Smart Grid Demonstration Cost/Benefit Analysis EPRI Smart Grid Advisory Meeting Albuquerque, New Mexico October 14, 2009 Bernie Neenan Technical Executive [email protected]

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Outline

A. B. C. D. E. F.

Cost and Benefit Analysis (CBA) Defined What constitute Smart Grid Benefits? Measuring Smart Grid Impacts Monetizing Smart Grid Benefits The Cost to Realize Smart Grid Benefits CBA Application to EPRI Smart Grid Demonstration

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Cost and Benefit Analysis (CBA) Defined

A

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Cost and Benefit Analysis (CBA) – Design Principles • Adaptable to all Smart Grid demonstrations • Provides for a consistent and fair comparison of alternative Smart grid technologies and systems • Adaptable to new findings and expanded applications • Identifies all attributable benefits • Minimizes redundancy in benefit attribution • Distinguishes benefits according to: – Level (how much) – Distribution (who is the beneficiary) – Timing (when they are realized) Copyrigth 2009 Electric Power Research Institute

Intelligent Transmission and Distribution Automation

Microgrids, Islanding, Switching, Sectionalizing

Distributed Generation and Storage PV, Wind, Micro-Turbines, CAES, Flywheel

Demand Response & Control In-Premise In-PremiseNetwork Network

In Premise Networks, Automated DR, Integrated Demand-Side Resources

Advanced Metering Infrastructure PLC

BPL RF Mesh

RF Tower

Reading, Remote Disconnect, Capacitor Controls, Sensors, Wastewater

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A Useful Semantic Distinction • The first order, and therefore defining, impact of Smart Grid technology is a change in the technical performance of the electric system • The term benefit connotes a monetary result • A transformation function is required link the two • An important distinction is: – Impact (cause) = the first-order impact of the investment on the system (what aspect of service or performance changed?) – Benefit (effect )= the monetary equivalent of the impact

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Defining and Categorizing Smart Grid Benefits

B

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Benefits 1st Order Distinction •

Operating cost savings that result from increased productivity attributable to the investment

• Operating costs savings (relative to what is incorporated into existing rates) provide a stream of funds that can be used by the utility to service the Smart Grid investment carrying costs.

•

Consumer cost avoidance from reduced generation, transmission, and distribution investment or operational requirements

• Avoided capital and operating costs result in rates that are lower than they otherwise would have been

•

Societal Benefits that inure to consumers, but in less obvious ways

• These benefits inure directly to consumers and are: • Speculative, subjective, and challenging to monetize • Not necessarily evenly distributed among consumers

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Many Benefits Originate at Wholesale and Flow to Retail Energy efficiency

Price-Based Demand Response TOU

Time scale

DA-RTP

< 15 min

Years

Months Day-ahead

System management action

System planning

RTP

Operational planning

ICAP

Scheduling

KWH Bidding

In-day

< 15 min

Dispatch

Emer

DR

I/C

Load

RT balanced and regulated system

DLC

Induced Demand Response Copyrigth 2009 Electric Power Research Institute

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Smart Grid Benefits Categorization Smart Grid Benefits

Lower Utility Operating Expenses

Equipment Maintenance

Better Societal Resource Utilization

Avoided Consumer Costs

Avoided Costs

Improved Reliability

Operating Cost

Gen Capacity

Others

Energy Generation

Improved National Security

Reduced Outages

Better Environmental

Improved PQ

Efficient Economy

Ancillary Service Capacity

T&D Assets

T&D Asset Operation

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Things that appear to be left out – based on typical list of benefits ••

Impact on markets Impact onelectricity electricity – More efficiency operations markets – – – –

Customer participation More efficiency market Flatter load profiles operations Reduced LMP/MC volatility

– Flatter load profiles – Reduced LMP/MC volatility

•• Customer Customer impacts impacts – Lower electricity rates – Lower electricity rates – End-use and premise load – End-use control and premise load control – More consumer choices – choices – More Lower consumer electricity consumption

Impact on System Operations – Integration or renewable generation resources – Optimized PHEV charging/discharging – Better unit operating efficiency

• Externalities – Lower emissions form renewable – Achievement of RPS goals

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Smart Grid Benefits – Collateral Impacts Smart Grid Benefits Lower Utility Operating Expenses

Equipment Maintenance

Avoided Consumer Costs

Avoided Costs

Better Societal Resource Utilization

Improved Reliability

Improved National Security

Operating Cost

Gen Capacity

Reduced Outages

Better Environmental

Others

Energy Generation

Improved PQ

Efficient Economy

Ancillary Service Capacity

Fewer rollouts

T&D Assets

Competitive Markets

T&D Asset Operation

Enable Renewables Fewer outages

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Some Puzzlers • Devices and controls specifically added to mitigate the adverse impact of distributed PV which itself is claimed as a benefit – Is that a benefit to consumers? or – A reduction in the value attributed to PV?

• Reduced cost of Smart Grid elements due to economies of scale – Is this attributable to the SG? or – Just the way of the world, a coincidental, not attributable, benefit?

• Improved perception of utilities, other entities – who gains from good will, and what is it worth to monopoly entity? • Enabling more retail competition, – Is the real benefit measured already in induced kW and kWh changes?

• Horizontal and vertical expansion of utility economic activity – If utilities provide PHEV charging service, offer HAN systems, who gains and how , especially if those are regulated services? Does this restrict their competitive supply that might be cheaper or more robust? Copyrigth 2009 Electric Power Research Institute

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Summary • The DOE/EPRI CBA framework provides a foundation for consistent and credible evaluation of Smart Grid benefits • Some adaptations improve its suitability – – – –

A functional definition of benefits Methods for measuring the benefits by category Monetizing the benefits Clear linkage of cause and effect

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Measuring Smart Grid Impacts

C

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Metrics for Utility Expense Reduction • Impacts that are direct measures of benefits:

Data Sources

– Reduced expenses • • • •

• Utility customer billing records • Utility general accounts

Lower theft losses Reduced outage restoration expenses Lower maintenance expenses Lower system dispatch costs

– Increased net revenues (another source to offset investment costs) • • • • • •

Prepaid service enabled Seasonal shut off Reduced read-to-pay time Fewer estimated bills Faster account service initiation/termination In-home device monitoring services

• Department account records • Cost of service studies • Customer demographics • Estimates of new service enrollment and usage

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Metrics for Avoided Costs • Avoided capital costs – Reflect the reduction in the cost to serve load • Generation plant investments • T&D investments

– Generally measured in terms of kW avoided

• Avoided energy costs – Reflect the cost of operating cost of the generation unit that otherwise would have been dispatched

• Measurement issues – How is capacity adequacy affected (kW impact)? – What generation units are not built • Peaking • Base load • Cycling

– How is total dispatch effected? – Are ancillary services requirement affected? – Impact of market structure

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Baselines • A baseline establishes: – – – –

For a specific impact The level of impact that would have otherwise realized But for the Smart Grid investment Need to forecast outcomes (baseline) over the SG investment lifetime to account of base dynamic influences

• Perspective – Marginal perspective- how did things change – Measures temporal and spatial changes – Historic data generally used to establish the basis for impact measurement, but may have to model the baseline in some cases – Dynamic adjustments if investments system usage changes would been made (occurred) anyway

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Baseline for Measuring Impacts Attributable to Smart Grid Investments • Asset performance – Measures of currently generation efficiency (unit and portfolio) – Measure of today’s T&D system performance

• Consumer behavior – What would consumption otherwise have been? – What is today’s level of reliability? Service quality?

Area of active inquiry

• Economic activity – Oil consumption for generation – Character of electricity sector • Expenditures by sector • Labor multipliers

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Needs t men devlop

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Who is Responsible for, or Concerned about, Demand Response EM&V Protocols?

CSPs

North American Energy Standards Board

s litie Uti

State Agencies

National Associate of Regulatory Utility Commissioners

ISO/RTOs

Curtailment Service Providers

EPRI

ISO/RTO Council

C IR

PSCs

Public Service Commissions

NAESB RU NA

Public Service Commissions

C

LB NL

Federal Energy Regulatory Commission

EV O

Lawrence Berkeley National Laboratory

FERC

Efficiency Valuation Organization

Technology Firms Copyrigth 2009 Electric Power Research Institute

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How demand response product performance is measured Deemed Device Response kW Metered

Metered Output

FPL

kW

kW ICD

Deemed Metered

Event

FPL

Metered Output

Implied Load

Response

Time

Typical Output

Non -

Non compliance

compliance

Event Event

Time

Time

Event-Driven CBL

Prior

Pre-Specified CBL

Days

kW

kW Metered

Non compliance

CBL Non compliance

Event

Copyrigth 2009 Electric Power Research Institute Time

Metered

Event CBL

Event

20 Time

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Metrics for Improved Reliability • Outage Mitigation – Fewer outages – Shorter duration outages – Increased outage notice

• Power Quality Improvement – Reduced voltage sags and spikes – Harmonic stability

• Measurement issues – What constitutes an outage? – Impacts of sags on premise service – Spatial and temporal measurement requirements • Premise • Circuit • Network

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Metrics for Better Societal Resource Utilization •National security – Reduced imported oil consumption for generation

•Better environment – Lower net emissions from electricity generation

•Efficient economy – Employment • Net job creation, character of the jobs • Wages – Economic output – GNP – Social welfare • Economic measure of resource productivity

Most are difficult to quantify, but methods have been developed Copyrigth 2009 Electric Power Research Institute

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Monetizing Smart Grid Benefits

D

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All Roads Lead to Demand Response On Average, 34% of Attributed Smart Meter Benefits are Societal (Customer)

Household-level Benefits of Demand Response

Societal

Operational and Societal Benefits (%) Attributed to Smart Metering

100%

Operational

$350 $300

80% $250

High Low

60%

$200 $150

40%

$100

20%

$50

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Revised 0721.08

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What is the Value of Demand Response? • Demand response is a change in the consumption of electricity due to a change in the price paid, or another inducement to do so • The value of such changes depend on: – Economic outcomes • Market price changes • Dispatch costs

– Reliability conditions • Value of reliability

• Net demand response benefits Copyrigth 2009 Electric Power Research Institute

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Lots of Demand Response Already DR Resources by Type Distribution of Demand Response Resources by Category 80% 70%

73%

ISO/RTO Total (23,129 MW)

68%

United States (20,864 MW)

57% 60%

Canada (2,265 MW)

50% 40% 30% 17%

17%

20% 12%

12% 12% 14%

10%

12% 4%

3%

0%

Capacity

Ancillary Services

Energy-Price

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Energy-Voluntary

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IRC Estimates of DR Resources as Percentage of Peak Demand Response Reources as Percentage of System Peak by ISO/RTO - Summer 2007 Mean SPP PJM NYISO MISO ISO-NE ERCOT CASIO 0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

ISO/RTO Council, Markets Committee. October 16, 2007. Harnessing the Power of Demand. Available from www.isorto.org. Copyrigth 2009 Electric Power Research Institute

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How DR Generates Value • Product design determines how the demand response program is activated and produces benefits – Autonomous. The consumer decides at what price it changes consumption – Directly dispatched. An external entity has the ability to curtail a device’s usage – Self-dispatched the consumer controls the response decision

• Market or enterprise circumstances determine when an event is manifested – Prevailing energy prices – Level of system operating reserves – Demand response provider’s internal value

• Value is determined by how markets and consumers are impacted – Wholesale value is transparent – Vertically integrated utility value is like administratively determined Copyrigth 2009 Electric Power Research Institute

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Modified NERC and NAESB characterization to accommodate retail pricing structures DemandSide Demand Response

Energy Efficiency

Dispatchable Resource

Reliability

Customer Choice & Control

Economic

Dynamic Pricing

Energy Bids

Capacity

Fully Hedged Time-of-day Schedule

Uniform Price

Emergency

Day Ahead

Streaming Prices

Step Rates

Ancillary Services

Real Time

Call Options

Demand & Energy

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DR Program Features Plan Features and Provisions Product Features

Event Characteristics

Benefits

• Term

• Notice

• Option/availability payment (+)

• Caps and floors on enrolled load

• Duration

• Event performance payment (+)

• Frequency

• Overall performance payment (+)

• Total Exposure/yr, /contract period

• Non-compliance penalties (-)

• Instrumentation requirements

• Transaction costs (-)

• CBL determination

Participation

Response

Number of Customers and their load basis

Load reduction undertaken (MW, MWH)

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Valuation ($/MW, $/MWH)

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Dynamic Pricing Participation • Residential Dynamic Pricing – – – –

EDF = 75% or more on dynamic TOU rate Salt River and APS + 20% or more on TOU rate schedule Gulf Power = 30% of target on TOU/CCP CA pilots estimate • ~30% predicted acceptance • 5% actual participation

– Pilots report 20-25% subscription rates for pilots • Target recruiting • Participation incentives

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Simulated DR Plan Participation Rates

Pricing Portfolio Participation 80

Participation %

70

Res

60

Com

50

Ind

40 30 20 10

Ind Com Res

0 RTP

VPP

TOU

Class

Defualt

Pricing Plan Copyrigth 2009 Electric Power Research Institute

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Potential Benefits Attributable to Residential RTP

$ Million/Yr.

$40

Potential Residential RTP BenefitsScenario-W eighted 7 Yr. Av erage

$35

Non-Par ticipants

$30

Participants

$25

Total Re s ide ntial

$20 $15 $10 $5 $0 Seven Year Avg.

Real-Tim e Response Price

Doubled Elasticity

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Reliability Improvements • Smart Grid provides for more localized measurement of individual premise service status • If this information is integrated into restoration systems, the duration of outages may be reduced, which translates into more value to consumers • Such an analysis requires: – Identifying changes in CAIDI that would be attributable to Smart Metering – Estimating customer outage costs Change in Outage Duration

X

Outage Cost

OUTPUT

=

Smart Metering Premiselevel Reliability Value

Residential

Small Commercial

Baseline Cost per Outage

$5.73

$295 - $475

Marginal Cost per CAIDI Minute

$0.01

$5.45

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Improved Utilization Efficiency- Feedback

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Feedback Studies - % Electricity Savings; Direct and Indirect Feedback

• A wide variety of studies have been conducted over the past 20 years to quantify the impact of information on electricity consumption:

25

% Savings

20 15

...

• Indirect feedback – provides consumers with more detailed and indepth analyses of billing information

10 5

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

0

Study #

• Direct feedback – provides consumers direct access to the meter contents • The reported impacts over both feedback types, reductions in total kWh consumed, range from zero to 25%

Feedback Studies - % Electricity Savings - Electronic Display 20 18

• Electronic display results also exhibit a wide range of energy reduction values

Pre-paid metering

16 % Savings

14 12 10

• Most studies involved only very few (under 150) participants for a year or less.

...

8 6 4 2 0 2

6

9

10

17

18

19

20

21

23

24

25

Study #

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Feedback Impacts % Reduction in HH Energy

Metastudies 30%

• Darby 2001, 2006 • Fischer 2007

25%

• Abrahamse, et al., 2005 20%

Pilots

15%

• Before and after 2000 10%

• Direct vs. indirect • Slow vs. fast feedback

5%

• North America, Europe 0

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Feedback Hierarchy • Darby provided an important distinction; indirect vs. direct • EPRI added a functional hierarchy Feedback Hierarchy 1

2

3

4

5

6

Standard Billing

Enhanced Billing

Estimated Feedback

Daily/Weekly Feedback

Real-time Plus

Monthly invoice

Tips on how to save

Tailor audits and advice

Real time Feedback Readily available usage data

(actual or estimated usage)

Periodic reports on actual usage

“Indirect” Feedback provided after consumption occurs

Real – tie data plus controls

“Direct” Feedback provided as consumption occurs

Information availability

Low

High

Cost/Effort to implement

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Smart Grid & Smart Pricing- Example Application • Thermostat receives day-ahead hourly prices Utility Communications • Consumer sets upper and lower limits • Thermostat “learns” thermal, consumer and weather impacts

Demand Utility Dynamic Communications Systems Control PreCool

Clip

Efficient Building Systems Internet

PV

Consumer Portal & Building EMS

Distribution Operations

Recover

12 Midnight

Renewables

Distribution 12 12 Data Operations Noon Midnight Management

Advanced Metering

Control Interface

Plug-In Hybrids

Distributed Generation & Storage

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Smart Charging: Key to Reducing PHEV Impacts July 27th 2007 24 hr: Total Loading for the Feeder Under Study

Added peak load without PHEV charging integration

12000

Total Loading at Substation (KW)

11000 10000 9000

Added off-peak load with smart PHEV charging

8000

off-peak load 7000

off-peak load 6000 Base Load Scenario 5000 PHEV Case 3:- (240V, 12A) Diversified Charging @9pm-1am Penetration=10% 4000 0

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

Hours

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Comparison of DR Plan Event Impacts Source: Faruqui, April 20008 60%

CPP with enabling tech

% Impact on Load

50%

50%

TOU with enabling tech

40% 40%

CPP

30% 30%

PTR

TOU

20% 20%

10%

10% :

• Differences among pricing structures are largely due to event price differences, not elasticity differences • Participation levels and sustainability is highly speculative Copyrigth 2009 Electric Power Research Institute

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Valuing Demand Response Benefits - An Elemental Method Basic Program Characterization • Participation rate • Reference load profiles for target customers • Price change – –

X Elasticity

Event prices, penalties Reference price

X

• Price response – – –

Event load Level of price response Event/Peak coincidence

Price Change

X

• Avoided cost – –

Usage and Coincidence

Participation

Energy Capacity

Generation Capacity & Energy Values

• Reliability benefit • Costs of program implementation

= Benefits

For Smart Metering business cases, the frame of reference is incremental; how does Smart Metering enhance the levels of key parameters? Copyrigth 2009 Electric Power Research Institute

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An Illustrative Example • An example of a specific demand response product illustrates the assumptions required and their implications for the resulting level of benefits • The Peak Time Rebate (PTR) serves to illustrate the methods and implications • PTR is assumed to be deployed to reduce coincident peak demand and thereby reduce capacity costs • PTR Events are declared each year to coincide with the system peak load

Assumptions

Peak Time Rebate • Participation is voluntary • Utility determines when to declare an event • Participants that reduce load are paid the Rebate price • No penalty for failure to respond

• • • • • • •

Perfect foreknowledge of when the system peak occurs Avoided capacity cost = $100/kW year 20 year lifetime for Smart Metering 100,000 households Average 14,000 kWh/yr 65% coincidence of peak energy and system peak kW System cost - $20 million (NPV)

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NPV 20-Year Value at Higher Buy-back Rebate • Lightly shaded (green) cells exceed the Smart Metering capital cost of $20 million. • Participation rate of at least 30% (corrected value) • Elasticity of at least 0.10

What some pilots exhibited

• The dark shaded (black) cells exceed the capital cost plus the participant incentives • Participation of at least 50% (corrected value)

Not yet demonstrated

• Elasticity of at least 0.175

• Values assume that only one event is called per year to achieve the peak reduction. If more events are required, then the net benefits are less.

NPV 20-Year Value at Buy-back Rebate 8 times Standard Rates Participation 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

$ $ $ $ $ $ $ $ $ $

0.025 872,603 1,745,205 2,617,808 3,490,411 4,363,014 5,235,616 6,108,219 6,980,822 7,853,425 8,726,027

$ $ $ $ $ $ $ $ $ $

0.05 1,745,205 3,490,411 5,235,616 6,980,822 8,726,027 10,471,233 12,216,438 13,961,644 15,706,849 17,452,055

$ $ $ $ $ $ $ $ $ $

0.1 3,490,411 6,980,822 10,471,233 13,961,644 17,452,055 20,942,466 24,432,877 27,923,288 31,413,699 34,904,110

$ $ $ $ $ $ $ $ $ $

Elasticity 0.15 5,235,616 10,471,233 15,706,849 20,942,466 26,178,082 31,413,699 36,649,315 41,884,932 47,120,548 52,356,164

$ $ $ $ $ $ $ $ $ $

0.175 6,108,219 12,216,438 18,324,658 24,432,877 30,541,096 36,649,315 42,757,534 48,865,753 54,973,973 61,082,192

$ $ $ $ $ $ $ $ $ $

0.2 6,980,822 13,961,644 20,942,466 27,923,288 34,904,110 41,884,932 48,865,753 55,846,575 62,827,397 69,808,219

$ $ $ $ $ $ $ $ $ $

0.25 8,726,027 17,452,055 26,178,082 34,904,110 43,630,137 52,356,164 61,082,192 69,808,219 78,534,247 87,260,274

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Externalities • Externalities are costs associated with economic activity that are not included in the price paid by consumers • As a result, resources are not used optimally from a societal perspective • Smart Metering may enable changes that reduce externalities – Reduced kWh usage that is oil-based reduces reliance on imports, which may have implications for national security – Reduced kWh usage that reduces generation carbon emission reduces costs associated with the associated adverse environmental impacts

• Externalities are sometimes associated with market failure – the missing cost element in the good is an indication that the market is not functioning properly

• But, in the absence of a market, how are such costs monetized? – Cicchetti- implied national security adder = $.057 to $.014 /kWh – Synapse – implied CO2 emissions = $.016 to $.018/kWh Copyrigth 2009 Electric Power Research Institute

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Different Average Emissions Approaches Yield Different Results 1.2 0.95 0.8

Tons CO2

0.85

0.79

0.75

0.69

0.67

MWH

0.4

0.0

Avg. U.S. Total

1

Avg. U.S. Non-Base

Source: U.S. EPA eGrid Database

2

Avg. Southwest Total

3

Avg. Southwest Non-Base

4

Avg. State (Arizona) Total

5

Avg. State 6 7 (Arizona) Non-Base

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Macroeconomic Impacts • Disruptive changes in sector spending behaviors can trigger beneficial changes in the economy: – Expanded regional economic activity – Increased employment and wages

• Smart Grid may be the source of such • changes arising from: – Changes in utility expenditures – Changes in consumer expenditures associated with • Reduced electricity costs (if applicable) • Purchase of other products and services

• Characterizing and quantifying them involves economic sector macroeconomic (Input/Output) modeling

. Economic Impacts for AMI and Resulting Demand Reduction Programs AMI Investment and Demand Response

Additional Indirect and Induced “Multiplier”Effects

Phase I: The Installation AMI Hardware and Software Installation Installation of Customers’ Smart Meters

Customers’ Increased Utility Bills, no Change in Electricity Use

Increased Direct, Indirect, and Induced Effects: Sales, Income, Value Added, Employment

New Direct Spending: Equipment & Installation

MINUS

Reduced Direct Consumption Spending

Reduced Indirect and Induced “Multiplier”Effects

Reduced Direct, Indirect, and Induced Effects: Sales, Income, Value Added, Employment

Net Total Effects: Sales, Income, Value Added Employment

Base Scenario, without AMI Investment and Installation Customers’ Original Utility Bills & Electricity Use

Original Direct Consumption Spending

Indirect and Induced “Multiplier”Effects

Total Effects: Sales, Income, Value Added Employment

– Requires using very specialized and generally expensive modeling techniques – The expenditure changes associated with Smart Metering may not involve substantial changes in expenditure Copyrigth 2009 Electric Power Research Institute

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The Cost to Realize Smart Grid Benefits

E

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Issues to Resolve • What is the purpose of the CBA? – Calculate demonstration project net benefits – Estimate the net benefits for the project • Under repeated applications at the same scale • Scaled-up applications

• What costs need to be measured? – – – –

All project costs Distinguish R&D (one-time) from project requirements costs Today’s cost or cost at full scale and scope Collateral costs

• Access to pertinent data – Utility – Vendor/contractor Copyrigth 2009 Electric Power Research Institute

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CBA Application to EPRI Smart Grid Demonstration

F

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Step-wise process 1. 2. 3. 4. 5.

Characterize project outcomes Map goals to impacts Monetize estimated impacts Estimate costs Establish performance tracking requirement 1. 2. 3.

Cost reporting M&V protocols External variable measurement

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Next Steps • Develop operational manual to guide protocol application • Test out protocols on one or more projects • Revise and document protocols – Application guides for EPRI Smart Grid (and Energy Efficiency) demo – Coordinate with DOE • Coordinate development of protocols • Share experiences

• Develop analytical tools

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