? (rachet over how many
    months?)

24
Need to start with broad goals principles
Standby Rates
  • Existing/previous auxiliary tariffs differ, and
    pre-date restructuring (WMECo Cambridge).
  • More recently, a standby rate was deferred by
    National Grid settlement of EUA merger
  • Non-dispatchable, non-fossil fuel renewable
    energy facilities were exempted.
  • DTE accepted an interim approach for recovery
    of lost revenues from some new DG, but did not
    make any findings on appropriateness of an
    Auxiliary Rate. However, DTE identified the
    following issues
  • (1) method to quantify the economic impact of
    new on-site generation
  • (2) potential impact of Aux. fees on the
    emergence of new beneficial technologies
  • (3) extent to which revenue losses should be
    recovered from DG owners and the ratepayers
    within the designated rate classes.

25
Toward Principles for DP Ratemaking
Standby Rates
  • Overall goal(s) need to be framed
  • To protect Disco /or its ratepayers?
  • Maintain gross revenue (win-lose) or share
    distributed benefits (win-win)?
  • Short-term or long-term?
  • To encourage investment in distributed power that
    is economically efficient compared to utility TD
    investments?
  • How do market players compete with utilities?
  • How facilitate a competitive market for
    distribution expansion?
  • To maintain flexibility for site-by-site
    negotiation -- or maintain uniformity of
    treatment by Disco?
  • To facilitate -- or leave room for -- innovation?

26
Concluding Observations Find the Win-Win
  • Zoom out to the big picture
  • Distinguish renewable, CHP, price-response,
    backup, etc.
  • Dont underestimate new tech. (e.g., fuel cells,
    SMES).
  • Take the long view (e.g., who will be using DG).
  • Consider changing basic incentives rate
    structures.
  • Consider public policy needs environment,
    security, . . .
  • Do the homework (reading, math . . . )
  • Estimate ( measure) economic environmental
    impacts.
  • Build on -- go beyond -- other states (
    countries).
  • Collaborate invent -- set up working groups.
  • Develop test planning methods, business models,
    etc.

27
Reminder Some Next Steps
  • July 10 - MTC Meeting
  • 3 pm at MTC, Westborough
  • Notify MTC by June 26 alpher_at_mtpc.org
  • August 1 - Initial Comments to DTE in 02-38
  • See 6/13 Order at http//www.state.ma.us/dpu/
  • August 21 - DTE Public Hearing in 02-38
  • 10 am at DTE, Boston
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