A Quick Look at Services Bought and Sold in an ISO

by Enerdynamics staff

Many who are new to the electric industry share a common question about Independent System Operators (ISOs): What type of services are bought and sold in an ISO?

 A thorough and easy-to-follow answer to this question is contained in the following video clip taken from Enerdynamics’ new online course titled ISO Market Basics. Just click on the following image to begin the video:

  

Want more insight into how ISOs function? ISO Market Basics, Enerdynamics’ newest full-length online course, is appropriate for those with little or no experience in ISO markets. The course looks at:

  • The role of ISOs and various market participants
  • The various types of electric markets available to market participants
  • The services that are traded in electric markets
  • How the ISO markets work

The course comprises 11 modules that include practical examples and exercises to help learners understand how markets are used in real life by various market participants. For more information or to buy a subscription, click here.

Enerdynamics offers discounts on bulk subscriptions and site licenses. Contact us at 866-765-5432 or info@enerdynamics.com for special pricing on bulk orders.

If you specifically are seeking to learn how the Midcontinent Independent System Operator (MISO) functions, we also have ISO Market Basics — MISO version available.

Posted in Electricity, Energy Training | Tagged , , , , | Leave a comment

Why Would a Commercial or Industrial Electric Customer Want a Battery?

by Bob Shively, Enerdynamics President and Lead Instructor

In a recent two-part series of blog posts, we looked at reasons a residential electric consumer would want a home battery. We concluded that in almost all cases, home battery systems don’t currently make sense for residential consumers other than as a threat to energy collagekeep utilities from creating overly punitive rate designs for those customers installing solar. But we mentioned that batteries may indeed make sense for commercial customers. So let’s explore why…

Walmart Wants Batteries to Manage Utility Bills

In a recent webinar[1], Walmart Director of Energy David Ozment described Walmart’s Vision 2020 energy procurement goals. By 2020 Walmart plans to increase procurement of renewables by 600% over 2010 and to accelerate efficiency so that the energy intensity of its buildings is decreased by 20% over the same time period. As Ozment described, Walmart is on the path to procuring 100% renewable electricity. But as Ozment also noted, this is an economic decision not a “feel good” or marketing strategy. Each project has to make economic sense.

Walmart plan for RE

A piece of this strategy includes using batteries to improve project economics. Walmart began pilot projects in 2013 with small 15-30 kW batteries that are charged at night and discharged during the day. This year, Walmart will pilot larger 200 kW batteries that are designed to be charged by roof-top solar systems. Its pilot partner is, interestingly, Solar City/ Tesla.

The smaller batteries have been used to time shift purchased power to take advantage of Time-of-Use (TOU) rates and to shave overall facility peak demand.  The larger batteries will be used to manage solar output so that it can be used at the time that will best reduce Walmart’s utility bills either through time shifting or peak shaving.  The larger batteries offer much more flexibility to manage bills since they can store an amount of power equal to a typical demand for a Walmart store.

Walmart is Using Batteries to Give Utilities What Utilities Want

Note the key point here – Walmart does not plan to use batteries to disconnect from the utility but simply to manage its utility costs by giving the utility what the utility rate structure tells Walmart it wants: power use at night rather than during the day, and lower monthly peak demands. Down the road, sophisticated commercial and industrial (C&I) customers in certain markets may also be able to increase the economics of batteries through participation in capacity and/or ancillary services markets.

Not too far in the future, it is likely that batteries will become a key asset for C&I customers to manage electricity procurement costs. Successful utilities will recognize this and devise rates and services that reward customers for using their assets to benefit the overall distribution grid.


Footnotes:

[1] See:  “Not Taking No for an Answer” available at  http://info.aee.net/advanced-energy-webinar-archive

Posted in Electricity, Renewables | Tagged , , , , | Leave a comment

Are Capacity Auctions Ensuring Reliability or Just Ensuring Generator Revenues?

by Bob Shively, Enerdynamics President and Lead Instructor

ISO Market Basics demo

ISO Market Basics demo

Enerdynamics recently developed a course titled ISO Market Basics that teaches electric industry newcomers the basics of the various services bought and sold in ISO markets. One of the key questions addressed in the course is “how can markets ensure that enough generation capacity gets built to reliably serve loads on peak days?”

Peaking Resources Rarely Run

This question is a valid one in competitive wholesale markets because the last few peaking resources only get called upon a few hours out of the year (and some years might not get dispatched at all). In the days of vertically integrated utilities that was OK – utilities collected the fixed cost and rate of return for power plants in ongoing utility rates that were paid whether or not the unit ran.

load duration curve


How Sufficient Peaking Capacity Can Be Assured

Once peaking units are owned by Independent Power Producers (IPPs), their only source of revenue is market payments. This means that for the peaking units to survive in a competitive market, regulators must do one of two things: 1) allow prices to rise to very high levels during peak times so that generators can cover their annual costs and profits during just a few hours; or 2) create a revenue stream that pays generators simply for providing capacity.

Allowing high energy prices during peak times has worked in markets such as Texas, but the concept often makes regulators and system operators uncomfortable since it may open the door to market manipulation opportunities and it fails to mandate a level of capacity that is available for reliability. Thus, many regions have chosen to implement a capacity market in which generators are paid monthly payments in return for having specified power plants available to the market throughout the year.

ISO capacity market chart


Issues with Capacity Markets

Clearly capacity markets create a revenue stream that helps get peaking generation built.  So why don’t all regions use them? There is a concern that capacity markets take more costs out of the competitive market and place them back into a regulatory construct that forces all market participants to jointly share the cost of power plants. To some this sounds a lot like the regulated days of utility rate base. And with all markets, there is concern that capacity markets are open to manipulation or other causes of excessive costs.

Indeed, in MISO where capacity costs have traditionally been very low, the recent auction resulted in prices in one region jumping from $16.75/MW-day to $150/MW-day.  This means households in Illinois will likely pay over $100 more annually for their electricity in coming years[1].  The debate about capacity markets shows how 20 years into electric deregulation, we still don’t have a consensus on how to manage the details.


Understanding details such as what a capacity market is and how prices can rise nine-fold in one year can be difficult for newcomers and those unfamiliar with details of ISO markets.  For a simple and easy-to-understand look at ISO markets and the services available in them, check out our ISO Market Basics class available in an online format. This course also is available as an instructor-led classroom seminar. Contact us at 866-765-5432 or info@enerdynamics.com for details. 


Footnotes

[1] See “Illinois AG accuses Dynegy of electricity market manipulation

Posted in Electricity | Tagged , , , , , , | Leave a comment

Why Would Consumers Want a Home Battery? Part II

by Bob Shively, Enerdynamics President and Lead Instructor

Our last post, Part I of Why Would Consumers Want a Home Battery?, we identified four “value adds” that homeowners may find compelling enough to buy and install a cool iStock_000063192597_Mediumnew battery system like the new Powerwall home battery system recently introduced by Tesla. These included:

  • reliability reasons if supply will be unavailable at a later time
  • economic arbitrage because power may be more expensive at a later time
  • avoiding specific utility charges associated with using the electric grid
  • making a roof-top solar system economical

We already examined the validity of the first two reasons (in Part I of this post). So this week we’re breaking down the reasoning at the final two potential motivators…

Using Batteries to Avoid Utility Charges 

So what about avoiding specific utility charges? This presents some possibilities.  A few utilities offer rates that encourage and reward electric customers for cutting usage at peak times.  Having a home battery could let a homeowner cut usage from the utility but still keep using certain appliances. Unfortunately, at least for now, the economic rewards are fairly minimal and it would take a number of years to pay for an outlay of $7,000 under these programs.

The one place where it could make good sense is for those customers building homes far from the existing electric grid. In this case, utilities often charge thousands of dollars extra to extend their distribution lines to a new home in a remote location.  In this case, a solar system coupled with Powerwall batteries could indeed be economic.

Using Batteries with a Solar System

This leads us to the last use, coupling home batteries with a home solar photovoltaic (PV) system. Most PV systems today are built on homes that remain interconnected to the utility system.  The systems generate electricity during the day, excess power flows back into the grid, and homeowners draw power back off the grid during the night and on cloudy days. Utilities use net metering for solar power, which means that any power you put onto the grid is credited against power you take from the grid at a later date. In effect, you are using the utility grid as a big battery and you don’t care what time of day your solar panels are generating power.

So again, unless you have time-of-use billing, there is no benefit to having a home battery.  But recently, utilities have started questioning net metering. Some have suggested that net metering payments should be reduced or, worse for those thinking of going solar, that the utility should charge monthly fixed fees as high as $50/month that would eat up most or all of the benefits of a solar system.

Here is where the home battery benefit could well come into play. If you have installed or are thinking of installing a home solar system, batteries are your insurance that the utility can’t wreck your economics. It’s an option that let’s the consumer say: “Want to make it too expensive to stay connected?  Fine, I’ll cut the cord and just use batteries to time shift my solar power.”

This also applies to situations in which utilities may limit the amount of solar power allowed on a specific circuit due to distribution design issues. In this case, the consumer can say “If you make it too hard for me to interconnect, I’ll cut the cord.”  Thus, in some regions of the country there may be a market for home batteries right away when they are included in a solar system. And most of the major solar installation companies active in the residential market such as SolarCity, Sungevity, and SunPower all have announced plans to offer their systems coupled with batteries.

solar output v home usage

Solar output and home usage – storage to match solar supply to home usage can be supplied by utility system or by home battery

Home Batteries Put Utilities on Notice

Without solar, there really isn’t a compelling reason in today’s market to buy a home battery. And, unlike the Apple Watch, you probably won’t get too many “cool points” for having one. But as the home solar industry continues to evolve, and as utility companies try to respond to what many view as a threat to their historic profitable business model, lower-cost home batteries definitely change the equation.

Thus, the Powerwall battery announcement may have a lot to do with Tesla’s relationship to SolarCity as a warning to utilities to play nice. As a result, many utilities may decide to simply treat residential solar and home batteries as a future resource, design them into their distribution systems, and pay fair value for the benefits they provide. While these type of issues are playing out, batteries are more likely to make sense in commercial rather than the residential sector. We will explore that in a future post here on Energy Currents.

Posted in Electricity | Tagged , , , , , | Leave a comment

Why Would Consumers Want a Home Battery? Part I

by Bob Shively, Enerdynamics President and Lead Instructor

At a recent press conference in Los Angeles, Tesla CEO Edwin Musk gave a compelling presentation on how Tesla’s new Powerwall home battery system will revolutionize the electric industry.  And you too can own this system for only $3,000 (although installed it may total around $7,000).

Media reports abounded with some saying that Tesla is seeking to create the iPad or the Apple Watch of the battery industry. I don’t quite get the analogy. I’m pretty sure I could stare at a Powerwall battery system all day long and never see anything as compelling as an Internet cat video.

Dual Powerwall Battery

Dual Powerwall Battery

 

So looking through all the hype, why would someone want a home battery system mounted in the garage? To answer that question, let’s first discuss what a battery does.

Most of the electricity that we consume is generated at the time that we consume it. This is unlike other energy sources such as gasoline, fuel oil, natural gas, and coal, which are produced or mined and then sit in storage for a while until it’s needed.  Batteries and other storage systems such as pumped hydro allow us to generate electricity at one time and consume it at a later time.

 

electric system.typical vs battery

 

For the average electric consumer to benefit from a battery, there has to be some value associated with splitting the timing of generation and consumption.  Such value could be:

  • for reliability reasons if supply will be unavailable at a later time
  • for economic arbitrage because power may be more expensive at a later time
  • to avoid specific utility charges associated with using the electric grid
  • to make a roof-top solar system economical

So are any of these “value adds” actually compelling enough for one to buy and install a cool new battery system? This week we break down the first two – reliability and economic arbitrage. Next week we’ll conclude the discussion by examining avoidance of utility charges and using a battery system to enhance the economics of roof-top solar.

Using Batteries for Home Reliability

The most obvious reason to buy a home battery system is to mitigate the concern of power outages. Severe storms are often followed by stories of homeowners stunned by how much they depend on electricity (“Even my cell phone quits working when I can’t charge it!”) So is the Powerwall the answer? Not necessarily.

Kohler generator

Kohler 14 kW Standby Generator

The largest of the Powerwall home systems provides 10 kWh at full charge. This would take care of a home’s needs for about one day or maybe two or three days if the homeowners were very careful to only run critical loads. After that, power would be out just like the rest of the neighbors.

So if reliability is the concern, it’s probably better to go to Home Depot and spend money on a natural gas backup generator that will run as long as it is fueled.

Using Batteries for Price Arbitrage

So what about economic arbitrage?  As most in the industry (but not the general public) know, power tends to be more expensive to generate during peak times such as late afternoon and early evening in summer. Batteries seem to be the perfect answer – buy power during the cheap off-peak hours and use it during the expensive peak hours. Except, most residential customers in the U.S. are on a flat rate that costs the same no matter what time of day you consumer power.

While it costs the utility more to generate or buy power for consumers during the peak, it costs the consumer exactly the same unless the utility has residential time-of-use rates. And time-of-use rates are very rare in the U.S. So, until time-of-use rates become prevalent at the residential level, this value proposition for a battery system doesn’t work either.

So we haven’t made a strong case for installing a home battery system yet…in our next post we’ll continue exploring reasons consumers may (or think they may) need one.

Posted in Electricity | Tagged , , | 2 Comments

Why Auto Manufacturers Care About Getting Electric Vehicles to Market

by Bob Shively, Enerdynamics President and Lead Instructor

At the end 2013 there were approximately 70,000 electric vehicles in the U.S. and 104,000Parking Space only for electric vehicles plug-in hybrids. This is minuscule compared to more than 226 million registered vehicles in the U.S. Why, you may wonder, do car manufacturers even bother? A short answer: They have to.

In 1990 the State of California created a Zero Emissions Vehicle (ZEV) mandate. With ongoing modifications to the rules, nine other states have joined California including Connecticut, Maine, Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Vermont. The current rules will require approximate 15% of light-duty vehicles sold by 2025 to be either electric or fuel-cell powered. Together these states make up about a quarter of the U.S. car market. So to keep selling cars, manufacturers must find ways to get electric cars into the market.

Meanwhile, some interesting competitors are coming into the EV space. Tesla has been there for a while and continues to produce spectacularly engineered (but not profitable) EVs. And Smart, now a subsidiary of Mercedes-Benz, was founded by the inventor of the Swatch watch. More recently, technology heavyweights have weighed in:

  • Google has been working on the driverless car (which may or may not be electric).
  • The Wall Street Journal reported last week that Apple has secretly created a project dubbed Titan with several hundred employees working toward an Apple-branded EV.
  • The well-known iPhone manufacturer Foxconn recently announced its own intention to partner with Chinese internet investment company Tencent to develop a low-cost electric vehicle in China.

Clearly change is happening. And EVs are of interest to the electric industry not just as new load but also because the battery technology required for vehicles has great potential to provide short-term electricity storage on the grid whether or not the batteries are in a car. When Tesla announced its recent huge battery manufacturing facility in Nevada some speculated that batteries won’t just be used by Tesla for its cars but also by Solar City, a company part owned by Tesla founder Elon Musk. And indeed, Solar City just announced a GridLogic service where the company will build electric microgrids for cities, campuses, and military bases.

Utilities are also trying to get into the game. Pacific Gas and Electric recently filed with the California Public Utilities Commission a proposal to provide rebates to owners of EVs. These rebates would be funded by carbon emission credits created under the California program restricting greenhouse gas emissions.

It is hard to predict where this is all headed. Maybe the future lies in a model like MyEnergiLifestyleTM, which is a collaboration among Ford, Georgia Tech, and various consumer product companies including Whirlpool, Sunpower, Eaton, Infineon, and KB home. The MyEnergiLifestyleTM service integrates solar power, an EV, flexible loads, and an intelligent control system to minimize energy costs while maintaining full customer comfort. If and when such integrated systems become widespread, we may indeed have an energy revolution. And then no matter where oil prices lie, there will be strong incentive to buy an electric vehicle.

Posted in Electricity, Renewables | Tagged , , , | Leave a comment

Will the U.S. Shale Gas Supply Peak Sooner Than Predicted?

by Bob Shively, Enerdynamics President and Lead Instructor

Less than 10 years ago, the industry consensus was that natural gas was becoming scarceiStock_000023298502_Medium in the United States. Based on this belief, gas and oil majors spent billions building liquefied natural gas (LNG) facilities to import gas supplies into the U.S. Now, they are spending hundreds of millions more to convert these facilities into export terminals to ship LNG from the U.S. to Asia and Europe. Consumers are enjoying the benefit of low-cost natural gas, and large industries such as chemical plants are building new facilities guided by the assumption that cheap gas supplies will last for many years.

There is good evidence to suggest that the U.S. is in a fortunate spot with many years of supply available. However, after a recent series of studies, Canadian geoscientist David Hughes suggests that our expectations of long-term plentiful supply are based on inaccurate interpretations of gas drilling and production data.

To develop his own forecast, Hughes performs an assessment of actual well production data from the major shale fields, and then “determines future production profiles given assumed rates of drilling, average well quality by area, well- and field-decline rates, and the estimated number of drilling locations.”[1] According to the analysis, maintaining our existing shale gas production, let alone increasing it significantly, will be difficult.

The issue is that the output from shale gas wells declines rapidly after initial production.  For instance, output from a well drilled in the Barnett shale basin will decline by 75% in just three years[2]. Thus the only way to keep production up is to keep drilling more and more wells. And unfortunately the more you drill, the more you end up going into areas with less attractive geology meaning higher costs and lower output.

It may seem Hughes is another anti-fossil fuel naysayer. However, soon after Hughes released his analysis of the EIA’s estimate of shale oil available in California’s Monterey basin, the EIA reduced its estimate of available supply in the basin by a stunning 95 percent. Still, Hughes’ forecast for cumulative production from 2014 to 2050 for the top seven shale gas plays is 230 Tcf while the EIA’s forecast is 377.

Hughes suggests that the flush of shale gas is likely to peak by 2020, then decline. If true, the bust will hit right after many capital projects — the funding for which was based on long-term robust gas supply — are completed. This would sadly repeat the history of the many LNG import projects built in the 2000s.


Footnotes: 

[1] Drilling Deeper, p. 161, available at http://shalebubble.org/drilling-deeper/

[2] Ibid, p. 175

 

Posted in Natural Gas | Tagged , , , , | Leave a comment