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PUC Resource Adequacy Workshop on Friday, July 27

By Marita Mirzatuny / Published: July 25, 2012

Source: Brattle Group. “ERCOT Investment Incentives and Resource Adequacy.” June 1, 2012

This Friday, the Public Utility Commission (PUC) will host a workshop to discuss the Brattle Group’s recommendations for Texas’ resource adequacy predicament and how to move towards sustained reliability. This workshop is timely, since the Texas energy crunch continues to be in the spotlight. Just last week, the New York Times reported that Texas ranks last in electrical reliability among all states in the U.S. Texas won’t stay open for business if that remains the case and year after year it seems our state energy policy is based on a hope and a prayer.

Table 1 of the Brattle report outlines the five policy options to solve the long-term problems.

The report specifically states that “reliance on scarcity prices is unlikely to achieve current reliability objectives.” Therefore raising the price cap is, alone, not going to solve the problem. As mentioned at the Senate Business & Commerce committee earlier this month, this issue was plagued by accusations that the market was being manipulated because of violent price fluctuations on June 25 and 26. It turns out the market is not being manipulated, which is good, but that it is really just dysfunctional in design, which is not so good. Colin Meehan’s blog last week highlights this issue and makes the point that while the PUC is willing to potentially pass the costs of a price cap increase onto ratepayers, it should also consider demand-side resources suggested by Brattle which could positively affect ratepayers. For example, in the PJM market demand-side resources are allowed to participate in energy and capacity markets and over $20 million of the payments went to residential customers.

EDF submitted comments for this workshop and will be in attendance. Other public comments were made from a variety of stakeholder’s including demand response advocacy groups, cities, MOUs, and power companies.

EDF believes that “such reforms must include a substantially increased role for demand response (DR) and other demand-side resources in ERCOT’s markets; the report provides ample supporting evidence for this need. EDF requests detail on the level of DR needed to maintain reliability in each scenario [in chart above], what would be required in each scenario to attain those levels, as well as the role of other demand-side resources in meeting future resource needs.”

Posted in Demand Response, General, Texas / Comments are closed

The Texas Electric Market Isn’t Being Manipulated, It’s Just Built That Way (…And That’s Not A Good Thing)

By / Published: July 19, 2012

Last week, the Independent Market Monitor for the Electric Reliability Council of Texas (ERCOT) released a report showing that the violent prices fluctuations of June 25 and 26 were not the result of market manipulation, as asserted by earlier reports. Most have greeted this as welcome news, but the finding could spell rocky years ahead with wild swings in electric prices from day to day, which makes it difficult for investors, generators and most importantly customers to plan ahead. To understand why, let’s back up a second and talk about what these findings mean.

Wild Mood Swings

If the market isn’t being manipulated, it is at least feeling a little bipolar: one hot summer day with high demand prices are up slightly but everything was working fine. The next day however, a 2 percent uptick in demand combined with an unexpected loss of 1.6 percent sent prices soaring. The peak price on June 25 hit $438/ megawatt hour (MWh), but on June 26 prices maxed out at $3,000/MWh, meanwhile average prices skyrocketed to 640 percent above the average for the 25th.

In a well functioning market these price swings wouldn’t be so dramatic and unpredictable, and those swings point to fundamental problems with the electric markets in Texas. In extreme situations prices and profits may increase enough to support new investment but those extremes are so unpredictable that no power company can plan well for them, much less finance new investments. As Brattle Group says in their report to ERCOT, “reliance on scarcity prices is unlikely to achieve ERCOT’s current reliability objectives.” The solution? Reduce our reliability standards or implement reforms that will lead to reliable electricity over the long term without the need for emergency regulatory intervention.

The reason for these swings is pretty simple, and outlined in the Brattle Report: the ERCOT supply curve does not efficiently reflect current or upcoming scarcity conditions in the market. The supply curve is dominated by low price resources like wind, efficient natural gas power plants, along with nuclear power and some cheaper coal, all of which come in at or under about $30/MWh. But as the chart shows, when you start getting near the 100 percent peak demand level there’s a sharp “hockey stick” curve upwards in price. This means that when we’re in that high demand territory, a single power plant going offline or an unexpected spike in demand can send electric prices from $30/MWh to $3,000/MWh without warning, like we saw in late June. Other regions have a more gradual supply curve of price increases during scarcity conditions, providing a kind of ‘warning’ to the market that the Brattle Report suggests as part of its suite of recommended market reforms. That gradual curve is important because it allows demand-side resources to help stabilize prices and at the same time it provides potential investors with the kind of predictable certainty that allows them to consider investing in Texas.

Solving the Problem

As we said above scarcity pricing by itself, especially when it’s so dependent on weather extremes, is not enough to keep the lights on in Texas. To do so, regulators and stakeholders will need to roll up their sleeves, put politics aside and find a solution that works for all Texans. As a many have pointed out, the Public Utility Commission (PUC) made the decision to raise the offer cap without even a cursory analysis of the impact on ratepayers, an oversight that hopefully won’t happen again.

If and when ratepayer impacts are taken into account, demand-side resources will be seen as playing a key role not only in maintaining reliability, but also in reducing the impact to ratepayers. According to the Brattle Report we can reduce our peak demand needs 15 percent with such demand-side resources, with residential customers and small businesses making up 72 percent of the reduction during the hottest days of the year, but only if serious changes are made to the market. In PJM (another grid operator) , where demand-side resources are allowed to participate in energy and capacity markets, participants have received over $174 million for over 10,000 MW of customer provided demand-side resources, over $20 million of the payments went to residential customers. In Texas, as we consider implementing new policies that improve reliability and provide stable predictable market signals it will be critical to include demand response, and to tap into growing residential and small business markets.

Posted in Demand Response, General, Texas / Read 2 Responses

ERCOT Protocols Debated In Business And Commerce Committee Hearing

By Marita Mirzatuny / Published: July 13, 2012

On Tuesday, the Business and Commerce Committee in the Texas Senate held an interim charge hearing on the Electric Reliability Council of Texas (ERCOT) protocols, including a look at the impact on system reliability, a topic that EDF is following closely. The charge as given directs the Texas Senate Business and Commerce Committee to:

Review current and pending ERCOT protocols as they apply to all generation technology, and identify those protocols that may provide operational, administrative, or competitive advantages to any specific generation by fuel type. Consider the impact any revisions to the protocols may have on grid reliability and electricity rates. Make recommendations for revisions or statutory changes to limit distortions in the Texas electrical market.”

Leaders from all parts of the Texas electric system discussed the process of creating protocols and concerns about the impact of protocols on system reliability: Public Utility Commission (PUC) Commissioner Ken Anderson gave an update on activities at PUC and ERCOT this year, many of which we’ve discussed previously. Anderson was followed by a panel including ERCOT CEO Trip Doggett.

Mr. Doggett told lawmakers that the “electric supply will be tight this summer and warned that the agency will likely declare Energy Emergency Alerts asking consumers to cut back on use. ERCOT may also implement emergency procedures, including taking industrial users offline. But blackouts would happen only if there was an extraordinary drop in generation or the state experienced record high temperatures.” Senator Leticia Van de Putte asked about the Brattle report’s suggestion of a capacity market that would allow demand response (DR) and whether the 13 percent reserve margin should be treated as a target or a minimum requirement. This was not fully addressed beyond saying the Brattle report will be discussed at a Commission workshop on July 27.

The Director of ERCOT’s Independent Market Monitor, Dan Jones, keeps an eye on the system to make sure the market is functioning efficiently and no one is exerting undue influence over the Texas market. Concerns of market manipulation have been raised by outside observers and committee members were clearly concerned about those allegations, which Mr. Jones is in the process of studying. Jones also discussed the Brattle report recommendations, including one to further increase price caps in ERCOT. Senator Kirk Watson asked how the recent cap increase, approved by the PUC to encourage more generation, could affect volatility, another issue that will be addressed along at the upcoming PUC workshop.

John Fainter, representing the Association of Electric companies of Texas (AECT), an electric industry group, stated that the industry “supports the flexibility in the process with the current protocols” and that “we will continue to have emerging technologies and that demand management should be part of the solution.”

We agree that it is important for the protocol development process to remain flexible and stakeholder driven, but the problem lies in the inertia with which these new emerging technologies and demand resources are brought into the market. The current stakeholder process tends to favor the status quo and, if that process is not successful in implementing the desired solution, consider further action through other means.

According to Brattle, “competitive DR resources can reduce our peak demand needs by 15 percent, greatly improving system reliability and playing a critical role in addressing future resource adequacy concerns.” Large commercial and industrial customers, who are already “quite engaged” in various DR programs, only represent 14 percent of the total DR potential in ERCOT. In contrast, during the summer of 2011 residential and small commercial customers accounted for 72 percent of peak load and “currently provide little DR.”

While EDF did not testify at the hearing, we submitted written testimony. Despite the current flexibility, the mechanisms by which new demand side resources expand do not necessarily allow for all stakeholders to be evenly weighed and can stymie the flexibility needed. Texas is currently among the lowest states in terms of load management, despite having the highest potential according to FERC and the Brattle Group. As ERCOT works to address resource adequacy issues, and this committee considers whether some protocols provide operational or competitive advantages to any specific generation, we believe it is important to note that ERCOT protocols generally provide operational and competitive advantages to generation resources over most demand side resources.

Therefore, we advocate the following changes to ERCOT’s market structure, including protocol revisions as proposed by Brattle:

Enabling DR to directly participate in energy markets so it can set prices directly;
Enabling all emergency DR to set prices at their individual strike prices during reserve shortage conditions, as in PJM;
The adoptions of provisions by ERCOT that allow demand resources to submit other operational data in lieu of telemetered data in order to substantially expand participation; and
If supply offers clear, they should be paid a market price, such as the economically efficient price as determined by ERCOT’s Demand Side Working Group.

As this committee, ERCOT, and the PUC consider resource adequacy and inequities within current protocols, EDF recommends paying special attention to expanding DR options for residential customers and small business. The four-market structure changes recommended above are critical to those efforts, but more work is needed to ensure that as other changes begin to impact retail rates, customers have recourse through DR programs that compensate them based on a fair market price.

Posted in Demand Response, Texas / Comments are closed

Big Data – Launch Pad For Big Ideas

By Andy Darrell / Published: July 13, 2012

Source: TechCrunch

When the internet came along, it transformed our relationship to big data – unleashing innovation, markets and, yes, funny dog videos at a global scale. “Big data” is all the rage these days in the energy sector, as investors, utilities and consumers wake up to what smart use of data can do for them.

A few weeks ago, I posted about Clean Heat – a project in which organizing data about buildings attracted nearly $100 million to finance upgrades to cleaner heating systems. If we can cut soot pollution from heating oil in New York City 50% by 2013 with the power of open data … what opportunities might be out there at even bigger scales?

This week, EDF teamed up with the White House, Google and HonestBuildings to pull together a “data jam” at Google’s New York City headquarters in the impossibly hip meatpacking district of Manhattan. Todd Park, U.S. Chief Technology Officer, kicked of a brainstorm among tech entrepreneurs, energy experts, finance whizzes, web designers and government agencies, to answer this question: if government makes its energy data open and computer-friendly, what could entrepreneurs invent to “improve energy outcomes for families and businesses?”

For six hours, we divided up into teams and jammed on this question, inspired by the extraordinary public data sets squirreled away in federal, state and city agencies on topics from energy efficiency to power plant pollution, electricity markets, transportation and health. The jam session generated at least ten great ideas, ranging from consumer energy apps to ways to save money on your commute. Teams are coalescing around these ideas – and similar ideas developed earlier this year at a similar data jam at Stanford. The goal is to turn the most promising ones into prototypes over the next 90 days.

Whether any of these ideas make it to market, it’s too early to tell. But if this group can generate so many prototype-worthy ideas in one afternoon, imagine what could happen if consumers, students, entrepreneurs, businesses and families across the country were empowered to harness “big data” to find the best ways to save money, cut pollution and improve quality of life?

It worked for the internet. It worked for smart phones. Now let’s see if it can work for energy and pollution. I’m hoping to be back in 90 days to tell you about the great idea the folks in my sub-group are developing to increase investor confidence in energy efficiency. Stay tuned.

Posted in Grid Modernization, New York / Read 3 Responses

European Power From U.S. Forests: Two New Reports Offer Pathways To Sustainability

By Will McDow / Published: July 12, 2012

European utilities are using trees grown in the United States to make electricity. Well, not the whole tree. But lots of the tree is used to make the little wood pellets that are then shipped across the ocean, mostly to the Netherlands, United Kingdom, Denmark and Belgium. It is these wood pellets that are burned with coal or in stand alone biomass boilers to produce energy. This video explains the journey from forestlands to power plants.

Why is Europe able to make electricity from U.S. trees when domestic utilities are cancelling wood biomass projects? Answer: Europe has a strong renewable energy policy.

The EU Renewable Energy Directive passed in 2009 sets a target for EU member countries to collectively achieve 20% of energy from renewable sources by 2020. Many utilities are increasing the use of biomass as a low-cost means of producing renewable energy. But Europe doesn’t have enough forest or agricultural land to meet the increasing demand. To fill that gap, European utilities are importing wood pellets – a form of chipped and compressed wood – from North America and increasingly from the Southern United States. The growing demand for U.S. wood biomass is raising questions about the sustainability of the country’s forest resources.

Two reports from Environmental Defense Fund, in conjunction with colleagues at Pinchot Institute and University of Toronto, examine economic, environmental and public health impacts from the expanding wood pellet market. European Power from U.S. Forests documents how the EU policy is shaping the transatlantic trade in wood biomass. For the U.S. export market to benefit from the large potential capacity for pellet production, producers in the U.S. will need to meet or exceed EU sustainability standards. Some type of forest management or pellet supply chain is likely to be required.

Pathways to Sustainability evaluates the programs and practices that fall under the EU biomass requirements for wood pellets, concluding that few of the pathways completely meet the standards. EDF proposes a new approach to recognize the various ways landowners and biomass producers on both sides of the Atlantic can meet their environmental objectives.

Sustainability will remain a pivotal issue as EU member countries, the European Commission and various stakeholders seek to harmonize sustainability requirements. European bioenergy companies often view biomass sustainability as the largest unquantified risk in their supply chains. Developing sustainable pathways sooner, rather than later, will reduce economic risk and encourage market development for wood pellets in the U.S. and Europe.

A webinar will be held July 17, 2012 at 12 pm EST. Please join Will McDow (EDF), Brian Kittler (Pinchot Institute) and Jamie Joudrey (University of Toronto) for a discussion of E.U. policies, the growing demand for wood pellet exports and options to meet Europe’s sustainability requirements.

Posted in North Carolina, Renewable Energy / Comments are closed

Electric Utilities – An Industry In Transition

By Greg Andeck / Published: July 11, 2012

The recent merger of Duke Energy and Progress Energy represents yet another turning point for the electric utility sector, with significant implications for public health and the environment. Duke’s six-state footprint – Florida, Indiana, Kentucky, Ohio, North Carolina and South Carolina – offers it an opportunity to lead the way on clean energy deployment. The question is: Will the new Duke Energy – now the largest utility in the country – harness its size and scale to accelerate investments in energy efficiency and renewable energy, or stay anchored to the past? EDF’s partnerships with Wal-Mart, FedEx and McDonalds have shown that when large companies are motivated, they are a powerful force for change. But change doesn’t come easily. It requires vision, leadership and a constant willingness to innovate.

This is true not just for Duke Energy, but for electric utilities around the country. Over the past two years, four of the five largest investor-owned utilities have experienced a merger or change in the CEO role – AEP, Duke, Exelon and Southern Co. The steps taken by these companies and their leadership will have a profound impact on our antiquated electric utility grid, human health and the environment. The most visionary utility companies will do three things exceedingly well:

1. Get out ahead of environmental regulation

In 2002, Duke Energy supported efforts to tackle power plant pollution in North Carolina by supporting the “Clean Smokestacks Act.” Xcel Energy followed a similar model in Colorado and endorsed the “Clean Air Clean Jobs Act.” These landmark laws significantly accelerated clean-up of the dirtiest power plants in those two states and made it possible for the utilities to recover the costs of their investments. It also enabled Duke and Excel to take early steps to modernize their fleets and prepare for future federal clean air requirements. As a result of early actions, both companies are well-positioned for EPA’s recent Clean Air Rules – unlike the utility giant AEP, which continues to delay critical human health protections. The world’s most successful companies skate to where the puck is headed, not to where it is, and are more competitive as a result.

2. Treat efficiency and smart grid investments as new revenue centers, not side projects

The fact is that most electric utilities still see energy efficiency investments as side projects separate from their core business – generating power. Without state building codes or energy efficiency standards in place, utility investment in energy efficiency remains low. The reason is simple. Even in states with decoupled rate structures in place, building nuclear plants is more profitable than energy efficiency projects. Large generating plants require a large investment with a guaranteed rate of return over a long project lifetime. In comparison, energy efficiency projects are generally small, often have an uncertain return and a short project life. EDF is working with leading energy companies and regulators to craft new incentive models that make efficiency investments attractive, but utility companies must be willing to fundamentally alter their business models.

3. See competition as opportunity

Even in highly regulated markets, new market entrants and competitors are beginning to change the face of utilities with strong monopoly power. The costs of solar panels have dropped by over a third in the past few years, making solar energy cost competitive with retail electricity prices in many parts of the country. Companies like SolarCity are even financing and then leasing solar systems to home owners, enabling cash-strapped customers to reduce their dependence on the grid. Hundreds of companies now exist to help all kinds of customers reduce their energy bills and dependence on electric utilities. (I should know – I just insulated my attic and crawl space – and am already benefitting from lower electric bills.)

Utility companies that help bring energy efficiency and renewable energy to market can retain ownership of environmental attributes (like renewable energy credits) and earn new revenue streams. Otherwise, those benefits are likely to go to third parties or customers. Smart utilities recognize the threat that this small, yet growing base of companies provides to their business model, and aim to bring technologies and services to market faster than new competitors. Rather than trying to delay the inevitable, savvy utility leaders make their companies part of the solution – and profit from doing so. Companies like San Antonio’s CPS Energy are making this idea a reality through partnerships with a wide range of service providers.

The next generation of electric utilities and their leaders must run their businesses differently than their predecessors or risk being left behind. Just like the once monopoly-oriented telecom industry, those companies that are willing to adapt and transition to this new energy paradigm will prosper and be well rewarded.

Posted in Climate, Energy Efficiency, Grid Modernization, North Carolina, Utility Business Models / Read 1 Response