FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
AMI/Demand Response: Getting It Right the First Time
Each DR portfolio will have a different set of AMI needs, based on overall technology infrastructure.
100 percent, i.e., the highest cost in the range is roughly double the lowest cost for almost every year in the planning horizon.
Hourly Costs: On a peak-demand day with additional system stresses, such as 10 percent of generating capacity being offline, savings in marginal production costs are substantial. The addition of DRR to the system greatly reduce the “peakiness” of the hourly costs, reducing the maximum by more than 50 percent. For example, in one peak day in July the total cost savings are $24.5 million.
Capacity Charges: A substantial percentage of new capacity charges is deferred by the model because of the DRR availability. This amounted to savings of $892 million (2004 dollars) over the 20-year period.
Savings in Each Year: DRR provides significant benefits in those years in which it is used. While DRR provides considerable amounts of benefits on select days, there is a cost to building and maintaining the DRR capacity which is paid for in every year and in every case, even if DRR is not used. This results in there being some cases where there are costs but no savings from DRR. Looking at the 100 cases individually, in the scenario with DRR but no RTP, 36 percent of the 100 cases show savings in total system net present value (NPV) compared with the base case, and with the full RTP scenario, 97 percent of the cases show savings.
DRR Capacity Usage: Large amounts of DRR are used about once in every four years. Across all resource scenarios, small amounts of DRR are used in most years in the planning horizon, with near capacity use of DRR happening infrequently. The amount of DRR called upon did not vary much across the three scenarios, e.g., the “with full RTP” resource option only resulted in a 10 percent reduction in DRR hours called across the 20-year planning horizon. As a result, the callable DRR retain their value as a hedge against extreme events even with pricing options that result in better utilization of system resources across all hours.
Cost-Risk Profile: There is a change in the risk profile associated with the planning scenarios with the addition of DRR. There are significant savings when looking at value at risk (VAR) at the 90th percentile (VAR90) and at the 95th percentile (VAR95). The VAR90 is the reduction in costs averaged across the 10 percent worst-case outcomes, i.e., the highest cost futures. Results for the three scenarios are shown below.
Loss of Load: The addition of DRR decreases the loss of load (LOL) hours substantially across all cases. The base case has an average value for loss of load hours of 7.64 hours across the cases, but values for some individual cases are as high as 30 hours. For the DRR with Peak Pricing, the average LOL hours averaged across all cases is lowered to 0.33 hours. The magnitude of the savings due to enhanced reliability across all the years in the planning horizon could be quite high, but no estimate has been calculated at this time