DSM and Resource Planning Jayant Sathaye Amol Phadke

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DSM and Resource Planning Jayant Sathaye, Amol Phadke and Ranjit Bharvirkar Energy Analysis Program Lawrence Berkeley National Laboratory Berkeley, CA Bob Lieberman Regulatory Assistance Project Presented at the Forum of Indian Regulators 11 June 2009 Work supported by the US Departments of State and Energy

Lawrence Berkeley National Laboratory • Managed by the University of California for the US Dept of Energy • Founded in 1931, about 4000 staff • 12 Nobel Prizes – IPCC (2008) – Jayant Sathaye • Utility programs – — Distribution loss reduction — Demand-side management programs — Load research and generation planning — Transmission reliability — Renewable energy

Regulatory Assistance Project (RAP) • RAP is a non-profit organization providing technical and educational assistance to government officials on energy and environmental issues. RAP is funded by US Department of Energy, several foundations, and international agencies. We have worked in 40+ states and 16 nations. • Bob Lieberman — Illinois utility regulator for the last five years. Term ended June 1 st, 2009 — Ran Chicago-based NGO that developed and ran energy efficiency and demand response programs — Implemented integrated resource planning in Illinois

Contents I: Overview and Macro impacts – Dr. Jayant Sathaye II. Demand Side Power Purchase -- Dr. Amol Phadke III: ARR and Tariff Impact and Regulatory Treatment of DSM -- Dr. Amol Phadke IV: Implementing DSM and Regulatory Perspective -- Ranjit Bharvirkar -- Bob Lieberman V. Next Steps

Asia Pacific Partnership (APP) 1. 8 Participating Countries: Australia, Canada, China, India, Japan, Republic of Korea and the United States 2. Eight task forces including one on power generation, transmission, distribution and demand management 3. Goal: To develop, deploy and transfer cleaner, more efficient technologies and to meet national pollution reduction, energy security and climate change concerns consistent with the principles of the U. N. Framework Convention on Climate Change (UNFCCC). l Assist partners to build human and institutional capacity to strengthen cooperative efforts, and to seek opportunities to engage the private sector.

Electricity Demand Savings Potential (Percentage, 2030)

Memoranda of Understanding (MOU) • Maharashtra MOU signed in December 2007 — Maharashtra Electricity Regulatory Commission • Former Chairman Dr. Pramod Deo — California Energy Commission • Commissioner Dr. Art Rosenfeld — California Public Utilities Commission • Commissioner Dian Grueneich — Lawrence Berkeley National Laboratory • Former Director Dr. Steve Chu (Current Energy Secretary) • Similar MOUs signed with the Delhi Electricity Regulatory Commission (Shri Berjinder Singh) and the Forum of Regulators (Dr. Pramod Deo) in March 2009

Maharashtra and Delhi MOU Scope of Cooperation • The Parties will endeavor to promote information exchanges and future joint research activities in the following areas: — • Energy efficiency and Demand Side Management policies and programs — • Regulatory policies for renewable energy development — • Integrated Resource Planning — • Electricity regulation and governance — • Transmission pricing framework — • Balancing market framework in Maharashtra — • Market development through open access and consumer choice

Demand-side Management of Efficiency Project Motivation l Reducing carbon emissions from electricity use – DSM Programs (NAPCC, 11 th Five Year Plan) l Electricity shortage accompanied by blackouts and load shedding is common across India l In Maharashtra, electricity deficit was 4800 MW in 2008 or more than 25% of available capacity

Maharashtra: Electricity shortage 29% shortage 12 3/19/2018 Dr. Jayant Sathaye

Maharashtra Project Motivation l Electricity shortage l Affects industrial production quantity and quality, l Lower production and sales lead to reduced sales tax payment l Government loses sales tax revenue l LBNL estimates sales tax loss of 20 cents/k. Wh l Shortage met partially by extensive use of inefficient diesel and gasoline micro generators and hence high CO 2 emissions l Savings potential l Energy savings potential of about 6, 800 GWh/year l CO 2 savings potential of 3 -5 Mt CO 2/year

India Power Supply Capacity and Peak Demand Reference Scenario with Shortage • Assuming that from 2009 onwards deficit is 10% and 12, 500 MW of new capacity is constructed each year for three years • Total investment for the 11 th Five Year Plan would be Rs. 250 thousand crores

India Power Supply Capacity and Peak Demand Efficiency Scenario with No Shortage • Assuming that from 2007 onwards efficiency improvements (4300 MW/year) reduce deficit. Potential exists to eliminate deficit. • Construction of new power plants is reduced to about 9400 MW/year • Total investment for efficiency and supply power plants is still the same as that in the reference scenario – Rs. 250 thousand crores

Efficiency Scenario with No Shortage: Efficiency Options Energy Efficiency Measure Investment Daily Use (Rs. /k. W) (Hours/day) Peak Demand Electricity Savings (MW) Savings (TWh) 2008 Variable speed drives in industry 4, 700 11 948 3. 8 Ag. Pump Rectification 9, 400 8 655 1. 9 Motor rewinding and downsizing 10, 810 10 914 3. 3 High efficiency agricultural pump sets 8, 460 8 715 2. 1 Improved high efficiency refrigerators 14, 100 12 320 1. 4 CFL and Electronic Ballasts 9, 400 4 821 1. 2 Total Energy Efficiency Savings (MW) 4, 372 13. 7 Supply Capacity Additions (MW) 46, 624 9, 772

Macro-economic Results • Assuming identical investment in each of the two scenarios for the 11 th Plan – Rs. 250 thousand crores • Annual average electricity savings of efficiency scenario — 41 TWh/year • Assuming business use of saved electricity is 50% -- 20 TWh/yr — Total increase in business output • Rs. 180 thousand crores/year — Potential sales tax Rs. 12 thousand crores per year • Assuming Rs. 6/k. Wh sales tax

Demand Side Power Purchase

Demand Side Power Purchase: Basics Demand side Power Purchase is a bundled set of energy efficiency (EE) programs that are designed to deliver the energy and capacity equivalent of a power purchase on the supply side. – purchase “negawatts” and “negawatt-hours” that are functionally equivalent to the kilowatts and kilowatt-hours procured – Can resemble a conventional peaking power purchase by emphasizing efficiency measures (and demand response) that reduce electricity during periods of peak power consumption. – Can resemble a base-load power purchase emphasizing measures to reduce consumption during all hours of the day.

Will you Approve This Peak Load Power Purchase? One year contract 500 MW during the four hours of evening peak over the year = 730 GWh Mysterious Regular Rs/Unit 1. 2 5 Total Cost Rs Cr/ Year 88 Cr. 365 Cr.

What is this Mysterious Power Purchase? • Saving 400 MW during the evening peak hours at the load end > 500 MW generation at the bus bar • What does it take to saving 400 MW at the load end — Replacing ~ 88 lakh incandescent with CFLs — 45 Watt saving/replacement ; 88 lackh replacements ~ 400 MW saving • How much does it cost — If the utility decides to give the CFLs at the price of incandescent lamps, 100 Rs subsidy needed/bulb — Total expenditure 88 Cr: less that one third of the expenditure of the supply side !

Comparing Supply and Demand Side Power Purchase Cost of demand side power purchase per unit = (Annualized incremental capital cost)/(saving per year ) CFL example = (88 Cr)/(730 GWh) = 1. 2 Rs/Unit One important different: Demand side power purchase appears happens at the consumer end (avoids losses) Power purchase cost of 5 Rs/Unit translates to more than 8 Rs/Unit when it lands at the consumers doorstep due to lossess

Many Demand Side Power Purchase Options: Delhi Example CFL T 5 LPG WH NG WH Solar WH AC Refrigerat ors Peak power saving at bus bar (W) 49 29 2, 647 233 13 Total Energy saving k. Wh/yr 79 46 529 529 565 133 2. 74 1. 26 5. 00 1. 16 0. 70 Cost of Demand Side Power Purchase Rs/k. Wh 1. 29 2. 25

Demand Side Power Purchase: Merit Order Stack Utility Benefit Average Tariff Consumer Benefit

Least Cost Power Rationale: DERC Example “ The Commission is keen to see that distribution licensees undertake DSM initiatives, not only because DSM initiatives provides an opportunity for conservation of power use but also because these initiatives when integrated with supply, provides a least cost solution for distribution licensees to meet their power demand”

Advantages of Demand Side Power Purchase • Cost-effective resource — Cheaper than a conventional power purchase ~ For e. g. Rs 350 Cr Savings/year for a 500 MW evening peak power purchase for the CFL example • Additional option to reduce power needs — Large economic benefits of reducing load shortages • Environmental benefits — Reduced local pollution — Reduced carbon emissions — Reduced resource requirements – land, water,

Session III: ARR and Tariff Impact of Demand Side Power purchase

ARR and Impact on Consumer One line summary If the demand side power purchase cheaper than the supply side, impacts on the consumer are going to be positive!

Impact on ARR Goal: meet 1000 MW of demand increase during the four peak hours in the evening - Supply side power purchase - Sign a bilateral contract of 1000 MW for evening peak delivery (1460 GWh delivered during the evening peak hours over the years) - Addition to the ARR: 730 Cr - Demand side option - Facilitate the replacement of 1. 7 Cr incandescent by providing Rs 100/bulb rebate to the consumer - Addition to ARR: 170 Cr

Impact on Tariff & Bills • How is the increase in ARR typically is met — Tariff increase — Increase in government subsidy — Improvement in operations — Increase sales to high paying consumers • If the increase in ARR is lower for demand side power purchase — Tariff increase can be mitigated — Need for government subsidy can be reduced • If the Rs 730 Cr of power purchase cost on the supply side is used for demand side power purchase, more than three times the units can be purchased and could potentially eliminate shortages !

IV: Implementing Demand Side Power purchase

Barriers to Reducing Electricity Consumption: A Customer’s Perspective • Lack of information about electricity savings opportunities • Lack of ability and/or technical assistance for analyzing electricity consumption patterns • Lack of financial resources to invest in electricity savings options (e. g. technology, etc. ) • Lack of appropriate technological options to reduce electricity consumption

What is a DSM Program? Mechanism to influence customer’s CAPABILITY and WILLINGNESS to reduce electricity consumption

How to Influence Customer CAPABILITY to Reduce Electricity Consumption? • Availability of tools to understand electricity consumption patterns (e. g. plug-in power meters to measure appliancelevel electricity consumption, software to analyze and identify electricity savings opportunities, etc. ) • Availability of technology to reduce electricity consumption (e. g. high efficiency T-5 tube-light to replace inefficient T 12) — R&D for developing new technology

How to Influence Customer WILLINGNESS to Reduce Electricity Consumption? • Awareness — Marketing, promotion, education, etc. • Technical assistance — Audits, analysis, equipment installation, facilitating financing of projects, etc. • Financial incentives — Rebates, loans at low interest rates, shared savings, electricity pricing schemes, etc.

DSM Program Design - Principles • Systematic road-map for overcoming barriers faced by customers in their goal of reducing electricity consumption (and bills) — BOTH in short-term and long-term • Must be cost-effective – i. e. program costs must be lower than benefits from program • Ensure customer satisfaction

Types of DSM Programs • All three reduce energy consumption (k. Wh) and peak demand (k. W), however, emphasis differs — Energy Efficiency – emphasis is on reducing overall energy consumption and also peak demand over several years — Peak Load Management– emphasis is on reducing peak demand consistently over a season — Demand Response – emphasis is on reducing peak demand for short periods of time for a few days during the year

Energy Efficiency • Permanent energy (k. Wh) reduction — Permanent peak demand (k. W) reduction • Size of impact is predictable • No reduction or shift in customer value, comfort, or output • Not dispatchable by distribution company • Examples – rebates on efficient appliances, energy savings performance contracting, etc.

Energy Efficiency Programs: Level of Involvement of Distribution Company

Peak Load Management • Overall energy consumption likely to stay same — Focus is on changing customer load profile • Size of impact fixed • Fixed duration (4 - 6 hours daily) demand (k. W) reduction • Change/transfer in customer value, comfort, or output • Not dispatchable by distribution company • Examples – tariffs for agricultural pumps

Demand Response • Overall energy consumption may vary based on customer load curtailment strategy — Focus is on changing customer load profile • Size of impact may vary from event to event • Small duration (15 min – 6 hours) demand (k. W) reduction • May involve a reduction in customer value, comfort, or output • Dispatchable by distribution company • Examples – “cycling” of air conditioners, critical peak pricing tariffs s

Characteristics of Successful DSM Initiatives • Deeply committed senior management and program staff – at both State Electricity Regulatory Commission and distribution company (or implementing agency) • Clearly defined goals and objectives • Data-driven, systematic, and comprehensive DSM program planning processes — “you can’t manage what you don’t measure” • Stable program funding sources and levels

Best Practices – Planning • Solicit stakeholder input — Formal interview process or a collaborative planning process involving key stakeholders • Conduct market analyses around information gaps and key issues in order to understand existing conditions — Target resources toward the very largest markets, and those that are least understood • Establish baseline for tracking program expenditure and impact

Best Practices – Program Design • Seek to include programs with related and complementary goals, — for example, electricity conservation, water conservation, and renewables (e. g. rooftop solar) • Simplify participation in multiple programs — Offer one “bundle” that may consist of energy efficiency, measures from several different organizations but is seamless to the customer

Best Practices – Program Design (cont. ) • Efficiently deliver integrated programs to all endusers regardless of their size — Upstream Vs downstream incentives — Larger customers, should be assigned a single point of contact that represents all related programs — Smaller customers should be offered a whole building strategy that incorporate measures from multiple programs.

Best Practices – Adapting to Changes • Keep abreast of new developments in energy efficiency technology — Coordinate with BEE and FOR • Network with peers; stay connected to developments in this field — E. g. FOR/FOIR meetings, interactions with international experts • Foster close relationships with market actors; rely on them for market intelligence — E. g. attending conferences to exchange ideas

Best Practices - Staffing • Clearly define responsibilities and clarify roles to minimize confusion — Streamlining/facilitating stakeholder interaction • Reward high performing staff and contractors — DSM is a new activity and in the initial phases staff will strong motivation to explore this field • Encourage and facilitate development of energy efficiency expertise of staff — DSM training workshop at NPTI – June 15 -18, 2009

What can be learned from the US experience? • Useful — Identification of the DSM value proposition and the understanding that “saved” energy was cheaper and cleaner than energy consumed — Evolving understanding that customer engagement and behavior are key drivers in achieving and sustaining cost-effective energy efficiency — Broad experience (successes and failures) related to delivering, measuring and valuing energy efficiency

What can be learned from the US experience? Cont. • Not so useful — Pattern of utility by utility DSM implementation an accident of institutional history and politics — 30 year focus on technology as the sole DSM driver • the “no-behavior change” strategy — Corollary to above: • 30 year refusal to engage with customers – “revenue enhancement units”

Tales from the front: The Illinois experience with DSM • For nearly 30 years, Illinois regulators and policymakers refused to implement DSM — Swimming in electricity • Reserve margins as high as 40% — Concern about raising rates — Utilities uninterested — Customers uninterested

The Illinois experience, cont. • By 2005 — Volatile energy prices — Concern about emissions — Shrinking reserve margins — No State control over generation (restructured)

Commission concerns • Concern of raising rates to pay for DSM • Concern of political backlash • Concerns about lack of capacity to manage DSM initiatives

Relearning • “Its not as if we are not going to spend the money. The only question is: What are we going to spend the money on? ”

Four issues • DSM increases rates in the short term — Energy efficiency was less expensive than purchased energy • Public Education/key messages — “helping customers” • Commission staff and utility capacity — Training and capacity building • Cost recovery

Need for Co-ordination • Efficient tube light program is applicable in almost every state • SERCs should explore coordinating programs

Role of Regulators • Establish clear goals for DSM power purchase based on potential estimates • Allocate resources from ARR for DSM power purchase • Provide guidance/regulation to facilitate implementation of DSM power purchase • Tariff options for promoting demand side power prucahse (can either viewed as pumped storage or peak power purchase)

Establish Clear Goals for Constructing Demand Side Power purchase • In the initial period, the goal should be to get a few small demand side power purchase/programs started to gain experience • In the long run, the achievable potential for cost effective power purchase should determine the goals set for utilities — California Loading Order: Buy all cost effective demand side power purchase before any supply side options are considered • Load research and technology assessment is critical for potential estimates and target setting — What kind appliances consumers are using and how, what is the demand side power purchase potential and what is the cost

Allocate Resources for Demand Side Power purchase • Public benefits charge: small surcharge on tariff to create a fund for DSM Power purchase — Stable funding mechanisms - allows utilities and ESCOs to expand in the area of DSM Power purchase — 5 paise/k. Wh charge 75 Cr of DSM funds in Delhi • Recovery through ARR/power procurement accounts — Treat as a an expense (same as the cost of power purcahse) — Amortize over the life the saving measure

Next Steps For Regulators • Allocate staff/consultants — Dedicated one or two staff or consultants to begin with at the SERC • Work with FOR to develop and issue a standard set of guidelines on to facilitate demand side power purchase • Allocate resources for demand side power purchase — Firm approval of resources for utilities to create a DSM cell, hire DSM consultants (if needed), conduct load research, and prepare programs — Conditional approval for funding for the first year (final approval provided after programs are submitted) • Develop a roadmap for demand side power purchase via a stakeholder process — Conduct/facilitate a potential study — Goals and strategy by sector — Role played various stakeholders — Co-ordination with other programs

Questions for Discussion

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