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Water Heaters to teh Rescue: Demand Bidding in Electric Reserve Markets

With just a few changes in reliability rules, regulators could call on consumer loads to boost power reserves for outages and contingencies.
Fortnightly Magazine - September 1 2003

the characteristics needed to become full players in wholesale markets for contingency reserves-if regulators only would consider making some small changes in reliability rules. Consider, for example, the lowly residential electric water heater.

Electric water heaters can be interrupted very quickly-within seconds of notification. However, utilities can sustain the interruption conveniently for only short periods-about an hour. Should regulators bar such resources from providing contingency reserves because of requirements developed with generators-and only generators-in mind? Consider the possibility of allowing resources with shorter sustainable deployment time to provide reserves. That would accommodate loads with limited storage. And with a more sophisticated deployment of resources-dispatching one set of electric water heaters when the outage occurs, for instance, and a second set 30 minutes later, when the first set is restored to normal operation-grid operators could expand the range of reliability resources.

To date, however, regulators have used retail loads to support power system reliability primarily through special demand-response programs-not through bidding in markets for energy, congestion management, and ancillary services. Yet, if regulators would provide for retail loads to participate directly in wholesale power markets, those markets would expand in scope. Such participation would likely lead to lower prices (especially price spikes that are less severe), fewer opportunities for the exercise of market power, and improved reliability.

Yet encouraging such demand participation requires a careful review of existing reliability rules and market designs to ensure they do not unfairly exclude resources that can provide valuable services to the grid.

The fundamental issue here is how to get the regional reliability councils and the ISOs to think more broadly about the resources that can provide reliability services, how to value and pay for the reliability services these resources provide, and how to cost-effectively deploy such resources.

In this article we explore those options. We explain the nature and characteristics of ancillary services for contingency reserves, including the technical and reliability requirements imposed on resources that now provide these services. Also, we examine the design and results of markets for contingency reserves, plus the desirable characteristics of retail loads that might provide such reserves, and various ideas that might encourage participation in reserve markets.

Overall, we believe retail loads offer a substantial potential for aiding power system reliability through the supply of contingency reserves. Modifying the reliability requirements to accommodate demand resources and include them in revised markets should improve the efficiency of wholesale energy, ancillary-service, and congestion-management markets.

Reliability Rules

To ensure power system reliability, grid system operators impose various performance, metering, and communication requirements on resources that provide contingency reserves. In terms of performance, the resource must demonstrate the claimed ramping capability (in megawatts per minute, or MW/min). In addition, the resource must be able to sustain the committed output for a minimum amount of time, typically an hour or more. Also, the resource must then be able to ramp down within a specified time to its pre-contingency level so that it is positioned to respond to another outage (restoration).

These capability requirements ensure that, during an emergency, the resource will be able