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Stakeholders Provide Guidance as Xcel Energy Looks at 50 Percent Increase in Demand Response

image credit: By zhudifeng via Canva

By Trevor Drake, Program Manager, Great Plains Institute

Xcel Energy explored increasing its demand response portfolio by 50 percent with Minnesota stakeholders from 2017-2019. The results highlight considerations for utilities looking to deploy larger portfolios of advanced demand response. This blog, the first in a three-part series, shares demand response design principles and filing objectives developed by stakeholders to inform Xcel Energy’s planning for new demand response programs.

(Note: This blog was originally posted on the e21 Initiative website. Co-convened by the Great Plains Institute and the Center for Energy and Environment, e21 brings together key interests to enable Minnesota’s continued leadership in shaping an electric system for the 21st century.)

STAKEHOLDER FEEDBACK NEEDED AS UTILITIES LOOK TO THE EXPANDING OPPORTUNITIES OF DEMAND RESPONSE

Across the United States, the way that electric systems are being planned and operated is changing. This includes a shift away from large power plants towards variable and distributed wind and solar, increasing demand for electrified transportation and buildings, a desire for more consumer choice, and pressure to reduce greenhouse gas emissions. Utilities, their regulators, and energy system stakeholders across the nation are grappling with how to address these changes while attending to the need to operate electric systems safely, reliably, and affordably.

Demand response encompasses a collection of programs and technologies that shape customer loads to provide system-level benefits. While traditionally used to pay customers to reduce demand during emergency events, demand response is evolving to offer other system services, including the following:

  • shape loads to accommodate variable electricity generation resources like wind and solar
  • reduce operations costs by deferring or avoiding infrastructure investments
  • reduce emissions by avoiding the operation of fossil fuel power plants
  • enhance overall system reliability
  • provide choice to customers in how much they pay for electricity based on when and how they use it
  • provide ancillary services such as frequency regulation

As newer forms of demand response are developed to deliver these services, utilities must take into account the interests of a wide range of stakeholders, including regulators, environmental advocates, consumer advocates, and businesses.

This blog is the first in a three-part blog series that will highlight recommendations and insights coming out of a diverse stakeholder workgroup that explored increasing demand response in Xcel Energy’s “Northern States Power” service territory by 50 percent.

  • Part 1 will highlight a set of consensus recommendations from the stakeholder group to Xcel Energy.
  • Part 2 will look into a potential study that evaluated whether and how Xcel Energy might increase its demand response portfolio by 50 percent.
  • Part 3 will check in on what’s happening today, including what happened with demand response in Xcel Energy’s most recent integrated resource plan filing.

REGULATORY REQUIREMENT TO INCREASE DEMAND RESPONSE BY 50 PERCENT

In January 2017, the Minnesota Public Utilities Commission required Xcel Energy to include in its next resource plan the procurement of 400 megawatts (MW) of additional demand response resources by 2023 and to evaluate the cost-effectiveness of 1,000 MW of additional demand response by 2025.

That requirement was based on a potential study completed by The Brattle Group in 2014 that looked at demand response technical potential in Xcel Energy’s Northern States Power territory; the study did not include cost-effective analyses. In 2014, Xcel Energy had 918 MW of demand response capability.

However, after testing and verification exercises to ensure customers on interruptible rates would respond when called upon, Xcel Energy’s portfolio dropped to 850 MW by 2018. Yet the 400 MW requirement based on their 2014 baseline stood, requiring Xcel to look at a 50 percent increase in demand response capabilities by 2023.

To inform the development of the new demand response offerings, Xcel Energy hired the Great Plains Institute and the Center for Energy and Environment, which co-convene Minnesota’s e21 Initiative, to bring together stakeholders over several meetings from late 2017 to early 2019. Xcel Energy also hired The Brattle Group to conduct another potential study, taking into account cost-effectiveness.

Several things came out of these conversations, including:

  • a set of guiding principles for designing demand response programs,
  • a set of objectives for filing demand response programs to seek regulatory approval, and,
  • perhaps most importantly, a more nuanced understanding of the considerations that must be taken into account as utilities grow their demand response portfolios.

In this first blog, we’ll look at the design principles and filing objectives that stakeholders developed to give Xcel Energy guidance in developing new demand response programs.

DESIGN PRINCIPLES AND FILING OBJECTIVES

Demand response is a complex and wide-ranging topic. Programs can be designed to offer services at the distribution and wholesale market level, engage every type of customer, and relate to or overlap with other program offerings including energy efficiency and time-varying rates.

Given this complexity and the fact that Xcel Energy’s demand response programs were still in development at the time these stakeholder convenings took place, the Great Plains Institute and Center for Energy and Environment asked stakeholders to collaborate in developing a set of consensus-based principles that could provide guidance to any new or expanded demand response offering. This would allow flexibility on behalf of the utility to design programs in consideration of the parameters set by stakeholders.

In response, the stakeholders in this process developed two lists—Design Principles and Filing Objectives:

  • Design Principles: guidance for designing demand response programs or portfolios of programs.
  • Filing Objectives: describe what information stakeholders would like to see when new demand response offerings are filed to seek regulatory approval.

These two lists are interrelated and therefore intended to be taken as a package. In other words, while all stakeholders may not have supported each of these objectives or principles on their own, they found the full set acceptable. Importantly, these were also meant to be general guidelines and not absolute requirements.

These simply offered a starting point for developing demand response offerings that have a higher likelihood of earning stakeholder approval in the regulatory process. While these are specific to Xcel Energy in Minnesota, they may be insightful for other fully regulated utilities.

Design Principles

WHAT WOULD STAKEHOLDERS LIKE TO SEE FROM A DEMAND RESPONSE PORTFOLIO OF ANY SIZE FROM XCEL ENERGY IN MINNESOTA?
  1. Compensate demand response appropriately given the specific benefits it provides. Outcomes addressed should include cost-effectiveness, customer engagement as participation, system reliability and flexibility, carbon reduction, resource integration, and avoidance of building new assets.
  2. Ensure pricing and expectations are clear, concise, and transparent for customers. The utility should make efforts to ensure that customers participating in demand response programs understand the program rules.
  3. Provide flexibility and options for customers. Demand response programs are ultimately made possible as a result of cooperation from customers. Therefore, it’s important that the utility provides offerings that allow flexibility and options for customers with different needs, while also delivering the desired system benefits.

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What’s clear from these design principles is that stakeholders were willing to give Xcel Energy plenty of flexibility in designing demand response programs, as long those programs were fair, transparent, and offered adequate consumer choice.

However, stakeholders were also very clear that when new demand response programs are filed to seek regulatory approval, they want to be able to thoroughly evaluate them. The filing objectives below provide guidance for what this diverse group said they needed to see at the point of filing.

Filling Objectives

WHAT WOULD NEED TO BE TRUE TO EARN STAKEHOLDER SUPPORT WHEN NEW OR EXPANDED DEMAND RESPONSE OFFERINGS ARE FILED TO SEEK REGULATORY APPROVAL?
  1. Be clear about the outcomes that demand response offerings are designed to achieve, and how those should be measured down the road. Outcomes addressed should include cost-effectiveness, customer engagement as participation, system reliability and flexibility, carbon reduction, resource integration, and avoidance of building new assets.
  2. Fully evaluate demand response program costs and benefits. Costs and benefits should be evaluated from the perspective of multiple key actors affected by demand response programs, including the utility, demand response participants, ratepayers who are not demand response participants, and society at-large (e.g., including public policy related impacts such as greenhouse gas emissions). This evaluation should include consideration of alternatives to achieving the same benefits (e.g., if demand response is being used to address a system need, how do demand response costs and benefits compare to those of whatever alternative might be used to meet that system need?).
  3. Address reliability and resilience of demand response offerings, as relevant. Demand response proposals should include evidence to show how the proposed offerings will reliably deliver the intended benefits. This evidence could include physical testing, the deployment of incentives and penalties that can arguably elicit a response from customers, and audits to confirm that a program is reliably delivering its intended benefits when called upon. In cases of entirely new offerings where showing evidence of costs and benefits may not be possible, pilot projects could be deployed to develop the needed evidence.
  4. Delineate between dispatchable and non-dispatchable demand response. In general, this objectives asks Xcel Energy to differentiate between something like a time-of-use rate, which could be considered a demand response offering but is arguably not dispatchable (i.e., it can’t be called upon to reduce load in an emergency event), and something like critical peak pricing, which is arguably dispatchable to reduce load when needed.
  5. Show transparency towards meeting the objectives listed above. For all of the filing objectives above, Xcel Energy is more likely to earn support from stakeholders by showing or explaining its efforts to meet these objectives as transparently as possible.
  6. Consideration of the AEMA/XLI Recommendations. The Advanced Energy Management Alliance (AEMA) and Xcel Large Industrials (XLI) were two groups that participated in the stakeholder process and developed their own set of recommendations for what they would like to see reflected in Xcel Energy’s DR offerings based on discussions during this process. The group did not have time to fully discuss these, but agreed that they should be considered at the point of filing

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While these design principles and filing objectives are specific to Minnesota, they provide insights into key considerations for developing new demand response programs. Fairness, transparency, customer choice, and thorough evaluation of costs and benefits are all important to winning support for new programs.

In the next part of this series, we’ll look into the potential study that sought to determine whether Xcel Energy could cost-effectively increase its demand response portfolio by 50 percent, and what insights came out of that discussion.

Looking to read more about the stakeholder process? Check the official process summary here.

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Discussions

Matt Chester's picture
Matt Chester on Mar 5, 2020 5:21 pm GMT

What’s clear from these design principles is that stakeholders were willing to give Xcel Energy plenty of flexibility in designing demand response programs, as long those programs were fair, transparent, and offered adequate consumer choice

I think much of the general public still isn't aware of or understand demand response programs, but this outlook is more than fair and if it can be held true then DR will surely grow leaps and bounds in the coming years

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