Counting the Capacity
that Didn’t Hatch:
The Rate Mitigation Effects of DSM Programs
December 12, 2013
Jenny Edwards| Prog...
Requires a better understanding of the system
wide revenue benefits of DSM programs
Page 2
Counting the Capacity
that Didn’t Hatch:
The Rate Mitigation Effects of DSM Programs
December 12, 2013
Jenny Edwards| Prog...
Energy Efficiency as a System Resource…

Requires a better understanding of the system
wide revenue benefits of DSM progra...
Energy Efficiency Context
• Efficiency Costs recovered through rates and
“trued up” regularly

• Utilities are incentivize...
Minnesota DSM Case Study
• Analyzed 20-year program data from Xcel Energy
• Conducted a backward-looking scenario analysis...
The Resource Wedge

Additional Revenue Requirements =
Σ Annual Additional Costs ÷ Total Sales

Page 7
Example Utility Bill
Customer Charge

$8/mo

Energy Charge

$0.08/kWh

Demand Charge

$15/kW

Riders

$0.003/kWh

What is ...
DSM Scenario

Power Plant Scenario

0.24 ¢/kWh

0.66 ¢/kWh

• Lower Resource Costs
• Fewer Sales

• Higher Resource Costs
...
Cost Considerations
DSM Scenario

Power Plant Scenario

• Conservation and Load
Management Program Costs
• Indirect Impact...
Power Plant Offsets from DSM
2,000
1,750

Cumulative Offset Capacity

Capacity (MW)

1,500
1,250
1,000
750
500
250
Page 11...
Power Plant Offsets from DSM
2,000
1,750
Capacity (MW)

1,500
1,250

Cumulative Offset Capacity

250 MW

Assumed Combined ...
Combined Cycle Overnight Capital Costs
$1,200

Nominal $/kW

$1,000
$800

Years when plants came online
$600
$400
$200
$-
...
Capital Revenue Requirement Calculations

Page 14
Historical Natural Gas Fuel Costs
10.00
9.00

$2011/MMBtu

8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00

Page 15

Source: ...
Results

Natural Gas Power Plants

DSM Programs
Incentives
23%

Program Costs
77%

Page 16

$1.14 Billion
580,855 GWh
0.24...
Scenario: Coal Plant Displacement

Page 17
Power Plant Offsets from DSM
2,000
1,750
Capacity (MW)

1,500

250 MW

Add one 500-MW Coal Plant

250 MW

1,250
250 MW
1,0...
Scenario: Coal Plant Displacement

Gas
Operatio
n
19%

Coal
Capital
42%

Gas
Capital
18%
Coal
Operatio
n
19%

$4.89 billio...
Scenario: Avoided Transmission Lines

Page 20
Scenario: Avoided Transmission Lines

O&M
8%

Capital
Costs
33%
Fuel
54%

$4.30 billion
Page 21

Revenue Requirements (¢/k...
Scenario: Average Measure Life

Page 22
10-Year Measure Life

9%

Capital
Costs
30%
Fuel
58%

Revenue Requirements (¢/kWh)

Transmiss
O&M ion
3%

0.90
0.80
0.70
0...
20-Year Measure Life
Transmissi
on
2%

0.90

O&M
9%

Capital
Costs
31%

Fuel
58%

$4.50 billion
Page 24

Revenue Requireme...
Summary of Scenario Results

Revenue Requirements (¢/kWh)

0.90
0.78

0.80
0.66

0.70

0.71

0.68

0.60

0.53

0.50
0.40
0...
Summary
• System wide avoided revenue requirements are 34 times higher than DSM program costs
• DSM programs allow custome...
Jennifer Edwards | Program Manager
jedwards@mncee.org
(612) 335-5873

Megan Hoye | Engagement Coordinator
mhoye@mncee.org
...
Questions?

www.mncee.org/Innovation-Exchange/Resource-Center
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Counting the Capacity that Didn't Hatch

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Jenny Edwards explains how Demand Side Management programs benefit ratepayers by keeping costs down overall, allowing customers to save on the energy they do use as well as the energy they don’t.

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Counting the Capacity that Didn't Hatch

  1. 1. Counting the Capacity that Didn’t Hatch: The Rate Mitigation Effects of DSM Programs December 12, 2013 Jenny Edwards| Program Manager • CEE Innovation Exchange
  2. 2. Requires a better understanding of the system wide revenue benefits of DSM programs Page 2
  3. 3. Counting the Capacity that Didn’t Hatch: The Rate Mitigation Effects of DSM Programs December 12, 2013 Jenny Edwards| Program Manager
  4. 4. Energy Efficiency as a System Resource… Requires a better understanding of the system wide revenue benefits of DSM programs Page 4
  5. 5. Energy Efficiency Context • Efficiency Costs recovered through rates and “trued up” regularly • Utilities are incentivized to meet and exceed targets • Costs are often more transparent to customers than traditional capacity additions & incentives • Savings from avoided costs are less visible
  6. 6. Minnesota DSM Case Study • Analyzed 20-year program data from Xcel Energy • Conducted a backward-looking scenario analysis to compare capacity options • Focused on additional revenue requirements for two scenarios: DSM and No DSM • Revenue requirements are distinct from rates
  7. 7. The Resource Wedge Additional Revenue Requirements = Σ Annual Additional Costs ÷ Total Sales Page 7
  8. 8. Example Utility Bill Customer Charge $8/mo Energy Charge $0.08/kWh Demand Charge $15/kW Riders $0.003/kWh What is cost of itemized power plant capacity?
  9. 9. DSM Scenario Power Plant Scenario 0.24 ¢/kWh 0.66 ¢/kWh • Lower Resource Costs • Fewer Sales • Higher Resource Costs • More Sales Additional Revenue Requirements = Σ Annual Additional Costs ÷ Total Sales Page 9
  10. 10. Cost Considerations DSM Scenario Power Plant Scenario • Conservation and Load Management Program Costs • Indirect Impact Program Costs • Incentives & Lost Revenues • • • • • Capital & Financing Costs Shareholder Returns Fuel Costs O&M T&D maintenance
  11. 11. Power Plant Offsets from DSM 2,000 1,750 Cumulative Offset Capacity Capacity (MW) 1,500 1,250 1,000 750 500 250 Page 11 Incremental Demand Savings
  12. 12. Power Plant Offsets from DSM 2,000 1,750 Capacity (MW) 1,500 1,250 Cumulative Offset Capacity 250 MW Assumed Combined Cycle Power Plants 250 MW 250 MW 1,000 250 MW 750 250 MW 500 250 MW 250 250 MW Page 12
  13. 13. Combined Cycle Overnight Capital Costs $1,200 Nominal $/kW $1,000 $800 Years when plants came online $600 $400 $200 $- Page 13 Source: AEO Assumptions
  14. 14. Capital Revenue Requirement Calculations Page 14
  15. 15. Historical Natural Gas Fuel Costs 10.00 9.00 $2011/MMBtu 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 Page 15 Source: EIA Electric Power Producer Price
  16. 16. Results Natural Gas Power Plants DSM Programs Incentives 23% Program Costs 77% Page 16 $1.14 Billion 580,855 GWh 0.24 ¢/kWh Total Cost Total Sales Addl Revenue $4.16 Billion 629,212 GWh 0.66 ¢/kWh
  17. 17. Scenario: Coal Plant Displacement Page 17
  18. 18. Power Plant Offsets from DSM 2,000 1,750 Capacity (MW) 1,500 250 MW Add one 500-MW Coal Plant 250 MW 1,250 250 MW 1,000 250 MW 750 250 MW 500 250 - Page 18 500 MW
  19. 19. Scenario: Coal Plant Displacement Gas Operatio n 19% Coal Capital 42% Gas Capital 18% Coal Operatio n 19% $4.89 billion Page 19 Revenue Requirements (¢/kWh) Transmiss ion 2% 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 DSM Resource Gas Only 0.78 ¢/kWh Coal + Gas
  20. 20. Scenario: Avoided Transmission Lines Page 20
  21. 21. Scenario: Avoided Transmission Lines O&M 8% Capital Costs 33% Fuel 54% $4.30 billion Page 21 Revenue Requirements (¢/kWh) Transmis sion 5% 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 0.68 ¢/kWh
  22. 22. Scenario: Average Measure Life Page 22
  23. 23. 10-Year Measure Life 9% Capital Costs 30% Fuel 58% Revenue Requirements (¢/kWh) Transmiss O&M ion 3% 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 DSM Resource $3.26 billion Page 23 Gas Only 10-yr Measure Life 0.53 ¢/kWh
  24. 24. 20-Year Measure Life Transmissi on 2% 0.90 O&M 9% Capital Costs 31% Fuel 58% $4.50 billion Page 24 Revenue Requirements (¢/kWh) 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 DSM Resource Gas Only 10-yr 20-yr Measure Life Measure Life 0.71 ¢/kWh
  25. 25. Summary of Scenario Results Revenue Requirements (¢/kWh) 0.90 0.78 0.80 0.66 0.70 0.71 0.68 0.60 0.53 0.50 0.40 0.30 0.24 0.20 0.10 0.00 DSM Resource Page 25 Gas Only Coal + Gas New Transmission Lines 10-yr Measure 20-yr Measure Life Life
  26. 26. Summary • System wide avoided revenue requirements are 34 times higher than DSM program costs • DSM programs allow customers to save on the energy they do use, as well as the energy they don’t • Includes total DSM costs, but only power plant costs recovered during the 20-yr time frame • One specific example, but relevant for other DSM programs, especially those just beginning. • Conditions going forward will be different
  27. 27. Jennifer Edwards | Program Manager jedwards@mncee.org (612) 335-5873 Megan Hoye | Engagement Coordinator mhoye@mncee.org (612) 244-2417 www.mncee.org/Innovation-Exchange/Resource-Center
  28. 28. Questions? www.mncee.org/Innovation-Exchange/Resource-Center

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