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AUTHORS: Steven Nadel, Yang Zhirong, and Shi Yingyi
Integrated Resource Planning
Integrated resource planning (IRP) is a planning process for electric utilities
that evaluates many different options for meeting future electricity demands
and selects the optimal mix of resources that minimizes the cost of electricity
supply while meeting reliability needs and other objectives.
With traditional utility planning, planners take into consideration the demand
to be met, the reliability to be achieved, and applicable government policies
and regulations. The planner then selects the types of fuels, power plants,
distribution systems and patterns, and power purchases that will meet these
objectives with minimum revenue requirement (the revenue the utility must
collect to finance and operate the power system). Options are selected only
from the supply side (options to supply more power) as opposed to the demand
side (options to reduce electricity demand) of the electricity system.
IRP attempts to take the traditional planning approach several steps further.
It strives to:
1. Evaluate all options, from both the supply and demand sides, in a fair
and consistent manner.
2. Minimize costs to all stakeholders (and not just costs to the utility).
3. Create a flexible plan that allows for uncertainty and permits adjustment
in response to changed circumstances.
The traditional goals of utility planning are reliable service, economic
efficiency, environmental protection, and equity. Reliable service necessitates
the balancing of customer and investor interests (i.e., balancing the quality
of service against cost). Equity necessitates the additional balancing of
the interests of the various customer classes as well as the interests of
present and future generations.
IRP makes it easier to strike a balance among these traditional goals by
considering all supply and demand options as potential contributors and by
integrating them into a common framework. The result is an opportunity to
achieve lower overall costs than might result from considering only supply-side
options. Furthermore, the inclusion of demand-side options presents more
possibilities for saving fuel and reducing negative environmental impacts
than might be possible if only supply-side options were considered. However,
while DSM programs are one important aspect of an IRP, an IRP is much more
than DSM programs. An IRP will also usually include many supply-side measures,
ranging from traditional power plants to more innovative sources of electricity
supply such as power purchases, independent power plants, cogeneration, and
renewable energy sources.
Integrated resource planning usually consists of a number of steps:
1. Identifying the objectives of the plan (e.g. reliable service, meeting
peak demand at least cost, etc.) and the appropriate time horizon.
2. Collecting data needed for the planning process.
3. Developing one or more demand forecasts.
4. Identifying resource options including demand-side and supply-side resources.
5. Consistently evaluating all resources including calculating avoided costs,
conducting benefit-cost analyses, and considering environmental externalities.
6. Selecting the most promising options to create an integrated, effective,
and responsive plan.
7. Conducting uncertainty or scenario analyses for different economic,
environmental, and social circumstances.
8. Based on these uncertainty or scenario analyses, developing a plan that
best addresses the most likely contingencies while providing flexibility
in case one of the less likely scenarios comes to pass.
9. Developing an action plan.
10. Implementing the action plan.
11. Monitoring and evaluating implementation of the plan and revising the
plan as necessary.
Each of these steps is discussed in detail in Chapter 3.
Demand-Side Management
Demand-side management measures take advantage of opportunities to increase
the efficiency of energy service delivery; these opportunities are not being
fully taken advantage of in the market. To make use of DSM measures requires
special programs that try to mobilize cost-effective savings in electricity
and peak demand. These programs help overcome various barriers that prevent
many cost-effective DSM measures from being adopted; these barriers exist
even in countries with fully developed market economies. Without DSM programs,
these energy and peak demand savings would not occur or would materialize
only after significant delay, and in any case could not be relied upon, forcing
utilities to construct expensive back-up capacity and causing higher rates.
Numerous studies in China and other countries have found that cost-effective
DSM programs can reduce electricity use and peak demand by approximately
20 to 40 percent.
DSM benefits households, enterprises, utilities, and society including:
1. Reduces customer energy bills.
2. Reduces the need for power plant, transmission, and distribution construction.
3. Stimulates economic development.
4. Creates long-term jobs that benefit the economy.
5. Increases the competitiveness of local enterprises.
6. Can reduce maintenance and equipment replacement costs.
7. Reduces local air pollution.
8. Reduces emissions that contribute to national and international environmental
problems such as acid rain and global warming.
9. Enhances national security by easing dependence on foreign energy sources.
10. Can increase the comfort and quality of work spaces, which in turn can
increase worker productivity.
11. Can create market transformations with long-term results.
These and other benefits are discussed in Chapter 2.
Many program and policy alternatives exist for implementing DSM measures.
Among the options are utility-operated DSM programs, government-operated
DSM programs, regulations, and standards. Each of these approaches has a
useful role to play. Equally important, utility and non-utility approaches
can work together, and such joint approaches are often the most powerful
method for overcoming market barriers. For example, utility programs can
make regulatory approaches more effective and palatable by bearing some of
the costs of compliance and enforcement, for example, in new buildings. Also,
utility programs can increase the market penetration of new technologies
to the point where they are used by the majority of customers and mandatory
government efficiency standards can take over, a point that might not be
reached until years later without utility programs.
Utility DSM programs generally fall into three main categories:
1. Conservation programs: Reduce energy use, e.g., programs to improve the
efficiency of equipment (lighting and motors, for example), buildings, and
industrial processes.
2. Load management programs: Redistribute energy demand to spread it more
evenly throughout the day, e.g., load shifting programs (reducing air
conditioning loads during periods of peak demand and shifting these loads
to less critical periods), time-of-use rates (charging more for electricity
during periods of peak demand), and interruptible rates (providing rate discounts
in exchange for the right to reduce customers' electricity allocation during
the few hours each year with the highest electricity demand).
3. Strategic load growth programs: Increase energy use during some periods,
e.g., programs that encourage cost-effective electrical technologies that
operate primarily during periods of low electricity demand.
Within these categories there are many different program approaches that
can be used including:
1. General information programs to inform customers about generic energy
efficiency options.
2. Site-specific information programs that provide information about specific
DSM measures appropriate for a particular enterprise or home.
3. Financing programs to assist customers with paying for DSM measures, including
loan, rebate, and shared-savings programs.
4. Direct installation programs that provide complete services to design,
finance, and install a package of efficiency measures.
5. Alternative rate programs including time-of-use rates, interruptible rates,
and load shifting rates. These programs generally do not save energy, but
they can be effective ways to shift loads to off-peak periods.
6. Bidding programs in which a utility solicits bids from customers and energy
service companies to promote energy savings in the utility's service area.
7. Market transformation programs that seek to change the market for a particular
technology or service so that the efficient technology is in widespread use
without continued utility intervention.
These program approaches are discussed in Chapter 4.
The process to design and implement DSM programs generally consists of the
following steps:
1. Identify sectors, end-uses and efficiency measures to target;
2. Understand the market for targeted sectors and measures;
3. Develop program designs;
4. Conduct cost-effectiveness screening;
5. Prepare an implementation plan;
6. Implement programs; and
7. Evaluate programs.
Each of these steps is also discussed in Chapter 4.
Discussion
Many successful examples of IRP and DSM exist throughout the world. IRP and
utility DSM programs were developed in the United States during the 1980s
and have since been used in Canada and Australia. IRP processes and DSM programs
are beginning in Latin America, Western and Eastern Europe, and several Asian
countries. For example, the Electricity Generating Authority of Thailand
is now implementing a five-year DSM master plan, investing $189 million U.S.
in order to achieve annual energy savings of 1427 GWh and peak capacity reduction
of 238 MW by the end of 1997.
However, while IRP and DSM have many advantages, a number of issues must
be considered before IRP and DSM can flourish in China and other developing
countries, including:
* Cost recovery for IRP and DSM
* Impacts of IRP and DSM on electricity prices and bills
* Impacts of IRP and DSM on utility profits
* The role of government in IRP
* IRP and DSM in a market economy
Experience in other countries shows that it is possible to finance IRP and
DSM efforts through electricity rates and reduce electricity bills for the
average customer. It is also possible to structure utility regulations so
that utilities profit from undertaking IRP and DSM efforts that maximize
benefits to society. Some of these approaches are discussed in Chapter 5.
Next Steps
Integrated resources planning and demand-side management involve a lot of
new concepts, and it will take time for people to understand and fully apply
these concepts. Probably the best way to learn more about IRP and DSM is
to learn by doing. Specifically, to begin the IRP process, it is often useful
to prepare a very simple preliminary IRP in order to learn more about the
IRP process and to identify new resources that appear to be cost-effective
and merit further exploration. Such a preliminary IRP can be prepared using
available data. Similarly, while the Chinese government has operated many
energy-saving programs, most Chinese utilities have not operated programs
to reduce energy use or power demand. In order for utilities to get experience
with these types of programs, and in order to collect data that will be useful
for the IRP process, it may be useful for utilities to develop small
demonstration or pilot demand-side management programs
Chinese government agencies can also encourage IRP. In particular, government
officials can do three important things in the short term:
1. Encourage power bureaus to give serious consideration to IRP and DSM,
including developing preliminary IRPs and pilot DSM programs.
2. Review existing laws and regulations that govern the power industry to
determine whether any laws and regulations discourage IRP and DSM. Consider
modifications to such laws and regulations.
3. Consider offering financial support to several demonstration utilities
to help cover the costs of initial IRP and DSM efforts.
IRP and DSM can help ease electricity supply problems in China and other
developing countries. The sooner these processes are begun, the sooner China
and other developing countries will start reaping the benefits.
110 pp., 1995, $20.00 I953
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