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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

to ramp up in response to a contingency. These units receive no upfront reservation payment but do receive an extra $50 to $100/MWh for energy produced during a DCS event. Tier 2 consists of additional capacity synchronized to the grid, including condensing units, that can provide spinning reserve. These units are paid a reservation charge, based on a real-time market-clearing price, 9 but they receive no extra energy payment during a reserve pickup. FERC approved the PJM market, noting, however, that it "does not contain all the attributes contemplated by the Commission in the SMD NOPR, and the PJM proposal is different from the spinning reserve markets in New York and New England." 10

The PJM markets for spinning reserve appear to be aimed at particular kinds of generating units, perhaps in recognition of the fleet of generators within its control area. As a consequence, the market design is hostile to demand resources in that there is no way for retail loads to participate in these markets.

Conformance With SMD. The SMD as proposed by FERC would require day-ahead markets for spinning and supplemental reserves, but not for the 30-minute replacement reserve. These markets are to be integrated with the energy market, much as New York does. This integration implies that the market-clearing price will reflect both the availability bids of the resource plus the location-specific opportunity cost of the resource. FERC also proposes operation of real-time markets for ancillary services, much as New York proposes in its real-time scheduling system. These real-time markets would differ from the day-ahead markets in that potential suppliers would not be permitted to submit availability bids. In other words, the prices for each reserve service in real time would be a function only of the real-time energy-related opportunity costs. FERC is clear that it wants these ancillary-service markets to be open to demand-side resources as well as generators.

Using Demand Resources: Needs and Opportunities

In the first instance, the characteristics required of contingency reserves, as determined by NERC and the regional reliability councils (see Table 2), should determine the desirable attributes of the demand resources that might provide these services. Ideally, the participating retail load should be able to be interrupted immediately, sustain the interruption for the amount of time required by the regional reliability council, return to full load within the time required by the regional reliability council for restoration (90 to 105 minutes after the contingency occurred), and then be ready to be interrupted again. The reality, however, is that DCS events occur rarely, roughly once a month. 11 Thus, a retail load selling reserves can count on a modest reservation (capacity) payment hour after hour, and only an occasional interruption. 12 Viewed in this light, the desirable demand characteristics might be driven as much by financial and convenience considerations as by physical characteristics.

Some industrial loads (such as a production line) might be able to shut down in response to an emergency on the electrical system. The high cost of shutting down and restarting an entire production process suggests that such a resource