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Getting IRP Right

Quantifying uncertainty in the planning process.
Fortnightly Magazine - April 2006

are back in vogue. DSM has been reinvigorated with the addition of demand-response (DR) programs, where consumers with flexible needs are financially rewarded to curtail usage during peak demand periods.

The “New” IRP

Although the regulatory requirements and the level of detail varies, a typical IRP process is focused on determining how best to meet future energy needs given the available resources. The “objective function” is no longer mere cost minimization, although costs are an important variable. The “best” portfolio of resources is one that meets the demand for power at minimum cost while providing a measure of supply security, risk minimization, resource diversity, and so on. Other criteria typically include environmental factors ( e.g., greenhouse-gas emissions), resource adequacy, service reliability, and, increasingly, the inclusion of mandated renewables and possibly other considerations.

This is a complex set of parameters to consider and balance, with many conflicting objectives. Follow an aggressive strategy to add too many renewables, for example, and the emissions decrease while the costs may increase. Heavy reliance on coal may be the cheapest short-term option, but it could make the utility vulnerable should there be a significant increase in price of coal or a future requirement to reduce CO 2 emissions. Having an extra cushion of capacity adds to supply reliability but also to costs. Investing in extra transmission capacity increases opportunities for importing lower-cost generation from distant generators, but is costly to build. A heavy emphasis on energy conservation and peak-load reduction reduces the need for supply-side resources, but at a cost. How far should one option be pursued versus another? What is the right mix? What is the optimal portfolio of resources?

Ultimately, the goal of the IRP is to help regulators, policymakers, consumers, environmental and renewable energy advocates, investors, LSEs, generators, and the private sector agree on what is the best combination of resources.

While there are no right or wrong ways to conduct an IRP study, the following steps normally would be followed:

1. Initial Process Validation

2. Demand Forecasting

3. Resource Characterization

4. Risk Characterization

5. Strategy Building—Creating Alternative Resource Portfolios

6. Strategy Evaluation

7. Strategy Insights and Implementation

Often the responsibility for these steps is decentralized among departments at a utility, or outsourced to consultants specializing in certain technologies or processes. 4 Since many jurisdictions require that the process be participatory and transparent, stakeholders or oversight committees often are involved in the IRP study. In such cases, it is critical to engage and educate the stakeholders during the process so that there is “buy-in” and support for the results at the end of the day. Each step is briefly outlined below.

Step One: Initial Process Validation.

As in any business-planning exercise, having the correct and current input data and making use of the best available input assumptions is critical to the ultimate success of the study and the usefulness of the results. Use of inaccurate, out of date, or biased data will lead to suspect results. Step One should focus on defining the broader goals, objectives, and metrics to be used in the