1 A Smart Grid Electricity Price Plan OSPE Energy Policy Presentation OSPE policy seminars can be downloaded at: h8p://www.ospe.on.ca/default.asp?page=pres_lib#peo OSPE Energy Task Force June 2015
2 2 Outline of Presenta7on Data Sources Annual and Daily Load Demand Cost to Make Electricity Features of a Good Electricity Price Plan Current Electricity Pricing Plans Disadvantages of Current Price Plans Alternative Price Plans Using Technology to Simplify Load Management Advantages of a Smart Grid Price Plan Why We Need a Voluntary Price Plan OSPE s Smart Grid Price Plan Summary
3 3 Data Sources for Today s Presenta7on The Ontario customer demand, market operation and price plan data were obtained from the IESO website (http://www.ieso.ca). The smart meter data used in the residential consumption example was from the data repository with permission from the customer. Electricity production cost data was obtained from Ontario 2013 FIT rates and the Projected Costs of Generating Electricity, 2010 Edition, Organization for Economic Co-operation and Development, median case with carbon tax removed. Regulated Price Plan data is from the Ontario Energy Board website at: You can download OSPE energy policy documents and this slide presentation at:
4 4 Annual Load Demand Cost of Energy Using Gas Genera7on ß CF= 0.19%, LCOE= 942 / 945 cents/kwh ß CF= 1.57%, LCOE= 116 / 119 cents/kwh ß CF= 12.99%, LCOE= 16.4 / 19.1cents/kWh ß CF= 44.20%, LCOE= 6.7 / 9.4 cents/kwh ß CF= 78.04%, LCOE= 5.0 / 7.7cents/kWh ß CF= 96.79%, LCOE= 4.8 / 7.5 cents/kwh Levelized Cost of Electricity (LCOE) data is shown for a discount factor (DF) of 10%, a natural gas price of $4/$8 per million BTU at the burner face and no carbon tax. LCOE Analysis was done in 2011 but the results are typical for most years since ß CF= 100%, LCOE= 4.8 / 7.5 cents/kwh CF = Load Capacity Factor
5 5 Daily Load Demand
6 6 Cost to Make Electricity Abbrevia7ons: LCOE = the levelized cost of electricity = total life7me costs divided by energy produced. DF = discount factor CCGT = Combined Cycle Gas Turbine M.BTU = Million Bri7sh Thermal Units CF = Capacity Factor Note: Data is for exis_ng plants. Wind and solar are shown using Ontario FIT 2013 rates
7 7 Features of a Good Electricity Price Plan Price plans should help businesses stay competitive (lower energy cost than their competitors in the markets they sell in). Price plans should be affordable for captive residential customers. Price plans should be power plant friendly allow each technology to be used to best advantage when energy is available. Price plans should be simple to understand and/or automatically implemented by automatic technical aids (smart controllers). Price plans should incentivize the correct behaviour: Encourage efficient use of energy. Encourage efficient use of generation and transmission capacity. Encourage use of environmentally friendly energy forms. Encourage development and commercialization of new technologies to improve grid reliability, safety, environmental performance and economics.
8 8 Current Electricity Price Plans Ontario has: A Wholesale Market that determines which plants are allowed to operate and that sets the wholesale price of electrical energy every 5 minutes. 9 Price Plans that determine what consumers pay for their electricity. Some special incentive programs for peak demand reduction. Ontario has 3 residential/small business price plans: Tiered Price Plan for consumers on older monthly meters who purchase energy from their Local Distribution Company (LDC). Time-Of-Use (TOU) plan for consumers on newer smart meters who purchase energy from their Local Distribution Company (LDC).. Fixed rate plan for consumers that buy from an independent retailer.
9 9 Current Electricity Price Plans Ontario has 4 medium/large business price plans: Average Monthly Rate Plan if the business does not have a time interval meter and purchases energy from the LDC. Hourly Wholesale Price Plan if the business has a time interval meter and purchases energy from the LDC. Wholesale Market Auction Plan if the business is large and wants to participate in the wholesale auction market, or if they want to participate in demand management or reserve market activities and payments. Fixed rate plan for institutions that buy from an independent retailer.
10 10 Current Electricity Price Plans Ontario has 2 public sector market plans for municipalities, schools, universities and hospitals: Hourly Wholesale Price Plan if the institution has a time interval meter and purchases energy from the LDC. Fixed rate plan for institutions that buy from an independent retailer. In addition to energy charges, Ontario also adds several other charges to the consumer s bill to arrive at a total cost: Delivery (transmission and distribution) Regulatory (IESO admin charge, and reliability & loss charge) Standard Supply Service Charge (LDC admin charge) Debt Retirement Charge Global Adjustment (included in some plans or added if not included)
11 11 Disadvantages of Current Price Plans Apart from the obvious complexity, they don t incentivize the correct behaviour and in fact reward the wrong behaviour. Let s look at the residential and small business TOU rate plan beginning on May 1, 2015 as an example: Off-peak energy is priced at 8.0 cents/kwh. Mid-Peak energy is priced at 12.2 cents/kwh. On-peak energy is priced at 16.1 cents/kwh. The projected cost of nuclear and hydroelectric base-load energy in 2015 is 6.1 cents/kwh if no curtailment is required. With curtailment (wasted energy) the projected costs from the 2015 OEB price report are: 5.6 cents/kwh for hydroelectric 6.6 cents/kwh for nuclear 12.5 cents/kwh for wind 12.7 cents/kwh for natural gas 21.1 cents/kwh for bioenergy 47.3 cents/kwh for solar
12 12 Disadvantages of Current Price Plans USA studies have shown that to get reasonable engagement in behavioral changes you need a minimum of 3:1 ratio of on-peak prices to off-peak prices. Ontario s TOU Price Plan On-Peak to Off-Peak price ratio is 2.0 which is too low to see any significant behavioral change. The TOU Rate Plan overcharges for base load power consumption especially during weekdays discourages base load consumption - our lowest cost, most dependable and cleanest generation. The TOU Rate Plan undercharges for incremental peak consumption especially during the summer encourages incremental peak load consumption our highest cost and dirtiest generation (costs >900 cents/kwh for the last kw on hottest day). The grid capacity factor is low typically about 63%. The remaining 37% of grid generation and transmission assets are underutilized.
13 13 Disadvantages of Current Price Plans Grossly overcharges consumers on-peak and mid-peak rates for base load power used during the day. Punishes consumers financially that have a flat load profile that is the most beneficial for the grid. Undercharges consumers for incremental peak consumption on the highest demand days. Does not provide sufficient savings for consumers to purchase load shifting equipment such as: Smart controllers and smart appliances Thermal storage for heating and air conditioning (thermal storage is much cheaper than electrical storage) Dual fuelled appliances (eg: water heaters)
14 14 Disadvantages of Current Price Plans Weekend and holiday rates are off- peak. Price Impact of TOU Price Plan 600 kwh per month variable load. $63 /month for energy if no load flasening occurs no new technology added. Price Impact of TOU Price Plan with Flat Load Profile 600 kwh per month load flasened using technology. $61 /month if load is completely flat over 24 hrs. Only a 3% savings on the energy component.
15 15 Alterna7ve Price Plans Many novel plans have been proposed. Some plans involve allowing consumers direct access to the wholesale auction market price - wholesale market prices can be very volatile - disconcerting to customers with no supply of their own. Some plans allow customer to subscribe to a cheaper interruptible supply - curtailed when generation is not available. During periods of generation deficiency, consumers won t subscribe to interruptible supply. Some plans charge punitive rates during the highest demand days. OSPE wanted to look at a smart grid price plan that incentivized consumers to flatten their load profile so they would be served by our cheapest and cleanest generation our base load hydroelectric and nuclear plants. This should result in lower energy costs to all consumers as grid capacity factor increases.
16 16 Using Technology to Simplify Load Management In order to get the greatest buy-in from consumers the process of flattening the load profile should be done automatically independently of the consumer. People have better things to do with their time. The smart grid technology should do the hard work such as: Doing the math Keeping track of consumption Keeping track of grid peak periods Keeping track of when low emission energy is available Making the adjustments to energy consuming appliances and equipment that will flatten the load profile.
17 17 Why We Need a Voluntary Price Plan Global efforts to reduce carbon emission by 80% cannot be achieved by switching our primary energy needs from coal and oil to natural gas. The target can only be met by using low emission primary energy sources hydroelectric, wind, solar, nuclear and sustainable biomass or by carbon capture and storage because some applications will have limited room for reduction (eg: aerospace) and they will use up most of the 20% allowance. Electrical storage is very expensive so we have to use it sparingly. If we use nuclear we need to have a steady base-load demand profile. If we use wind and solar we will have to have demand that can be shifted to when that energy is available. The electricity price model we use must incent consumers to use energy when it is available and discourage use when it is not. In 2014 the combination of Ontario s current price plans and supply mix choices resulted resulted in 5.3 TWh of low emission energy by dumped. Another 5.3 TWh of low emission energy was exported at 0.8 cents/kwh. That is enough low emission energy to power over 1,000,000 homes for a year.
18 18 Why We Need a Voluntary Price Plan The electricity portfolio has a history of damaging the political careers of ministers and premiers. OSPE discussion with politicians suggests there is little political support to make a major mandatory change to price plans. By adopting a voluntary plan the political and public resistance should dissipate. The voluntary plan needs to be paired with a requirement for smart grid product vendors to compute the potential savings for consumers and provide a minimum energy cost savings guarantee. Consumers who do not benefit sufficiently do not join the plan. The voluntary price plan cannot be cancelled by the utility until the consumer s investment has been fully recovered (10 year contract). The plan s rate and quantity parameters can be selected for each customer category to provide sufficient savings to encourage consumers to invest in smart grid products and help flatten the load profile.
19 19 OSPE s Voluntary Smart Grid Price Plan Smart Grid Voluntary Price Plan (energy component only) 5.0 cents/kwh for base 15.0 cents/kwh for Band 1 Peak 30.0 cents/kwh for Band 2 Peak Note: A detailed analysis of load profiles for the en_re customer class is required before the quan_ty thresholds and price levels are selected for the new voluntary plan. The example values above were chosen for a single residen_al customer load profile so that the total annual bill would be the same if the customer made no changes to their load profile.
20 20 OSPE s Voluntary Smart Grid Price Plan Includes provisions in the smart controller to use energy on demand from the IESO when low emission energy is being dumped or exported. 3.0 cents/kwh for using exported low emission energy on IESO demand 1.0 cents/kwh for using curtailed low emission energy on IESO demand Note: Using surplus low emission energy in Ontario has 2 advantages. It reduces our carbon emissions by using low emission energy when it is available instead of high emission energy at a later _me in the day. It also helps our export exposed sectors access low cost energy that is currently being exported to their compe_tors at low prices. In addi_on we reduce the need for very expensive storage capacity to integrate renewable energy sources. Price points for curtailed and exported energy can be adjusted periodically to reflect market condi_ons.
21 21 OSPE s Voluntary Smart Grid Price Plan Price Impact of Voluntary Price Plan 600 kwh per month no change in load profile. $56 /month if no load flasening occurs no new technology added Same cost as present TOU rate plan over 1 yr. Price Impact of Voluntary Price Plan with Flat Load Profile 600 kwh per month load flasened using new technology. $30 /month if load is completely flat over 24 hrs because all consump7on is at the base load rate of 5 cents/kwh. Approx. 46 % savings on the energy component.
22 22 Advantages of the Voluntary Smart Grid Price Plan Base load energy used during the day is priced closer to the market off-peak price of 2.2 cents/kwh and on-peak price 3.9 cents/kwh. Average market price was 3.5 cents/kwh (IESO data for 2014). Rewards consumers that flatten the load profile - benefits everyone. Provides consumers more low cost base load energy during the day because average night load sets the base load allowance. Charges peak energy at prices closer to the actual cost of production especially during winter and summer peaks. Provides greater savings for consumers to purchase smart grid technologies that help flatten the load profile. Helps to operate the plants in their most efficient operating mode base load plants operate at full load, renewables when available and flexible gas plants fill in the gaps. Reduces greenhouse gas emissions by reducing natural gas use.
23 23 Summary Current price plans: encourage the wrong behaviour. discourage the correct behaviours. A voluntary plan is a practical way to get political support to consider smart pricing plans. We need a smart grid pricing plan that will encourage the commercialization of new smart grid technologies that are being developed in our R&D labs Ontario badly needs more high value jobs (university & college level and manufacturing jobs). The proposed OSPE voluntary smart grid price plan provides one of many options available to better align consumer behaviour with the technical, environmental and economic needs of the grid and the public.
24 24 Ques7ons? Notes: This presenta7on can be downloaded at: Would you like to support OSPE s advocacy efforts? Become a member of OSPE at: hsp://www.ospe.on.ca/?page=join
25 Yonge Street, Suite 502, Toronto ON M2N 6K1 Tel: Toll Free:
EMPOWERING ONTARIO Constraining Costs and Staying Competitive in the Electricity Market EMPOWERING ONTARIO Constraining Costs and Staying Competitive in the Electricity Market The Ontario Chamber of Commerce
THE FUTURE OF ELECTRICITY PRICES IN CALIFORNIA: UNDERSTANDING MARKET DRIVERS AND FORECASTING PRICES TO 2040 JONATHAN COOK, PH.D. ENERGY EFFICIENCY CENTER UNIVERSITY OF CALIFORNIA, DAVIS ENERGY EFFICIENCY
Annual Baseline Assessment of Choice in Canada and the United States ABACCUS 2014 Annual Baseline Assessment of Choice in Canada and the United States (ABACCUS) Distributed Energy Financial Group January
Energy Baseline Report Submitted to City of Boulder Submitted By Nexant Opinion Dynamics Corporation First Tracks Consulting Service Inc Iron Mountain Consulting July 28, 2011 ACKNOWLEDGEMENTS The following
What Goes Up Ontario s Soaring Electricity Prices and How to Get Them Down by Ross McKitrick and Tom Adams October 2014 October 2014 What Goes Up: Ontario s Soaring Electricity Prices and How to Get Them
Table of Contents Executive Summary... i Categorization of Demand-Response Programs... i Program Experience and Performance... ii Lessons Learned from Successful DR Programs...iii 1. Introduction: What
Enabling Tomorrow s Electricity System Report of the Ontario Smart Grid Forum CONTENTS Executive Summary 1 Members of the Smart Grid Forum 8 Introduction 9 Smart Grid Vision 11 Consumer Technologies 16
ELECTRICITY GENERATION Achieving New Zealand s Objectives EXECUTIVE SUMMARY New Zealand is in the unusual position of having a market system, and an electricity generation system that is particularly vulnerable
Tasmanian Energy Strategy Department of State Growth Restoring Tasmania s energy advantage Ministerial foreword Restoring Tasmania s Energy Advantage I am very pleased to release the Tasmanian Energy Strategy
MAIN REPORT The Smart Grid Network s reccomendations Main Report Preface The government aims for Denmark s greenhouse-gas emissions in 2020 to be reduced by 40 percent compared to 1990 levels. By 2050,
Renewable Energy as a Hedge Against Fuel Price Fluctuation How to Capture the Benefits Commission for Environmental Cooperation This background paper was written by Dan Lieberman and Siobhan Doherty from
New Zealand Energy Strategy 2011 2021 Developing our energy potential and the New Zealand Energy Efficiency and Conservation Strategy 2011 2016 Contents New Zealand Energy Strategy 2011 2021 Foreword 1
Working Group Report Consumers as Energy Market Actors 1. Mandate of the Working Group... 3 2. Energy markets in 2015... 4 2.1 Consumption figures and trends... 4 2.2 Prices and costs... 5 2.3 Market actors
Coordination of Energy Efficiency and Demand Response A RESOURCE OF THE NATIONAL ACTION PLAN FOR ENERGY EFFICIENCY JANUARY 2010 About This Document This paper, Coordination of Energy Efficiency and Demand
Centre for Environmental Strategy Working Paper 10/11 A review of current and future costs and benefits of demand response for electricity Peter Bradley, Matthew Leach and Jacopo Torriti ISSN: 1464-8083
Causes of residential electricity bill changes in Victoria, 1995 to 2014 prepared for: Victorian Electricity Distribution Businesses DISCLAIMER This report has been prepared for the Victorian Electricity
A Consumer s Guide Get Your Power from the Sun Bringing you a prosperous future where energy is clean, abundant, reliable, and affordable Contents Background What is a solar electric or photovoltaic system?................2
Modelling of PV and Electricity Prices in the Australian Commercial Sector By The Australian PV Association AUTHORS: Graham Mills (APVA); Robert Passey, Muriel Watt & Simon Franklin (IT Power Australia);
REPORT UK OCTOBER 2011 Climate change Sustainability Conservation Positive Energy: how renewable electricity can transform the UK by 2030 ABOUT WWF-UK WWF is at the heart of global efforts to address the
A NATIONAL ASSESSMENT OF DEMAND RESPONSE POTENTIAL Federal Energy Regulatory Commission STAFF REPORT Prepared by The Brattle Group Freeman, Sullivan & Co Global Energy Partners, LLC JUNE 29 The opinions