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Getting IRP Right

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

IRP, and can serve as a consensus building step within the organization.

Step Two: Demand Forecasting.

A critical step in any resource planning exercise is to determine, and agree on, a forecast of the load to be served. There is a large body of literature on the electric demand forecasting process. 5

In sum, it is a process that uses both econometric and end-use (or engineering) models to determine energy consumption on a disaggregated or sectoral level. For example, separate forecasts typically are prepared for residential, commercial, and industrial customer groups, and aggregated to produce the overall growth forecast. 6

Step Three: Resource Character-ization.

The next step in the IRP exercise is to define a comprehensive list of supply and demand-side resources and their physical and cost characteristics (see Table 1). This is a critical step since it defines the basic assumptions and the input that go into the remaining steps. If a major resource is not considered or its characteristics are ill-defined, the results of the IRP exercise are suspect.

Environmental considerations, renewable energy mandates, requirements about adequate reserve margins, cost or penalties for resource diversity, risks, and other variables typically are defined in this stage.

Step Four: Risk Characterization.

Everyone involved in the IRP process undoubtedly will be concerned with risks of various types. In the past, IRP risk analysis often has been limited to a few sensitivity case analyses. Newer analytical techniques allow for a much improved approach to assessing risk explicitly within the IRP framework.

Broadly speaking, risks can be categorized into three categories, stochastic, scenario, or paradigm risks (see Table 2).

Step Five: Strategy Building—Creating Alternative Resource Portfolios.

The strategy-building process typically begins with an examination of the so-called “risk responsive” resource plans using an optimization model to see what resource plan is “picked” for each of the scenarios from Step Four. These risk-responsive strategies are built to be the lowest-cost solution to each scenario and sensitivity case in the IRP. At this point, cost minimization is the only criteria—risks will be incorporated in Step Six.

An additional strategy building approach is to analyze structured strategies with pre-determined components that allow an examination of the relative costs and measure their cost/risk trade-off. Table 4 illustrates how six hypothetical strategies (“Status Quo Economic,” etc.) can be built from a number of key “strategy elements.”

Ways to construct alternative portfolios are limited only by one’s imagination and the availability of time and resources. At a minimum, the alternatives considered should include the obvious options advocated by particular interest groups ( e.g., the renewable energy advocates, pro- or anti-nuclear advocates, etc.) and options that test the limit of reasonableness on variables such as fuel diversity and capital investment. In some cases, the regulators, consumer advocates, environmentalists, or other interveners may insist that certain portfolios ( e.g., phase out of coal or nuclear) be considered in the analysis.

Environmental considerations play a significant role in many IRP studies. For example, the effect of alternative portfolios that meet certain emission goals ( e.g., limits on CO 2 emissions) may