National Grids Involvement in New Englands Forward Capacity Market Helping to Bring Demand Resources into the Supply Mix Tim Roughan Director, Distributed.

National Grid’s Involvement in New England’s Forward Capacity Market Helping to Bring Demand Resources into the Supply Mix

 Tim Roughan

Director, Distributed Resources

National Grid

Agenda

1.National Grid at a glance

2.The Paradigm shift from demand response programs to wholesale markets

3.National Grid’s Demand Resource and Forward Capacity Market strategies

4.How do Forward Capacity Market rules affect customers and demand response providers?

5.What’s next?

National Grid at a glance

One of the largest investor-owned utilities in the world focused on electric and gas transmission and distribution

Headquartered in London, UK $8.1 billion in revenues, fiscal year 2007 London Stock Exchange symbol – NG, NYSE – NGG ~50% UK/US, ~50% Gas/Electric

U.S. Business 4.4 million electricity customers in NE and NY, Including 1.1

million LIPA customers. 3.4 million gas customers in NY and NE Approximately 18,000 U.S. employees

The paradigm shift from Demand Response Programs to Wholesale Markets

A Forward Capacity Market (FCM) is a natural evolution for Demand Resources such as Energy Efficiency, DLC, and Demand Response assets, allowing them to compete directly with supply resources

Capacity and load flexibility has become a commodity with a well defined obligation and value in the marketplace

DR Program participants and curtailment services providers need to consider the concept of commodity risk and how it can fit into their business model

The shift from Programs to Markets creates significantly longer lead times, commitment periods and performance hours for demand resources

The various value streams demand resources create need to be coordinated to achieve their full potential

What role should the energy delivery company play in the wholesale capacity and energy markets?

Demand Resource Strategy at National Grid

Fully support the inclusion of demand resources in the FCM Active participant on ISO-NE committees and working

groups Committed to help make the FCM successful and

maximize demand resource participation in it Register our Energy Efficiency Programs in the FCM Register several former non-aggregated demand response

program participants in the FCM to help ensure reliability during critical capacity deficiencies

Foster stronger linkages between wholesale and retail markets

Provide needed Metering and related Services

Experience enrolling Energy Efficiency Programs in the ISO-NE FCM

Timeline and Results of First Forward Capacity Auction Show of Interest (SOI) due 2/2007, had to accurately estimate savings through

5/2010 (FCA1 was for capacity to be delivered 6/2010-5/2011) Qualifying Package Due 6/2007

8 Metering & Verification Plans, 33 supporting documents, 100MB in 55 electronic files (document >500 EE measures)

Received ISO-NE Qualification in 10/2007 Auction held in 2/2008

National Grid cleared 102 MW out of the 32,000+ MW total procurement Expected FCM Revenue for year ending 5/31/2011 is $6.4 million

This revenue, net of qualification and other FCM costs, will be reinvested in our efficiency programs and will supplement the existing SBC funding source per regulation

Overall effort needed to comply with market rules is significant and compounded by the evolving nature of the New England FCM

FCA #2 activities concurrent (SOI due 11/2007) – additional 30 MWOutstanding issues and opportunities Alignment of states’ M&V requirements with ISO-NE requirements Importance of program stability to allow for accurate forecasting Participating in debate of and keeping abreast of Market Rule Changes Some very large customers want to register their own capacity savings from

efficiency projects co-funded by SBC funds.

Demand Response Strategy

Coordinate DR efforts as a subset of our overall 20 year award winning DSM effort

Leverage energy efficiency program infrastructure to promote and implement DR strategies

Perform demand response audits to identify energy efficiency, load management opportunities and develop DR action plans, including auto-DR projects

Continue to utilize the ISO-NE Real Time DR for customer and system benefits

Price Response Program as a tool to engage customers with the concept of becoming flexible with less critical loads for many hours per year

Over 450 customers are enrolled (>10% of customers >200 KW) > $1 million of account credits in past 12 months

ISO-NE Real Time (emergency) DR as a regional reliability tool Help customers with significant interruptible loads prepare for the Forward

Capacity Market and earn transitional FCM credits now Transition some non-aggregated resources into the FCM

Anticipated payments are $300,000 from FCA1 and $500,000 est. from FCA2 (To be shared with participating customers)

National Grid currently minimizing commodity risk and focusing on emergency generation resources

Many customers will be better off joining an aggregation with another CSP

Demand Response Strategy (cont.)

Refine and continue to utilize local Targeted Demand Response (TDR) to enhance local reliability where load growth has outpaced T&D capacity additions Goal is to contract for enough capacity to reduce targeted feeder/transformer peak

load by 15% Potentially standardize TDR and integrate it with the FCM resources, offering it as

an option to all customers to provide a tool for loading and contingency events. Provide metering and other tools to help customers participate in capacity and

energy markets Near real time ‘under the glass’ metering systems Making near real time load data available to customers

Implement new technologies to facilitate DR for all customer types Integration of energy management systems with real time load data and event

notification Dispatchable energy storage Smart displays and load curtailment hardware

Research, and ultimately seek regulatory approval to deploy, Direct Load Control systems to enable small customer’s respond to price and/or supply capacity

Implications of FCM Rules for DR Providers

Bidding new resources into the FCM involves financial assurance and performance risks, and it also involves significant up-front costs

There is a need for participation from the investment community to ‘make it happen’

Different enrolling providers are approaching risk in different ways, and the various strategies are evolving rapidly.

There is significant revenue uncertainty Financial Assurance, Show of Interest, and M & V plans due prior

to auction The quantity of new resources to be procured will be variable There is potential for a pro-rating of the value for Emergency Gen

and other resourcesProviders need to estimate enrolled capacity by load zone ~3 years

in advanceMust deal with rules that also work for traditional generation

Implications of FCM Rules for Customers and DR Providers

Long lead times needed for Show of Interest, Qualification Package, and M & V Plans

Performance in the FCM will be calculated differently than it was in previous demand response programs

Objective is to keep demand resources’ capacity obligations equivalent to supply resources’ obligations

Average performance over all hours vs. best interval performance Performance hours significantly increased Over performers may share additional payments if there are under

performersAllowing energy efficiency to participate will create a new funding mechanism that will enable new, larger, and more comprehensive efforts

Implications of FCM Rules on Customers

Longer term contracts will be the norm Customers will likely either have performance

penalties or reduced credits to handle performance risk

Load shedding demand resources will need to shed load for significantly more hours than in past programs

Automated DR will become mainstream, as will leveraging these systems to capitalize on wholesale hourly energy markets

Questions and Discussion

For additional questions contactTim RoughanDirector, Distributed Resources(781) [email protected]