Contact comments on the TSW Consulting Ltd report Mass Market Load Control its use and its potential use

Transcription

1 Contact comments on the TSW Consulting Ltd report Mass Market Load Control its use and its potential use Energy efficiency benefits The report states that: [load control] has to be achieved without increasing overall consumption. Contact disagrees with this statement as reducing peaks will reduce the need to invest in generation and grid capacity. This benefit will more than outweigh any disbenefits arising from an overall increase in consumption. Nor is it clear cut that an overall increase in consumption is itself a bad thing. If the generation that would have been required at peak is from an inefficient, dirty thermal generator, then replacing such generation with slightly more generation during troughs from cleaner, more efficient stations has environmental benefits. Incentives to utilise existing load control The report states that: Results from the survey suggest that load control is fully utilised for the purposes that it was intended. For the most part any residual ability to control load for other purposes is well utilised. Contact would disagree with this assertion. It is a very lines-centric view of the world, and one that many retailers would disagree with. In particular, the ability to use ripple control to manage peaks in energy prices (which are often associated with operating inefficient plant) is severely constrained due to the fact that the use of ripple control is predominantly controlled by the lines companies, not the retailers. Submissions for rule development The reports conclusion states that: This study has found that the use of current load control capability is essentially coordinated and sensible given the ownership of the assets and the reasons for which it exists. Again, Contact disagrees with this assertion, as it is a very lines-centric view of the world. We believe there are opportunities being missed to use load-control to minimise costs, and associated environmental impacts in the energy and reserve markets. This point is elaborated further in the following sections. Interaction between reserve and energy markets The report doesn t address one of the key issues with load-control, namely the interaction between the reserve market and the energy market. It is our contention that this is one of the key reasons why distribution companies are the inappropriate parties to control how and when load-control should be used. In summary, the issue is as follows: The algorithm used to schedule power station plant - the scheduling, pricing and despatch model (SPD) - co-optimises the energy and the reserve markets. In other words it seeks a solution which achieves the lowest overall costs of both the energy and reserve markets, and they are thus inter-linked. An extreme example of this inter-relationship occurred several months ago: lines companies controlled load during the evening peak in order to minimise their exposure to transmission charges; 1 16 November 2004

2 this reduced the amount of available reserve in the reserve market to the point where there was insufficient reserve available to cover the single biggest risk, which at the time was Otahuhu B which was scheduled to run at full output; SPD then scaled-back the output of Otahuhu B to the point where its output could be covered by the amount of reserve that was available; The withdrawal of this amount of energy needed to be replaced. However, flows across the HVDC were not able to be increased because of operating constraints, and Contacts TCC plant in Taranaki was not operating and would take some 16 hours to bring on line. Accordingly, SPD scheduled the only plant that was available at this time, the Whirinaki dry-year reserve plant which was offered into the market at $1,000/MWh. Accordingly prices in the energy and reserve markets rose to $1,000/MWh. As the above example illustrates, the lines companies were responding to a price signal in the transmission market, but were completely insulated from the consequences of their actions in the reserve and energy markets consequences that were borne by generators, retailers, and ultimately by customers. This example is illustrated further in the graphs at the back of this report. A related example occurred at around the same time when Vector, due to a dispute it had with Transpower, decided to withdraw the load control which it controlled from the reserve market. Although hard to quantify (due to the fact that the actions of market participants were not static), this action caused prices in both the reserve and energy markets to increase impacts which they (and Transpower) were immune to, yet which directly affected generators, retailers and ultimately customers. We believe these examples illustrate why distributors are not the appropriate agents to act on consumers behalf to decide how their (i.e. the consumers) load should be controlled. It is our contention that retailers are the parties whose commercial incentives are most closely aligned with those of customers, and thus are the parties who are best placed to decide how load-control should be used. Recognition of controlled profiles The following is an excerpt from our recent submission to the Electricity Commission on transmission pricing, which highlights another issue which is preventing load control being used most effectively. This issue is not addressed at all in the TSW report. Whilst not directly associated with transmission pricing, Contact believes the way in which the profiling mechanism works for allocating load to non-tou customers is adversely affecting the signals for controlling load at times of system peak. At the moment it is not possible to separately identify the within-day profile shape of controlled meters versus uncontrolled meters. Consequently they both get allocated the same residual profile, commonly known as the GXP profile. The consequence of this is that the benefit of controlling load at times of system peak is not recognised for controlled meters. For both energy purchases and Interconnection charges, controlled meters are effectively cross-subsidising uncontrolled meters. As a result, the price signals for consumers to invest in energy efficient equipment which are most effective at times of peak (e.g. efficient light bulbs) are muted, and 2 16 November 2004

3 _Contact_CommentsOnTSWLoadControl_v01.doc there are greatly reduced incentives for consumers to take-up the option of controlled meters. The following diagram illustrates the effect of this aggregation of controlled and uncontrolled profiles into a single gross GXP profile. Figure 1 - Impact of aggregation of controlled and uncontrolled loads in profiles 5% 5% 4% 4% 3% 3% 2% Gross profile Controlled profile Uncontrolled profile 2% 1% 1% 0% TP Data is purely illustrative The gross profile shows the peak at between trading periods 37 to 40 inclusive. This is likely to coincide with periods of high prices, especially during transmission constraints. However, controlled meters were being controlled during periods 37 to 40, yet under the gross profile this is not recognised. If the controlled load profile was explicitly recognised, not only would it be rewarded for not consuming at times of system peak, but the uncontrolled meter would more properly face the full costs of consuming at such a time. Such a mechanism would enable better price signals for transmission charges, distribution charges, and energy costs, and should therefore slow the rate of demand growth. Contact understands there is already a Commission initiative on this front which we fully support. Finally on this point it is worth noting that the problems with not recognising controlled meters are made even worse in areas where the network company charges for distribution on a so-called GXP basis i.e. charging retailers based on their consumption at the GXP. The inability to distinguish between controlled and uncontrolled profiles means that retailers are unable to pass on any significant price differential to consumers on both energy and distribution charges. For example, in the Alpine network area, the difference between Contact s uncontrolled tariff and its controlled tariff is c/kwh. This contrasts with WEL which charges for distribution on an ICP basis, and vigorously promotes the benefits of controlled meters through price differentials. There the difference between controlled and uncontrolled is Contact s uncontrolled tariff in this area is c/kwh, and its controlled tariff is 7.02 c/kwh November 2004

4 Transmission counterparty The discussion of the appropriate agent to operate load control on customers behalf will need to discuss the issue of which is the appropriate counterparty to Transpower for use of the transmission system. Contact believes the appropriate counterparty is the retail companies as they are the parties directly affected by the impact of Transpower s actions on the wholesale market. Such impacts will be passed on by retailers to consumers. As such, the incentives of consumers and retailers are aligned. Distribution companies, however, are indifferent to any wholesale market impacts arising from Transpower s actions. If retailers were the counterparty to Transpower, they would need to have control over ripple control in order to manage their exposure to Transmission charges. The recent Commission consultation on transmission counterparty indicates that it is considering making the retailer the counterparty. Summary Contact disagrees with the overall theme of the piece that the current framework for load control is working well. We believe that load control is not being used to the best advantage of consumer for two reasons: Distributors being the parties that dictate load-control s use, whereas retailers are incentives are far more directly aligned with those of consumers; The market trading framework not enabling the benefits of load control being able to be recognised properly. If such factors were appropriately addressed, Contact believes genuine cost savings could be achieved (and consequential environmental benefits) November 2004

5 40 MW 12 July 2004 $/MWh $1, $1,000 Otahuhu B 30 Whirinaki 6s Reserve Haywards Energy $ s Reserve 20 $ $ $ Trading Period $ November 2004

6 Sustained IL: Offered and Cleared 450 1, , MW $/MWh /Jun 29/Jun 30/Jun 30/Jun 1/Jul 1/Jul 2/Jul 2/Jul 3/Jul 3/Jul 4/Jul 4/Jul 5/Jul 5/Jul 6/Jul 6/Jul 7/Jul 7/Jul 8/Jul 8/Jul 9/Jul 9/Jul 10/Jul 10/Jul 11/Jul 11/Jul 12/Jul 12/Jul - Sus IL Offered Sus IL MW Cleared HAY Energy Price NI Sustained Reserve Price 6 16 November 2004