Avoided Cost and E 3 Calculator Workshops Energy

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Avoided Cost and E 3 Calculator Workshops Energy and Environmental Economics, Inc. October 3,

Avoided Cost and E 3 Calculator Workshops Energy and Environmental Economics, Inc. October 3, 2005

Review of E 3 Avoided Costs Background n Overview of the Methodology n Valuation

Review of E 3 Avoided Costs Background n Overview of the Methodology n Valuation of Peak Hours n Utility-specific Data n

Information on New Avoided Costs Spreadsheets and reports can be downloaded free from the

Information on New Avoided Costs Spreadsheets and reports can be downloaded free from the E 3 website: http: //www. ethree. com/cpuc_avoidedcosts. html

Avoided Cost Objectives n Goals: Provide objectively derived estimates of avoided costs that are

Avoided Cost Objectives n Goals: Provide objectively derived estimates of avoided costs that are suitable for evaluating PUC funded programs ¨ Develop a transparent and repeatable costing methodology that does not rely on either proprietary data or models ¨ n Deliverables: ¨ Transparent and defensible avoided cost methodology n n Separate presentations with proposals for each cost component Make use of existing studies and data to the extent possible Provide software to update estimates of avoided costs ¨ Provide a report describing methodology, results, and data to support estimates ¨

Summary of Project Requirements Forecast values (2004 -2023) for: Annual Monthly Hourly Vary by

Summary of Project Requirements Forecast values (2004 -2023) for: Annual Monthly Hourly Vary by Values Location Traditional avoided costs Electric generation Electric T&D X Natural gas procurement X R Natural gas transportation X R Additional avoided costs (gas and electric) Environmental externality X Reliability adder X Demand Reduction Benefit X X R R R R X = RFP Requirement; R = E 3 Recommendation

Electric Avoided Cost Dimensions of the Electric Avoided Cost (8760 Hours from 2004 to

Electric Avoided Cost Dimensions of the Electric Avoided Cost (8760 Hours from 2004 to 2023) Utilities PG&E SCE SDG&E Voltage Level Transmission Primary Secondary Climate Zones | Planning Areas PG&E: 9 | 18 SCE: 8 |5 SDG&E: 4 | 1

Prior Electric and Gas Avoided Costs

Prior Electric and Gas Avoided Costs

Prior Electric and Gas Avoided Costs Electric ($/k. Wh) Gas ($/Therm) Source: Energy Efficiency

Prior Electric and Gas Avoided Costs Electric ($/k. Wh) Gas ($/Therm) Source: Energy Efficiency Policy Manual p 24 -25 11/29/01

The New Costing Framework 200? : 2. 84% * $60. 00/MWh = $1. 70/MWh

The New Costing Framework 200? : 2. 84% * $60. 00/MWh = $1. 70/MWh of load

Conceptual Framework Electric Avoided Costs / Benefits Total. Benefita, h, t = Gen. MCa,

Conceptual Framework Electric Avoided Costs / Benefits Total. Benefita, h, t = Gen. MCa, t, y + Externalitya, t, y + Trans. MCa, t, y + Dist. MCa, t, y + Reliabilitya, t, y + Demand. Reduction. Benefita, t, y Gas Avoided Costs / Benefits Total. Benefita, t, y = Commoditya, t, y + Transportationa, t, y + Externalitya, t, y + Dist. MCa, t, y + Demand. Reduction. Benefita, t, y (if available) Where a = area, t = time dimension (e. g. , hour, TOU period), y = year.

Formulation of Avoided Cost Electric Natural Gas Commodity Period 1 (2004 -2008) Platt’s /

Formulation of Avoided Cost Electric Natural Gas Commodity Period 1 (2004 -2008) Platt’s / NYMEX Period 2 Transition Period 3 (2008 -2023) LRMC 1 + Ancillary Services (A/S) Market Multiplier 1 + Energy Losses + T&D Costs (1 + Peak Losses ) + Environment (1+ Energy Losses) Period 1 (2004 -2008) NYMEX Period 2 Transition Period 3 (2008 -2023) Long-run Forecast 1 + LUAF + Compression + T&D Costs + Environment • “NYMEX” = “New York Mercantile Exchange” • “LRMC “ = “Long-run marginal cost” = all-in cost of a combined cycle gas turbine (CCGT) • “LUAF “ = “Loss and unaccounted for”

Components that Contribute to Shape

Components that Contribute to Shape

Components with Peak Shape Energy and capacity n Ancillary Services n Market Elasticity n

Components with Peak Shape Energy and capacity n Ancillary Services n Market Elasticity n Transmission and Distribution Capacity n Losses n Emissions n

Inputs that Vary by Utility n Energy and capacity (A/S, environment) ¨ Northern n

Inputs that Vary by Utility n Energy and capacity (A/S, environment) ¨ Northern n T&D ¨ Varies n and Southern California by 16 climate zones in the State Losses ¨ Average and peak losses by IOU

Average of Hourly Values by Month Commodity Shape: Example NP 15 Average of period

Average of Hourly Values by Month Commodity Shape: Example NP 15 Average of period 4/1/1998 through 3/31/2000 – Matched by Daytype

Market Price Forecast Results n Annual Average Forward Price Estimate Market LRMC Market Prices

Market Price Forecast Results n Annual Average Forward Price Estimate Market LRMC Market Prices Updated as of October 15, 2003

Example of Capacity Separation n Integral of the light blue area is the capacity

Example of Capacity Separation n Integral of the light blue area is the capacity cost.

Energy Losses by TOU Period

Energy Losses by TOU Period

A/S Cost Computation n n Average of A/S costs as share of total energy

A/S Cost Computation n n Average of A/S costs as share of total energy costs, during non-crisis period (8/99 -5/00, 8/017/03): 2. 84% Apply 2. 84% to shaped hourly energy price ¨ 2004: 2. 84% * $45. 57/MWh = $1. 29/MWh of load ¨ 2005: 2. 84% * $46. 65/MWh = $1. 32/MWh of load A/S Costs are the same multiplier for the entire state.

Market Elasticity Estimates Market Elasticity Market Multiplier (On Peak RNS = 5%) On-Peak: 8

Market Elasticity Estimates Market Elasticity Market Multiplier (On Peak RNS = 5%) On-Peak: 8 am to 6 pm, Working Weekdays, May to October Off-Peak: All Other Hours

Dimension Item T&D Formulation T&D Capacity Peak Cost ($/k. W-yr) * Allocation * (1

Dimension Item T&D Formulation T&D Capacity Peak Cost ($/k. W-yr) * Allocation * (1 + Losses) Year Utility Hour Utility Voltage level Climate Zone Planning Area = T&D Capacity Cost ($/k. W-hr) Year Hour Utility Planning Area Climate Zone Voltage Level

Climate zones and planning areas CEC Title 24 Climate Zones Dominguez Hills Foothill Rural

Climate zones and planning areas CEC Title 24 Climate Zones Dominguez Hills Foothill Rural Santa Ana Ventura

T&D Avoided Costs by Planning Division SDG&E $77. 76 SCE $36. 00 $21. 00

T&D Avoided Costs by Planning Division SDG&E $77. 76 SCE $36. 00 $21. 00 $5. 00 PG&E $70. 00 $38. 00 $5. 00

Calculation of the PCAFs is based on Load Duration Curve of Each Area Load

Calculation of the PCAFs is based on Load Duration Curve of Each Area Load Duration Curve PCAF weights are assigned proportionally to how high the load is compared to the peak. Only highest load hours (top standard deviation) receive any weight.

Allocation of T&D Based on Temperature by Climate Zone Drives Temperature Loads Drives T&D

Allocation of T&D Based on Temperature by Climate Zone Drives Temperature Loads Drives T&D Capacity Cost Load Information Missing or Difficult to Obtain in Many Areas Temperature T&D Capacity Cost Use temperature as a proxy for load, and as the basis for allocating costs to hours of the year.

T&D Allocation Actual Load vs. Temperature Fresno Yellow 8 am to 10 pm Similar

T&D Allocation Actual Load vs. Temperature Fresno Yellow 8 am to 10 pm Similar analysis done on 33 PG&E areas as part of CEC Title 24 development

PCAF / Load Relationship Shown Chronologically

PCAF / Load Relationship Shown Chronologically

Example Results for PG&E Stockton based on TMY Weather

Example Results for PG&E Stockton based on TMY Weather

Peak Losses

Peak Losses

Environmental Cost Formulation

Environmental Cost Formulation

Emission Prices & Plant Heat Rates • Includes NOx, PM-10, and CO 2 emission

Emission Prices & Plant Heat Rates • Includes NOx, PM-10, and CO 2 emission credit prices • Lower bound of heat rate is set at a 6, 240 heat rate, upper bound is set at a 14, 000 heat rate

Putting the Components Together: Base Case Results

Putting the Components Together: Base Case Results

Total Electric Avoided Costs Shape is Based on PG&E’s San Jose Planning Division

Total Electric Avoided Costs Shape is Based on PG&E’s San Jose Planning Division

3 Day Snapshot of Disaggregated Electric Avoided Costs Avoided Cost is Based on PG&E’s

3 Day Snapshot of Disaggregated Electric Avoided Costs Avoided Cost is Based on PG&E’s San Jose Planning Division

Comparison of Efficiency Programs • Levelized Avoided Cost ($/MWh) over 16 Year Life for

Comparison of Efficiency Programs • Levelized Avoided Cost ($/MWh) over 16 Year Life for All Devices • AC Load Shape Based on SEER 12 to SEER 13 Change in Fresno • New Avoided Costs are based on PG&E, Climate Zone 13, Secondary • Based on hourly simulated AC data, proxy outdoor lighting, flat refrigeration