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Avoided Cost and E3 Calculator Workshops

Avoided Cost and E3 Calculator Workshops. Energy and Environmental Economics, Inc. October 3, 2005. Review of E3 Avoided Costs. Background Overview of the Methodology Valuation of Peak Hours Utility-specific Data. Information on New Avoided Costs.

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Avoided Cost and E3 Calculator Workshops

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  1. Avoided Cost and E3 Calculator Workshops Energy and Environmental Economics, Inc. October 3, 2005

  2. Review of E3 Avoided Costs • Background • Overview of the Methodology • Valuation of Peak Hours • Utility-specific Data

  3. Information on New Avoided Costs Spreadsheets and reports can be downloaded free from the E3 website: http://www.ethree.com/cpuc_avoidedcosts.html

  4. Avoided Cost Objectives • 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 • Deliverables: • Transparent and defensible avoided cost methodology • 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

  5. Summary of Project Requirements Forecast values (2004-2023) for: Annual Monthly Hourly Vary by Values Values Values Location Traditional avoided costs Electric generation X R Electric T&D X R R Natural gas procurement X R R Natural gas transportation X R R Additional avoided costs (gas and electric) R Environmental externality X Reliability adder X Demand Reduction Benefit X R X = RFP Requirement; R = E3 Recommendation

  6. Electric Avoided Cost Dimensions 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

  7. Prior Electric and Gas Avoided Costs

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

  9. The New Costing Framework 200?: 2.84% * $60.00/MWh = $1.70/MWh of load

  10. Conceptual Framework Electric Avoided Costs / Benefits TotalBenefita,h,t = GenMCa,t,y+ Externalitya,t,y + TransMCa,t,y + DistMCa,t,y + Reliabilitya,t,y + DemandReductionBenefita,t,y Gas Avoided Costs / Benefits TotalBenefita,t,y = Commoditya,t,y+ Transportationa,t,y + Externalitya,t,y + DistMCa,t,y + DemandReductionBenefita,t,y (if available) Where a = area, t = time dimension (e.g., hour, TOU period), y = year.

  11. Electric Formulation of Avoided Cost Natural Gas Commodity Commodity Period 1 (2004-2008) Platt’s / NYMEX Period 2 Transition Period 3 (2008-2023) LRMC Period 1 (2004-2008) NYMEX Period 2 Transition Period 3 (2008-2023) Long-run Forecast   1 + Ancillary Services (A/S) 1 + LUAF + Compression  + Market Multiplier T&D Costs  + 1 + Energy Losses 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” T&D Costs  (1 + Peak Losses ) + Environment  (1+ Energy Losses)

  12. Components that Contribute to Shape

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

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

  15. Commodity Shape: Example NP15 Average of Hourly Values by Month Average of period 4/1/1998 through 3/31/2000 – Matched by Daytype

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

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

  18. Energy Losses by TOU Period

  19. A/S Cost Computation • Average of A/S costs as share of total energy costs, during non-crisis period (8/99-5/00, 8/01-7/03): 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.

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

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

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

  23. SDG&E SCE PG&E $77.76 $36.00 $70.00 $21.00 $38.00 $5.00 $5.00 T&D Avoided Costs by Planning Division

  24. 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.

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

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

  27. PCAF / Load Relationship Shown Chronologically

  28. Example Results for PG&E Stockton based on TMY Weather

  29. Peak Losses

  30. Environmental Cost Formulation

  31. Emission Prices & Plant Heat Rates • Includes NOx, PM-10, and CO2 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

  32. Putting the Components Together:Base Case Results

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

  34. 3 Day Snapshot of Disaggregated Electric Avoided Costs Avoided Cost is Based on PG&E’s San Jose Planning Division

  35. 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

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