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IS THERE A BUSINESS CASE FOR DEMAND RESPONSE IN THE MADRI AREA?

JIM TORPEY MADISON ENERGY CONSULTANTS JULY 22, 2005

Jim Torpey- Madison Energy Consultants

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REVENUE ISSUES

PJM Capacity market is changing to capture locational value 36% reserve margin keeping capacity prices low Volatility in energy prices due to gas and coal price increases Limited actual implementation of distribution credits

Jim Torpey- Madison Energy Consultants 2

SIMPLIFIED REVENUE VS. COST ANALYSIS

Revenue- PJM capacity, PJM economic DR program & distribution benefits Costs-capital for infrastructure, marketing, installation, program management, dispatch management Margin- Overheads, profit, taxes, risk

ASSUMED VALUES FOR A MULTI-SCENARIO ANALYSIS- LOW/ MEDIUM/ HIGH CASES FOR FULL AND PILOT DEPLOYMENT

Jim Torpey- Madison Energy Consultants 3

REVENUE ASSUMPTIONS

Capacity Ranges

Low- existing capacity structure in PJM Medium- adoption of RPM locational model High- existing NYC/Long Island prices

Energy Ranges

Low- existing NJ utility load control results Medium- 2004 Manitou sub LMP results High- 1999 PJM prices

Jim Torpey- Madison Energy Consultants

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REVENUE ASSUMPTIONS cont.

Distribution Ranges

None- Current situation Low- average of two lowest value samples of Cal/Mass utility supplied projects Medium- average of six medium value samples of Cal/Mass utility supplied projects High- average of two highest value samples of Cal/Mass utility supplied projects

Jim Torpey- Madison Energy Consultants

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COST ISSUES

Technology choices drive costs (one way switch, one way thermostat, two way AMR with thermostats, etc) Costs much lower with full scale deployments

Jim Torpey- Madison Energy Consultants

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CAPITAL COST ASSUMPTIONS

Pilot Project Full Deployment

One way switch

$250 $300 $850

$125 $150 $425

One way enhanced thermostat Two way multi feature

Costs are $/customer for installed cost of equipment including network

Jim Torpey- Madison Energy Consultants 7

OPERATING COST ASSUMPTIONS

Pilot Project Full Deployment

Marketing, Maintenance Dispatch Operations OH, Taxes, Profit, Risk

$30 $10 $20

$20 $10 $20

Results in $/kw for operating and dispatching for economic benefits

Jim Torpey- Madison Energy Consultants 8

Scenario Descriptions Scenarios A-D

A. Today's Market B. Today's market plus C. Higher prices D. Highest prices Capacity Energy Distribution

Low Med Med High

Low Med Med High

None Low Med High

Jim Torpey- Madison Energy Consultants

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10 Year NPV of Income Stream from Thermostat based DR System Deployed across Service Area

$1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 ($200) ($400) Today Today + Higher Highest

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Jim Torpey- Madison Energy Consultants

Range of 10 Year NPV for Technology Options Deployed across Service Area

$2,000 $1,500 $1,000 $500 $0 ($500) ($1,000)

Today

Today +

Higher

Highest

Jim Torpey- Madison Energy Consultants

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10 Year NPV of Thermostat based DR System Full Deployment versus Pilot

$1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 ($200) ($400) ($600)

Today

Today +

Higher

Highest

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Jim Torpey- Madison Energy Consultants

WHAT DOES IT ALL MEAN?

A DR business is not supported by the PJM market today. A business case is supportable if prices increase within conceivable but unlikely ranges in the near future.

Jim Torpey- Madison Energy Consultants

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Information

Is There a Business Case for Demand Response in the MADRI Area?

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Is There a Business Case for Demand Response in the MADRI Area?