Benefits of Peak Load Reduction Resulting from the Central Air-Conditioning (CAC) Standard

Abstract

The benefits of reducing peak electricity demand could be one of the more important considerations in the current rulemaking for heat pumps and central air conditioners (CAC). The benefits are twofold: first, the direct cost savings from avoided generation and plant construction needed to meet peak loads, and second, the reduced risk of system outage and its consequent societal disruption. This analysis estimates the reduction in generator outages (i.e., unscheduled plant and excessive demand-related outages) due to the proposed CAC standards, and the value of the standards for three NERC regions: the New England Power Pool (NEPOOL), the California Independent System Operator (CA ISO), and the Pennsylvania-New Jersey-Maryland (PJM) region. The analysis does not consider supply disruptions caused by security failures, transmission and distribution failures, or extreme weather events. Stratus Consulting provided the Ernest Orlando Lawrence Berkeley National Laboratory (LBNL) with load curves for the three regions analyzed, and LBNL determined the impact of the proposed CAC standards on the load curves. Using a Monte Carlo simulation based on historical capacity and demand data, Stratus Consulting modeled the loss of load expectation (LOLE) - the expected number of days in a year when the daily peak demand exceeds the available generating capacity - for each region with and without the proposed CAC standards. The difference in LOLE represents the impact of CAC standards on reducing the likelihood of generator outages. To value the proposed CAC standards, we estimated the value of the reduced energy consumed that results from the standards. The Stratus Asset Modeler (SAM) was used to estimate electricity prices for each region. SAM is a mean reverting model with jumps that captures the volatility in spot prices seen in deregulated markets. The model determines super-peak, peak, sub-shoulder peak, and off-peak prices for each month. SAM, which relies on market fundamentals in its price estimation, incorporates business cycles throughout the reserve margin forecast because industries such as electricity generation, with long lead times, exhibit periods of low returns followed by periods of high returns. Our analysis found that the proposed new CAC standards will reduce generator outages by 6% 12% in 2010. The proposed CAC standards yield a 19% to 20% reduction in outages in 2020 because tighter reserve margins are forecast. The proposed standards are valued at $3.9 to$14.5 million in 2010 and at $15.2 to $43.5 million in 2020.