Price Effects as Benefits
of Energy-Efficiency
Programs
Paul Chernick, Resource Insight, Inc.
John J. Plunkett, Green Ener...
Lower Load Means Lower Prices
Price Suppression
Price
(S1 , P1)
(S2, P2)
Supply
P2
P1
Supply Curve
Avoided
Cost
Price Supp...
Which Market Prices Can Be
Reduced?
•  Electric Energy
•  Generation Capacity
•  Gas Supply Prices
•  Pipeline Capacity an...
The Web of Price Effects
Gas Basis
Gas Supply
Price
Price Suppression Recognized in
Several States
•  Often called DRIPE:
Demand Reduction Induced Price Effect
•  Regulators ...
DRIPE Effects on Program
Metrics
•  Definitely Helps in:
– Rate and Bill Effects
– Program Administrator (Utility Cost) Te...
Electric-Energy DRIPE Is Real
Real data:
$0
 
$10
 
$20
 
$30
 
$40
 
$50
 
$60
 
7,000
  8,000
  9,000	...
Electric-Capacity DRIPE
Can Be Real
•  Delayed Effects
– Forward markets à 3-year lag from bidding
– Lag in RTO forecasti...
Gas-Supply DRIPE Is Real
 
 
y = 0.632x - 0.0482
R² = 0.94232
-$1.9
-$1.4
-$0.9
-$0.4
$0.1
$0.6
(2.2) (1.8) (1.4) (1....
Gas-Basis Price DRIPE Can be
Real
New
 England
 Gas
 Price
 Basis,
 2012/13
 
$0
$3
$6
$9
$12
$15
$18
$21
$24
...
Magnitude of Price Effects
•  1% reduction in gas demand = 1% –
1.5% in gas price (Wiser, Bolinger, and
St. Claire, 2005)
...
How Market Prices Flow to
Consumers
•  Only in restructured markets
•  Imperfectly
– Long-term PPAs reduce effect
– Compet...
Does DRIPE Last Forever?
•  Maybe for gas supply
– Keep gas in the ground for future use
•  Probably not for electricity
–...
Illustration of Decay,
Simple Delay
$40
 
 
$50
 
 
$60
 
 
$70
 
 
$80
 
 
$90
 
 
$100
 
 
$...
Illustration of Decay,
Interim Response
$40
 
 
$50
 
 
$60
 
 
$70
 
 
$80
 
 
$90
 
 
$100
 
...
Summary
•  Gas and Electric DSM have real and
measureable affects on price of:
– Gas and Electric Supply
– Gas Basis
– Ele...
John J. Plunkett,
Green Energy Economics Group, ‫ז״ל‬
July 18, 1957–February 26, 2014
 
 
Ques:ons?
 
 
Paul
 Chernick
 
 -­‐
 Resource
 Insights
 Inc.
 
pchernick@resourceinsight.com
 
 
...
of 18

Price Effects as Benefits

Published on: Mar 4, 2016
Source: www.slideshare.net


Transcripts - Price Effects as Benefits

  • 1. Price Effects as Benefits of Energy-Efficiency Programs Paul Chernick, Resource Insight, Inc. John J. Plunkett, Green Energy Economics Group, ‫ז״ל‬ Theo Love, Green Energy Economics Group 2014 ACEEE Summer Study on Energy Efficiency in Buildings Session 5 August 19, 2014
  • 2. Lower Load Means Lower Prices Price Suppression Price (S1 , P1) (S2, P2) Supply P2 P1 Supply Curve Avoided Cost Price Suppression
  • 3. Which Market Prices Can Be Reduced? •  Electric Energy •  Generation Capacity •  Gas Supply Prices •  Pipeline Capacity and Storage “Basis”
  • 4. The Web of Price Effects Gas Basis Gas Supply Price
  • 5. Price Suppression Recognized in Several States •  Often called DRIPE: Demand Reduction Induced Price Effect •  Regulators Differ on Scope – Other states? – Suppliers? •  Lower supplier profits are usually ignored
  • 6. DRIPE Effects on Program Metrics •  Definitely Helps in: – Rate and Bill Effects – Program Administrator (Utility Cost) Test •  Regulators may include in: – Total Resource Test – Societal Test
  • 7. Electric-Energy DRIPE Is Real Real data: $0   $10   $20   $30   $40   $50   $60   7,000   8,000   9,000   10,000   11,000   12,000   13,000   ComEd  LMP  ($/MWh)   ComEd  Load  (MW)   ISO-­‐NE  Hub,  August  2013   PJM  ComEd  Zone,  Oct  2012
  • 8. Electric-Capacity DRIPE Can Be Real •  Delayed Effects – Forward markets à 3-year lag from bidding – Lag in RTO forecasting •  Less Likely – Not if prices set by floors and caps
  • 9. Gas-Supply DRIPE Is Real     y = 0.632x - 0.0482 R² = 0.94232 -$1.9 -$1.4 -$0.9 -$0.4 $0.1 $0.6 (2.2) (1.8) (1.4) (1.0) (0.6) (0.2) 0.2 0.6 1.0 1.4 ChangeinHenryHubPricefromReference$/MMBtu Change in Tcf from Reference EIA  Analysis
  • 10. Gas-Basis Price DRIPE Can be Real New  England  Gas  Price  Basis,  2012/13   $0 $3 $6 $9 $12 $15 $18 $21 $24 $27 $30 1,900 2,000 2,100 2,200 2,300 2,400 2,500 2,600 2,700 2,800 $/MMBtu BBTU Feb Dec Jan Linear (Jan)
  • 11. Magnitude of Price Effects •  1% reduction in gas demand = 1% – 1.5% in gas price (Wiser, Bolinger, and St. Claire, 2005) •  DRIPE as a portion of avoided costs – Midwest Electric & Gas EE = 39% (Kushler, York, and Witte, 2005) – NY Gas EE = 25% of avoided costs (Mosenthal et. al. 2006)
  • 12. How Market Prices Flow to Consumers •  Only in restructured markets •  Imperfectly – Long-term PPAs reduce effect – Competitive procurements hedge prices
  • 13. Does DRIPE Last Forever? •  Maybe for gas supply – Keep gas in the ground for future use •  Probably not for electricity – Market feedbacks •  Complicated for pipeline capacity
  • 14. Illustration of Decay, Simple Delay $40     $50     $60     $70     $80     $90     $100     $110     $120     $/kW-­‐year   Year   Base  Case   Load  Reduced
  • 15. Illustration of Decay, Interim Response $40     $50     $60     $70     $80     $90     $100     $110     $120     $/kW-­‐year   Year   Base  Case   Load  Reduced   Load  Reduced  w  Decay
  • 16. Summary •  Gas and Electric DSM have real and measureable affects on price of: – Gas and Electric Supply – Gas Basis – Electric Capacity •  Many states adopting for PAC, TRC, and Societal Tests
  • 17. John J. Plunkett, Green Energy Economics Group, ‫ז״ל‬ July 18, 1957–February 26, 2014
  • 18. Ques:ons?     Paul  Chernick    -­‐  Resource  Insights  Inc.   pchernick@resourceinsight.com     Theo  Love  –  Green  Energy  Economics  Group  Inc.   theo@greenenergyeconomics.com

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