DEMAND RESPONSE
WHERE DO WE STAND, WHERE DO WE GO AND HOW DO WE GO CHALLENGES, OPPORTUNITIES AND PERSPECTIVES
JOISA DUTRA
CIGRE – DEMAND RESPONSE SEMINAR SÃO PAULO DECEMBER 15, 2016
ROADMAP
Disrupting the Use-of-Energy Markets
Demand Response Business Models
Informing DR Through Economics
Final Remarks
DISRUPTING THE USE-OF-ENERGY MARKETS
FROM ASSET-BASE & ENERGY VALUE CHAIN TO USER-CHOICE SERVICESDISTRIBUTED ENERGY RESOURCES: SETTING THE SCENE
• Emerging technologies are disrupting the energy supply chain
• Consumers’ behavior have changed and actively exercising choice
• Utilities & regulators remain applying “old framework” in how to react to DER disruptions
Key
Facts
Three emerging questions in this
energy landscape:
What are the new business
models & players in the markets?
What are the (expected) policies
guiding the market?
What to regulate: subject, role and
how regulators will adapt?
CURRENT WISDOM: OLD FASHIONED ENERGY SUPPLY
CHALLENGES
Supply Remote supply
Network-based model
High volumes through connecting points
One direction business model flow
Demand
Clustered-class consumers Busbar demand aggregation Regional diversity
Production
T&D
Consumer
Legal Framework
• Rigid system planning
• 100 years old value chain model
• Asset-based regulations
• Tariff-based services
Ownership Structure and Funding
• Public ownership
• Concession-based PPP structures
• Mortgage-based on public,
concessional and commercial
financing
Public “coordination” environment: concession and licenses to operate
CURRENT WISDOM: MORE EFFICIENT ‘100 YEARS OLD’ BUSINESS MODELS
Asset costs and energy supply management • Large T&D networks • Utility scale generation • Fuel supply and
retail management
+
Debt costs (rates)• Public & concessional funding • ECA/DFI & commercial financing
+
Equity returns • Public (limited) • Private - network (moderate) • Private – commodities supply (moderate +)=
Cost of services & allowed revenues• Regulatory levies and fees
• Taxes
Networks
Concession (size) rent seeking
Guaranteed revenues
Commodities
Volume & capacity rent seeking
Guaranteed entry barriers
Trading & Retail
Energy volume management mark-ups
Supplier & customer capture
Business models thrive on asset returns and fuel/supply management
DISRUPTING THE CURRENT WISDOM: TECHNOLOGY AND
BEHAVIORAL CHANGES LEADING TO “NEW” BUSINESS MODELS
Te
chno
lo
gy
Di
sr
upt
io
ns
Fast, reliable & Mobile
Telecoms
Web-based IT
Bounded demand
systems efficiency
Smart grid-customer
interface
Small size renewables
generating & storage
Big data
B
eha
vi
o
ra
l C
ha
ng
es
IT Services Platform
Predominance of
customer’s choices, not
consumer
Clustered energy
services, not supply
Millennium investor
approach
N
ew
B
us
ine
ss
M
o
d
el
s
Aggregator platform
(yields seeker)
Shared-asset usage
(joint & part-time)
Convergence of
services trading
Blending financing
INTRODUCING “NEW” BUSINESS MODELS WRAPPED BY BIG DATA AND THE
INTERNET OF THINGS: NAVIGATING IN UNCHARTERED WATERS
Customer
Choice of services Data ownership Data leasing
Big Data Platform Host
Multisector
Multi-Customer Origination Storage
Matching Providers & Customers
Data Rights Management
IT Infrastructure Enablers
Telecoms Distributed Servers Providers and Customers Data Acquisition
Energy Providers Services Aggregators Multi-sectors Competition and Regulations Platform & Data Challenges: Ownership, Rights, Obligations and Civil Liberties Threats
Public “coordination” environment: concession, licenses and authorizations to operate Unregulated private IT platform operator (low cost with product & services differentiation)
DER PARADIGM: A NEW ECOSYSTEM FOR BUSINESS MODELS
Networks
Concession (size) rent seeking Guaranteed revenues
Commodities
Volume & capacity rent seeking Guaranteed entry
barriers?
Trading & Retail
Energy volume management mark-ups
Supplier & customer capture?
Independent Assets & Services Owner
Partial asset sharing (revenues) Low cost operator
Services Platform
Aggregation of supply & demand (data) Low cost & high yield
generator
Data, Services & Capital
“Bundling” capital, data & internet of things High yield & customer
capture
Asset costs and energy supply management •Large T&D networks •Utility scale generation •Small scale renewable generation and storage
+
Debt costs (rates)•Public & concessional •Quasi & commercial •Creative financing
+
Equity returns •Public - limited •Private - network (moderate) •Private - supply (moderate +) •Millennium investor (very high)+
Services Platform •Private web platform operator •Multisector agent •Blended revenues(advertising & fees)
=
Cost of services & allowed revenues•Regulatory levies and fees •Taxes Emerging new ecosystem focused on customers' choice.
COEXISTENCE OF BUSINESS MODELS?
Energy chain supplier Authorized revenues
RoE – 10%
Equity costs
Debt costs
Asset-base
Services Platform Market-driven feeBlended yields
(25%+)
Platform costs
Aggregated asset-base
& usage
Retailer” & Trader Yields seeker
Regulated asset rent seeker
Product & Services Costs and Differentiation
DEMAND RESPONSE BUSINESS MODELS
Demand
Response
Encompasses a
Large Category
of Technologies
and
Applications
Different BM
emerge in each
category
Automatically activated in response to price
signals
Manually in response to requests from the DR
business
PRICE - BASED DEMAND RESPONSE
(TOU, CPP, RTP)
Does not require
the load to be
verifiable.
Dynamic Pricing
(CPP, RTP):
technological constraints institutional constraints (absence of spot prices reflecting short-run marginalcosts on a real-time basis).
Trade-off: more
accurate prices
Complexity, higher transaction costs EfficiencyPilot programs
How reliable it is as a dispatchable
load?
Pilot programs tailores to critical
areas?
INCENTIVE-BASED DR
INCENTIVE-BASED
Demand-side
bidding, interruptible
demand, and direct
load
More fit to deal with
sudden contingencies.
How to define the
value of reduction?
Rate of adhesion policy Complemen tary technologies Marketmechanisms engagementConsumer
EFFECTIVENESS
DEMAND RESPONSE (DR) IN BRAZIL AS A RESOURCE
Potential for becoming a cost-effective source of flexibility for the system in the short, medium and long-term
IN BRAZIL:
Time Of Use Tariffs
(ToU)
Tariff Flags (Low Voltage) Blue and Green Flags (High Voltage)
White Tariffs:
Voluntary adhesion
Requires smart meter
Interruptible
Contracts (Past)
Who will be the contracting party of
DR programs?
How will the provider be
THE NEED OF A NEW REGULATORY FRAMEWORK TO LAUNCH
DEMAND RESPONSE AS A RESOURCE
Need for new Business
Models
Competition and new
players in retail.
Requires the provision
of comparable (to
generation)
opportunity
More Accurate Price
Signals
CONTRACTING
FRAMEWORK?
Aggregators:
• Transaction costs (specially for small consumers).
• Customer interface management. • Portfolio of residential consumers has
increased value
Enablers: technology.
Access to markets
Demand growth for electricity grows sales and revenue growth. DG: Net metering scheme
DR: ToU tariffs
Transitional
Arrangements
Consumer empowerment New revenue streams for Utilities: more focused on electric service provisions
DERs: comparable opportunities to those of
generation
More accurate price signals Customer-side business models
Market design • Energy • Capacity • Ancillary • Services
OUR APROACH
GOVERNANCE OF THE TRANSITION
Challenge: disruptive changes, pace of
technology innovation, a new paradigm.
A dynamic framework for assessing priorities and recommendations, and
acting on them to provide a sound regulatory and competitive environment must be drawn.
Requires a comprehensive and integrated strategy
• active engagement of external stakeholders. • interagency dialogue
The executive power: leadership role
in orchestrating the interaction of multiple stakeholders
• Acknowledge all stakeholders as strategic players.
Integrated view of short, intermediate, and long-term objectives involving various actors
and sectors.
Aneel “Chamada 20” R&D is an important step in this direction –
necessary but not sufficient.
Quadriennial Energy Review
(QER): An
interagency Task Force, which includes members from all relevant executive departments and agencies (agencies) to develop an integrated
review of energy policy that integrates
all of these perspectives.
INFORMING (AND IMPROVING EFFECTIVENESS OF)
DR THROUGH ECONOMICS
CONSUMER ENGAGEMENT CAN BE FOSTERED BY INSIGHTS
COMING FROM ECONOMIC THEORY
Understanding Consumer
Elasticity is key for unlocking
the potential of DRs and SG
Technologies.
Behavior Science can shed
some (a lot!) light.
Economic Theory can provide insights on
Economic Theory can provide insights on
Market Mechanisms Market Mechanisms Pricing Incentives Pricing Incentives Empirical techniques Empirical techniques Field Experiments Field Experiments
CONSUMER ENGAGEMENT CAN BE FOSTERED BY INSIGHTS
COMING FROM ECONOMIC THEORY
Economic Theory can provide insights on
Economic Theory can provide insights on
Market Mechanisms Market Mechanisms Pricing Incentives Pricing Incentives Empirical techniques Empirical techniques Field Experiments Field Experiments
Experiments are Key to Inform the Implementation and Learning From It
ECONOMICS + BEHAVIORAL SCIENCE
Program
design
Pilot/
Experiment
Consumer
Response
Results
Program
Evaluation
Long-term/
General
Equilibrium
BEHAVIORAL SCIENCE HELPS TO UNLOCK DR POTENTIAL
Economic
Theory,
network
engineering and
behavior
science can
help unlock the
full potential of
SG
technologies
Economics: In a general equilibrium setting peak and off-peak
prices will depend on consumer adhesion and response rate.
How will consumers react to incentives? Price is not the main
determinant af electricity demand.
Behavior Science is crucial in understanding and engaging
end-users for and optimal program design and evaluation.
KEY MESSAGES
The (ongoing) process of weakening the traditional
value chain barriers expose incumbents and leads to a cream skimming
process
The entitlement of franchise(e) to supply
energy is ending
Isolated perspective myopia: new businesses involving multiple sectors are evolving and capturing
profitable mark-ups/margins
New business models ecosystem is emerging as
key feature of demand response
Value is being squeezed through the emergence of
combined low cost operator and service
differentiation
Incompleteness of regulations and
unwillingness of regulators to evolve
Positioning, rivalry and tension could characterize
relationship among stakeholders
Coexistence of “Old" and “New” models are expected to stay for a
