---------- Forwarded message ----------
From: Armando Rodriguez
Date: Oct 26, 2005 1:22 PM
Subject: RE: Demand Response Drafts
To: javs@ieee.org
José Antonio:
Te marqué algunas palabras para que las chequees. Muy bueno el escrito.
Saludos,
Armando
The business case of Demand Response (DR) is enhanced under a free market, innovation, and probabilistic (risk) mindsets. DR is poised to be the demand side risk management tool to complement the tradi tional "LOLP" supply side risk management tool. There are two sides on DR coin. On one side, system crashes are mitigated by a least cost mix of supply and demand of risk management tools in time and space. On the other, DR is the key to the segmentation of customers supply security (insurance no sera assurance??? ). Because of its fine grai n nature DR can help mitigate delays (intended or not) of lumpy investments in generation, transmission and distribution .
Contrary to the belief expressed on the November 2004 Issue of the IEEE Spectrum, under the theme of " W ???right and Wrong," the late Professor Fred C. Schweppe, of MIT, brilliantly predicted a mayor tech breakthrough in electric power, when he said that "There is a good chance that by the year 2000 the term blackout (societal definition) will be considered to be a term out of the Dark Ages." The chance has been there all along, except that a powerful lobby has delayed it, by keeping the natural monopoly of distribution related or integrated with non monopoly retail marketing. It took the august 2003 blackout to initiate a Demand Response Resources project at the International Energy Agency, but I strongly believe that the distribution monopoly needs to be kept totally independent of commercial retail for it to be functional.
Professor Schweppe "envisioned a world of customer-based electrical generation and storage," which has been happening in the Dominican Republic, for quite some time, missing only the Demand Response System and a truly competitive retail deregulation to fulfilled the dream. Just as the DC-10 initiated commercial air travel at the time of the Great Depression, electric power systems will also fly reliably to get Dominican power sector out of collapse , since Demand Response will enable the system to operate within the Normal Operating State, returning back as soon as possible from the Alert and Emergency States with Demand Response actions. A new supply chain is required in the power business for commercial activities, from generators and wholesale brokers, to competitive retailers, to end-users; while transmission and distribution monopolies are forbidden to interfere with those activities, charging a toll for their services.
I agree with the introductory sentence of the article, except for the last three words -"the resource portfolio," which come from an integrated utility mental model. I believe that the End-State of the power industry is to keep the wires monopolies completely separate from the competitive generation and retail businesses. In that sense, the DR domain belongs to the retailer, which substitutes the two existing intermediaries – the distributor and the regulator (that negotiate prices on behalf of retail customers). The retailers compete with each other for customer services and be prepared to buy (and sell) electricity to generators to be sold (and purchased) to customers. The result is a much simpler value chain, typical of most business activities. The result is also a promising business model. However, I don't discount the possibility of a better business model to emerge in the future. Therefore, the assumption of a value chain identical to the supply chain is an unnecessary restriction of the paper.
I also believe that the business model of distribution utilities that control retail activities is close to their useful life. I recently attended the AMRA Autovation Symposium and learned that distribution utilities need to undergo large and risky reengineering programs to reap the benefits of AMI. Retailers, however, can develop their business models from a clean slate. In particular, reading the paper I come to a different conclusion: most distribution utilities will find themselves stocked with old CIS technology. The time is ripe for the new value chain, where customer can chose the minimum cost plan from a portfolio of options available at through competitive retailers. Retail customer will segment themselves to purchase (and sell) watts, vars, and supply security in a completely deregulated market. The solution is thus customer driven. It is a completely different ball game.
There is no need whatsoever to keep customers business activities associated to the distributors. Demand Response then becomes a condition of service, where the lowest supply security standard applies. I learned from Professor Carlos Rufin, that retailers regulating framework should be a prudential similar to the financial institutions. The Georgia gas deregulation can serve as an successful example. I don't discount market confusion developing at the outset, even with incumbent distributors barriers totally eliminated.
Most wholesale deregulation efforts have been a failure. Professor Schweppe, had a different idea. He and his colleagues wrote in the book "Spot Pricing of Electricity": "We believe the deregulation which considers only the supply side of the supply-demand equation is dangerous and could have very negative results." It has taken a long time and a lot of value destruction to understand that insight. Demand Response is no just load shifting and conservation, but a demand side risk management tool for the whole power system. Most IOUs have invested dearly in capacity, making the business case unattractive at the moment. The doors to innovative solutions in the power industry will be wide open when these concepts are finally understood.
José Antonio Vanderhorst-Silverio, PhD
Interdependent Consultant on Electricity
BS ´68, MS ´71 & PhD ´72, all from Cornell University
Valued IEEE Member for 34 Years.
javs@ieee.org
Research and practice areas, and interests:
systems architecture,
systems thinking,
retail marketing,
customer orientation,
information systems requirements and design,
market rules,
contract assistence.
--
José Antonio Vanderhorst-Silverio, PhD
Interdependent Consultant on Electricity
BS ´68, MS ´71 & PhD ´72, all from Cornell University
Valued IEEE Member for 34 Years.
javs@ieee.org
Research and practice areas, and interests:
systems architecture,
systems thinking,
retail marketing,
customer orientation,
information systems requirements and design,
market rules,
contract assistence.
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