Innovation in Competitive Markets amazonaws com
Innovation in Competitive Markets Electricity Markets Initiative Spring Conference
KEMA Harrisburg, PA April 12th, 2011 Experience you can trust.
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
1
KEMAs services span all aspects of the energy value chain Generation
Power Exchange
Transmission
System Operation
Substation
Distribution
Customer
From the Generator to the Consumer Serving The Diverse Needs of the Energy Marketplace Strategy, Operations, Energy Technology • World-Renowned Engineering,
Consulting, and Testing • Independent Advice, Expertise, and Evaluation
• Established in 1927 • Annual Revenues of $300 Million • 1,600 Professionals in more than 20 Countries
2
White Paper •
In 2010, the COMPETE Coalition commissioned KEMA to explore the theory that competition fosters innovation Key Questions – Do organized competitive electricity markets –
promote innovation? What aspects of competitive electricity markets can help accelerate innovation?
Approach – KEMA conducted a literature review & –
stakeholder interviews, did a comparative analysis Examined three case studies in detail
Case studies – Fast-response storage for ancillary services – Demand response as electricity resource – Retail electricity markets
3
White Paper Contd • –
– • –
–
–
Finding: Competitive markets have fostered—and will likely continue to foster —innovation in the US electricity industry By using mechanisms that: • Reward new ways of delivering products & services that improve upon existing approaches Encourage participants to develop services that meet market needs Create level playing field for developers
• • These mechanisms provide innovative products the opportunity to compete with existing ones and replace them where there is a cost or quality advantage
Finding: Elements accelerating innovation Fair Market Rules • Allow suppliers to compete regardless of technology • Empower suppliers to offer innovative services • Continual adaptation is crucial Accessibility • Low barriers to market entry encourage new participants to offer innovations • Level competitive playing field incentivizes new & existing participant focus on customer needs
Risk/Reward • Suppliers willing to take on risk for profit potential 4
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
5
Evolution of the Wholesale Markets WHOLESALE MARKETS • Over the past 15 years, FERC has issued a series of rulings intended to increase the competitiveness of the wholesale electricity industry. Additional rulings are underway.
6
Source: Adapted from http://www.ferc.gov/industries/electric/ indus-act/competition.asp
Overview WHOLESALE MARKETS Wholesale electricity markets operate in about one-half of the states and serve roughly two-thirds of U.S. electricity consumers They appear to be helping foster innovation & grow markets in alternative technologies by providing: 1. Opportunities to take risk in return for a chance at financial reward 2. Transparency in valuation of services 3. A level playing field for participants to sell services across a wide customer base 4. A framework that determines winners based on price & performance
At the wholesale level, KEMA examined fast-response energy storage and demand response. 7
Source: IRC
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
8
Demand Response as Electricity Resources DEMAND RESPONSE
• •
Demand response is one example of non-traditional supply for electricity services Electricity consumers voluntary participation can provide resources for balancing electricity supply & demand – For decades, vertically integrated utilities have used DR resources to – –
meet grid reliability needs In recent years, many wholesale electricity have evolved to allow DR to provide grid services. Both utility & non-utility entities offer DR resources Ancillary services offered through markets vary by ISO/RTO
FERC defined six categories of ancillary services Scheduling, system control and dispatch Reactive supply and voltage control from generation service Regulation and frequency response service Energy imbalance service Operating reserve – synchronized reserve service Operating reserve – supplemental reserve service 9
Demand Response as Electricity Resources DEMAND RESPONSE Investment in DR resources is on the rise & the number of entities offering DR services is growing. – 31,695 MW of DR resources available in North American ISO/RTO markets in 2008 compared to 17,146 MW in 2006.* – Number of entities increased by 117% from 2006 to 2008 (FERC survey of organizations)
CSP contribution to advanced demand-side capacity commitments from 2008 ISO-NE capacity auction
Several factors are driving growth, but changes to wholesale market rules appear to be significant – Theres been a notable uptake in the share of DR resources provided by non-utility entities – In fact, according to a 2009 LBNL study, most of the growth in incentive-based DR resources has occurred in ISO/RTO markets.
Source: Cappers, P., Goldman, C., and Kathan, D. 2009.
* Source: Adapted from IRC, North American Wholesale Electricity Demand Response Program Comparison: 2010 Edition http://www.isorto.org
10
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
11
Renewable Energy ENERGY STORAGE • Energy storage is a growing industry & a number of factors are driving investment
State & Federal funding to support smart grid projects State & regional policies to promote renewable resources
•
Access to competitive electricity markets through ISOs/RTOs appears to be an important factor in the rate of deployment in fast response storage Ancillary services markets provide explicit compensation for its unique power services.
Although fast-response storage may
D C
Renewable portfolio standard Renewable portfolio goal Source: www.dsireusa.org April 2011
not have durations comparable to traditional generation assets, they can respond as or more effectively than traditional generation assets.
A 2009 KEMA study found that a 30-50 MW storage device is as effective or more effective as a 100 MW combustion turbine used for regulation purposes
12
Fast Response Storage for Ancillary Services ENERGY STORAGE The greatest thing about markets is that they are nondiscriminatory and transparent. You can have wind, solar, flywheels, pumped storage; it is the markets treatment of resources that matters. A very transparent interconnection process and fair market rules are principal reasons why markets are attractive to any kind of new technology, be it demand response or storage, they can have non-discriminatory access to a market.
•
Wholesale markets have facilitated investment in fast-response storage by: – Creating an accessible, transparent market for their services – Creating a technology-neutral demand for service
•
Wholesale markets explicit & transparent valuation of services have made them an easy point of access for fast-response storage – Markets that adapted rules to integrate fast-response storage projects are seeing increased investment
•
By unbundling power and energy services, markets have provided fastresponse storage the opportunity to out-perform traditional assets
•
Fast-response storage can provide valuable ancillary services even if the storage resources provide the ancillary services are not offering significant energy services.
• 13
Fast-Response Storage for Ancillary Services ENERGY STORAGE • Wholesale markets that have adapted their rules to integrate storage devices are seeing increased investment over those that have not. NYISO & PJM are seeing the largest source of ancillary services-specific storage investment within the coming year.
• Additional ISOs/RTOs (ERCOT & ISO-NE) are developing market rules to allow direct ancillary services competition from storage resources. The CAISO Board of Governors has recently approved storage participation in the market.
14
* NYISO = New York ISO, ISO-NE = ISO of New England, PJM = PJM Interconnection, MISO = Midwest ISO, CAISO = California ISO, ERCOT = Electric Reliability Council of Texas, SPP = Southwest Power Pool.
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
15
Competition in Retail Markets RETAIL MARKETS • The U.S. electricity retail market is highly fragmented; States have developed a full spectrum of regulatory and market models.
• The TX retail market is unique, having undergone a retail market transition that
removed all vestiges of the traditional utility model in favor of retail competition.
16
Product Offerings RETAIL MARKETS
•
At the retail level, competition has driven parties to differentiate and vie for customer business with innovation offerings by: – Enabling new entities to offer innovative approaches – Allowing new entrants to challenge market share of existing participants; – As such, the existing entities need to compete to retain customers and seek to differentiate themselves
•
The competitive market in TX is an example – Growth in number of firms making offers – Growth in number of offer types • E.g., growth in 100% renewable energy offers
- We are forced to introduce products to keep up and therefore have product designers, and thats all they do - The competitive market approach is, let the customers decide and investors bear the risks if they dont meet customer needs - If they havent done their homework, if they misunderstand customer needs, the risk is always of business failure - Compete or die is a necessity 17
Competition in Retail Markets RETAIL MARKETS Growth in the Number of TX Retail Electricity Providers
Growth in Retail Electricity Offers in TX
18
PA Relative to Other States RETAIL MARKETS • Driven by growth in OH, PA, and NJ, KEMA forecasts the non-
residential competitive market to increase by 18%, or 72 TWh, to 473 TWh in 2010 2009 to 2010 Non-residential Competitive Power Sales (TWh)
19
Source: KEMA, Retail Energy Outlook Q4 2010
PA Relative to Other States Contd RETAIL MARKETS • By 2015, PA is projected to take the second position among all open states in terms of competitive residential sales
Change in Current Year Residential Switched Sales, from Q3-Q4 2010 (Annualized TWh)
20
Source: KEMA, Retail Energy Outlook Q4 2010
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
21
Electric Vehicles OTHER AREAS OF DEVELOPMENT
• The ISO/RTOs are active in terms of preparing for EV integration.
– PJM Demonstration of V2G & wholesale market participation:
In 2009, MAGICC began operating three EVs to provide ancillary services to PJM in return for payment
– ISO/RTO Council study on EV Integration – Deployment of EVs and charging stations throughout the region…
22
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
23
Thank you.
Jessica Harrison [email protected] 703.631.8493
KEMA Harrisburg, PA April 12th, 2011 Experience you can trust.
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
1
KEMAs services span all aspects of the energy value chain Generation
Power Exchange
Transmission
System Operation
Substation
Distribution
Customer
From the Generator to the Consumer Serving The Diverse Needs of the Energy Marketplace Strategy, Operations, Energy Technology • World-Renowned Engineering,
Consulting, and Testing • Independent Advice, Expertise, and Evaluation
• Established in 1927 • Annual Revenues of $300 Million • 1,600 Professionals in more than 20 Countries
2
White Paper •
In 2010, the COMPETE Coalition commissioned KEMA to explore the theory that competition fosters innovation Key Questions – Do organized competitive electricity markets –
promote innovation? What aspects of competitive electricity markets can help accelerate innovation?
Approach – KEMA conducted a literature review & –
stakeholder interviews, did a comparative analysis Examined three case studies in detail
Case studies – Fast-response storage for ancillary services – Demand response as electricity resource – Retail electricity markets
3
White Paper Contd • –
– • –
–
–
Finding: Competitive markets have fostered—and will likely continue to foster —innovation in the US electricity industry By using mechanisms that: • Reward new ways of delivering products & services that improve upon existing approaches Encourage participants to develop services that meet market needs Create level playing field for developers
• • These mechanisms provide innovative products the opportunity to compete with existing ones and replace them where there is a cost or quality advantage
Finding: Elements accelerating innovation Fair Market Rules • Allow suppliers to compete regardless of technology • Empower suppliers to offer innovative services • Continual adaptation is crucial Accessibility • Low barriers to market entry encourage new participants to offer innovations • Level competitive playing field incentivizes new & existing participant focus on customer needs
Risk/Reward • Suppliers willing to take on risk for profit potential 4
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
5
Evolution of the Wholesale Markets WHOLESALE MARKETS • Over the past 15 years, FERC has issued a series of rulings intended to increase the competitiveness of the wholesale electricity industry. Additional rulings are underway.
6
Source: Adapted from http://www.ferc.gov/industries/electric/ indus-act/competition.asp
Overview WHOLESALE MARKETS Wholesale electricity markets operate in about one-half of the states and serve roughly two-thirds of U.S. electricity consumers They appear to be helping foster innovation & grow markets in alternative technologies by providing: 1. Opportunities to take risk in return for a chance at financial reward 2. Transparency in valuation of services 3. A level playing field for participants to sell services across a wide customer base 4. A framework that determines winners based on price & performance
At the wholesale level, KEMA examined fast-response energy storage and demand response. 7
Source: IRC
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
8
Demand Response as Electricity Resources DEMAND RESPONSE
• •
Demand response is one example of non-traditional supply for electricity services Electricity consumers voluntary participation can provide resources for balancing electricity supply & demand – For decades, vertically integrated utilities have used DR resources to – –
meet grid reliability needs In recent years, many wholesale electricity have evolved to allow DR to provide grid services. Both utility & non-utility entities offer DR resources Ancillary services offered through markets vary by ISO/RTO
FERC defined six categories of ancillary services Scheduling, system control and dispatch Reactive supply and voltage control from generation service Regulation and frequency response service Energy imbalance service Operating reserve – synchronized reserve service Operating reserve – supplemental reserve service 9
Demand Response as Electricity Resources DEMAND RESPONSE Investment in DR resources is on the rise & the number of entities offering DR services is growing. – 31,695 MW of DR resources available in North American ISO/RTO markets in 2008 compared to 17,146 MW in 2006.* – Number of entities increased by 117% from 2006 to 2008 (FERC survey of organizations)
CSP contribution to advanced demand-side capacity commitments from 2008 ISO-NE capacity auction
Several factors are driving growth, but changes to wholesale market rules appear to be significant – Theres been a notable uptake in the share of DR resources provided by non-utility entities – In fact, according to a 2009 LBNL study, most of the growth in incentive-based DR resources has occurred in ISO/RTO markets.
Source: Cappers, P., Goldman, C., and Kathan, D. 2009.
* Source: Adapted from IRC, North American Wholesale Electricity Demand Response Program Comparison: 2010 Edition http://www.isorto.org
10
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
11
Renewable Energy ENERGY STORAGE • Energy storage is a growing industry & a number of factors are driving investment
State & Federal funding to support smart grid projects State & regional policies to promote renewable resources
•
Access to competitive electricity markets through ISOs/RTOs appears to be an important factor in the rate of deployment in fast response storage Ancillary services markets provide explicit compensation for its unique power services.
Although fast-response storage may
D C
Renewable portfolio standard Renewable portfolio goal Source: www.dsireusa.org April 2011
not have durations comparable to traditional generation assets, they can respond as or more effectively than traditional generation assets.
A 2009 KEMA study found that a 30-50 MW storage device is as effective or more effective as a 100 MW combustion turbine used for regulation purposes
12
Fast Response Storage for Ancillary Services ENERGY STORAGE The greatest thing about markets is that they are nondiscriminatory and transparent. You can have wind, solar, flywheels, pumped storage; it is the markets treatment of resources that matters. A very transparent interconnection process and fair market rules are principal reasons why markets are attractive to any kind of new technology, be it demand response or storage, they can have non-discriminatory access to a market.
•
Wholesale markets have facilitated investment in fast-response storage by: – Creating an accessible, transparent market for their services – Creating a technology-neutral demand for service
•
Wholesale markets explicit & transparent valuation of services have made them an easy point of access for fast-response storage – Markets that adapted rules to integrate fast-response storage projects are seeing increased investment
•
By unbundling power and energy services, markets have provided fastresponse storage the opportunity to out-perform traditional assets
•
Fast-response storage can provide valuable ancillary services even if the storage resources provide the ancillary services are not offering significant energy services.
• 13
Fast-Response Storage for Ancillary Services ENERGY STORAGE • Wholesale markets that have adapted their rules to integrate storage devices are seeing increased investment over those that have not. NYISO & PJM are seeing the largest source of ancillary services-specific storage investment within the coming year.
• Additional ISOs/RTOs (ERCOT & ISO-NE) are developing market rules to allow direct ancillary services competition from storage resources. The CAISO Board of Governors has recently approved storage participation in the market.
14
* NYISO = New York ISO, ISO-NE = ISO of New England, PJM = PJM Interconnection, MISO = Midwest ISO, CAISO = California ISO, ERCOT = Electric Reliability Council of Texas, SPP = Southwest Power Pool.
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
15
Competition in Retail Markets RETAIL MARKETS • The U.S. electricity retail market is highly fragmented; States have developed a full spectrum of regulatory and market models.
• The TX retail market is unique, having undergone a retail market transition that
removed all vestiges of the traditional utility model in favor of retail competition.
16
Product Offerings RETAIL MARKETS
•
At the retail level, competition has driven parties to differentiate and vie for customer business with innovation offerings by: – Enabling new entities to offer innovative approaches – Allowing new entrants to challenge market share of existing participants; – As such, the existing entities need to compete to retain customers and seek to differentiate themselves
•
The competitive market in TX is an example – Growth in number of firms making offers – Growth in number of offer types • E.g., growth in 100% renewable energy offers
- We are forced to introduce products to keep up and therefore have product designers, and thats all they do - The competitive market approach is, let the customers decide and investors bear the risks if they dont meet customer needs - If they havent done their homework, if they misunderstand customer needs, the risk is always of business failure - Compete or die is a necessity 17
Competition in Retail Markets RETAIL MARKETS Growth in the Number of TX Retail Electricity Providers
Growth in Retail Electricity Offers in TX
18
PA Relative to Other States RETAIL MARKETS • Driven by growth in OH, PA, and NJ, KEMA forecasts the non-
residential competitive market to increase by 18%, or 72 TWh, to 473 TWh in 2010 2009 to 2010 Non-residential Competitive Power Sales (TWh)
19
Source: KEMA, Retail Energy Outlook Q4 2010
PA Relative to Other States Contd RETAIL MARKETS • By 2015, PA is projected to take the second position among all open states in terms of competitive residential sales
Change in Current Year Residential Switched Sales, from Q3-Q4 2010 (Annualized TWh)
20
Source: KEMA, Retail Energy Outlook Q4 2010
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
21
Electric Vehicles OTHER AREAS OF DEVELOPMENT
• The ISO/RTOs are active in terms of preparing for EV integration.
– PJM Demonstration of V2G & wholesale market participation:
In 2009, MAGICC began operating three EVs to provide ancillary services to PJM in return for payment
– ISO/RTO Council study on EV Integration – Deployment of EVs and charging stations throughout the region…
22
Agenda • Introduction • Wholesale Markets • Demand Response • Energy Storage • Retail Markets • Other Areas of Development • Questions?
23
Thank you.
Jessica Harrison [email protected] 703.631.8493
