FRED JENNINGS DISTRIBUTED GENERATION: ENHANCED GRID RELIABILITY AND THE ASSOCIATED ECONOMICS. 14 December, 2012

Transcription

1 DISTRIBUTED GENERATION: ENHANCED GRID RELIABILITY AND THE ASSOCIATED ECONOMICS NATIONAL CAPITAL AREA CHAPTER US ASSOCIATION OF ENERGY ECONOMICS FRED JENNINGS MANAGING DIRECTOR MANAGEMENT CONSULTING DIVISION

2 AGENDA What is Distributed Generation Electric System Operations How Distributed Generation Fits Pricing & Economics Final Perspective Q&A Discussion 2

3 DISTRIBUTED GENERATION 3

4 WHAT IS DISTRIBUTED GENERATION (DG)? Electric generation approach Uses small-scale technologies Sub 1 KW to about 1 MW Production typically close to the end users of power less reliance on T&D grid Often modular generation units Not necessarily fuel dependent California Energy Commission Can employ various fuels and gasses Storage can function as DG (including PHEV) Combined Heat and Power (CHP) popular where thermal needs exist Renewable generation often associated with DG Wind, solar, hydro, bio-fuels, bio-waste, solid waste streams, etc. 4

5 WHAT IS DISTRIBUTED GENERATION (DG)? Distributed Energy Technology Commercially Available Energy Storage (UPS, PHEV) Limited Solar - Photovoltaic Wind Hybrid Renewable Systems Combined Heat & Power (CHP) Technically & Economically Viable Very limited Fuel Cells Limited Limited Micro-turbines Combustion Turbines Small scale Reciprocating Engines 5

6 RENEWABLE DISTRIBUTED GENERATION Viability and availability effectively narrow RDG to: California Energy Commission Source: California Energy Commission California Energy Commission 6

7 PHOTOVOLTAIC (PV) RESOURCES ARE ABUNDANT 7

8 WIND RESOURCES CAN BE CAPTURED AS WELL 8

9 WHAT IS DRIVING DISTRIBUTED GENERATION? Advanced Metering Infrastructure (AMI) - Foundation of the Smart Grid $4 Billion of ARRA grants majority in endpoints 75 million endpoints projected by 2016 True enabling technology new functionality at the meter 2-way communications Measures interval usage (Near) Real-time information Enables home-scale distributed renewables Technology prices are declining Market maturation vendors, suppliers, installers Consumer awareness 9

10 THE FUTURE ELECTRIC SYSTEM WILL BE FLEXIBLE AND INTELLIGENT 10

11 ELECTRIC SYSTEM OPERATIONS 11

12 Hourly Electric System Demand (MW) Hourly Solar DE Production (MW) enxco Distributed Generation SYSTEM OPERATIONS The grid and the system two levels of control Control areas and operator responsibilities requires constant balancing System load curve reflects yearly, seasonal, daily and hourly usage and peak demand Production output must equal demand and stay within tight limits There is no effective storage or buffer technically and economically viable yet Solar Production Versus Demand Peak Summer Day Comparison of Load to Solar DE Generation 763 MW of Installed Solar Capacity 8,000 1,200 Demand 7, MW Peak Reduction 1,000 Demand After Solar 763 MW Solar 6,000 5, , , ,000 1, Arizona Public Service, Wind Integration Cost Impact Study, Northern Arizona University, September Hour Ending Source: R.W. Beck Solar Future Arizona,

13 ENERGY DISPATCH = ECONOMIC DISPATCH Peaking Intermittent Baseload Hour 13

14 DG CAN OFFSET LOAD OR EXPORT ENERGY 14

15 HOW DOES DG FIT? 15

16 HOW DOES DISTRIBUTED GENERATION FIT? The Good News Larger units (utility scale) usually bound by Purchase Power Agreement, but Small renewable DG e.g., residential are affordable, reliable and free (mostly) from rules and regulation Allows small scale energy independence and savings DG may have value in system resiliency, and restoration Energy assurance planning Microgrids May offer the utility real monetary value 16

17 RENEWABLE DG HAS A ROLE IN THE SMART HOME 17

18 HOW DOES DISTRIBUTED GENERATION FIT? The Bad News Smaller distributed generation is not generally part of the generation portfolio Smaller units not likely to be dispatched due to cost Used to offset customer load Renewable DG is non-dispatchable due to uncertainty wind, sun, water is intermittent and unreliable Reliability standards and tariff requirements mandate near instantaneous back-up Large areas subject to common cause decline in resource May impose power quality issues onto the electric system Typical rate tariffs do not address utility fixed and variable costs or cost recovery 18

19 RATE TARIFFS AND PRICING 19

20 THE INTERMITTENT NATURE OF RENEWABLE DG INCREASES OPERATING COMPLEXITY Managing power resources relies on certainty Arizona Public Service, Wind Integration Cost Impact Study, Northern Arizona University, September

21 CURRENT PRICING AND RATE TARIFFS Feed In Tariffs Feed In Tariff a fixed $/KWH through standard offer contract, advanced renewable tariff or renewable energy payment All renewable production priced at fixed rate Policy mechanism designed to accelerate investment in renewable energy technologies. Offers long-term contracts to renewable energy producers, typically based on the cost of generation Fixed prices may vary, based on technology; Some use of decelerating payments First instances of FIT dates to PURPA and California SO-4 Jump started qualifying facilities (QFs) Negative connotations persist from poor assumptions and market pricing errors 21

22 CURRENT PRICING AND RATE TARIFFS Net Energy Metering Net Energy Metering measures bi-directional energy flow; Smart Meters are particularly applicable NEM can be limited to offsetting domestic load, or NEM can pay for excess, or exported production above domestic load Offset consumption can be netted within each hour, each month, or year-end Customers on a TOU rate can balance within each TOU period Exported hourly production has typically been compensated at fixed retail rates; but other rates may apply 22

23 THE RATE DEBATE - WHAT SHOULD THE PAYMENT BE BASED ON? At retail rates, advocates argue: Utility customers with solar PV provide power to the grid during peak or near-peak times when production costs are high All customers are charged average prices without regard to hourly cost; NEM customers could be saving the utility more than they are compensated A utility may lose money from average rate customers during peak periods; PV avoids using utility power resources actually saving cost for the utility. And renewables offer other grid values: Avoided energy and capacity costs, zero-emission environmental benefits, lower peak loads on the transmission and distribution systems reducing CAPEX, O&M savings, reduced losses (both CAPEX and O&M $), natural gas price hedging and societal benefits 23

24 THE RATE DEBATE - WHAT SHOULD THE PAYMENT BE BASED ON? The Utilities argue: Renewable customers impose fixed costs on the system that are not collected if their bill goes to zero The system cost operations depend on each customer paying its own costs. NEM customers [can] avoid paying anything thus placing cost burdens on non-nem customers Subsidies should be explicit and not buried in utility rates As for grid value: Interconnection of non-dispatchable resources requires suboptimal economic dispatch NEM customer receive services they do not pay for: 24

25 VALUE IN SERVICES FROM THE UTILITY Services Provided by Utility Energy Resource Adequacy Capacity GHG Compliance RPS Compliance Regulation Transmission Distribution and Collection Voltage Regulation Reactive Power Supply Metering, Billing, and Customer Service Definition Energy delivered to metering point Hourly capacity required at metering point to meet load plus operating margin Compliance with state, federal GHG requirements Compliance with state RPS requirements Spin-up, spin-down, and frequency regulation Transmission, including transmission-level reactive power; reliability of transmission o Transformation of voltage between transmission and customer at metering point o Circuit availability and capacity for delivery and receipt of power to and from metering point o Circuit reliability Regulation of voltage at metering point Reactive power at metering point Metering, billing and customer service 25

26 VALUE OFFERED BY SOLAR Solar Future Arizona on behalf of Arizona Public Service, R.W. Beck, February

27 RESOLUTION Renewable propagation in CA, AZ, NV will expose current limitations Challenge focuses on equitable and sustainable solution Advocates do not want limitation to market expansion Utilities want cost neutrality Traditional system/market modeling is giving way to cost of service study approach Foundation for improved rate transparency Facilitates stakeholder discussions and common ground There is no silver bullet 27

28 TAKE-AWAY 28

29 CLOSING PERSPECTIVE Harvesting small scale distributed generation - especially solar and wind renewable generation - makes sense State policies are driving renewable DG opportunities in the absence of US energy policy, with wide variability in rates, subsidies, regulations Customer adoption is a function of the payback period which is shortening as installed prices decline; there is a potential future offset from reduced incentives Continued AMI deployment will ease direct DG integration Resource rich regions are approaching DG penetration rates that will or are - become challenging Pricing and rate tariffs are not reflective of true economics to all stakeholders Maintaining unimpeded deployment, and accommodating changing technologies, will require new approaches to equitable costing and rate setting 29

30 Q&A DISCUSSION CONTACT INFORMATION: FRED JENNINGS Managing Director, Management Consulting Division

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