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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

might be called upon only when the interruption is long. Such a large industrial load, therefore, is quite different from residential water heaters. Households with electric water heaters are unlikely to notice any performance degradation if the duration of the interruption is short. In addition, water heaters can be turned back on again very quickly, and be ready, once again, to provide contingency reserves. Other resources take much longer to be restored and rearmed to provide reserves. Thus, different retail loads are well suited to provide different services to the bulk electric system.

An alternative way to view demand-side provision of contingency reserves is to ask what the system operator really needs to maintain reliability. After all, the current rules were designed to accommodate large generating units, not demand resources. A more flexible set of performance-based requirements would likely encourage demand participation and improve reliability.

For example, there is no reason why an individual resource must maintain its emergency output or load reduction for the 60 minutes specified by NPCC. DCS performance could be just as good if some loads responded immediately and were then replaced by other load reductions after, say, 30 minutes. With this simple modification to the NPCC requirements, loads that can interrupt for 30 minutes, but not for 60 minutes, would be able to provide contingency reserves. However, the 60-minute requirement would reduce by 50 percent the amount of contingency reserves provided by loads relative to a 30-minute requirement for sustained output. Such a rule change would expand the amount of resources that could participate in ISO contingency-reserve markets, thereby improving reliability and reducing the costs of doing so. Table 3 summarizes the characteristics loads must meet to provide contingency reserves. 13

Achieving the Vision: Nine Recommendations

To help realize the potential benefits of demand-side participation, we suggest a list of nine recommended actions.

  1. Set Up Reserve Markets. ISOs should, as soon as possible, design and open markets for all three contingency-reserve services-the 10-minute spinning reserve, 10-minute nonspinning (supplemental) reserve, and 30-minute (replacement) reserve. Without functioning markets for the reserves, it is difficult to see how retail loads could provide-and be compensated fairly for-these services.
    ISOs should implement markets that follow closely FERC's SMD proposal, as exemplified by the New York markets. In particular, they should adopt a day-ahead market design that integrates availability bids for the reserve services with energy bids and integrates reserves and energy in real time.
  2. Invite Loads to Bid. Loads would participate in the day-ahead reserve markets by submitting availability bids and the energy strike price (both in $/MWh) above which they would be willing to interrupt some load. Accepted load and generator bids would be treated the same way; in the event of a major outage, the ISO would dispatch generators and loads in economic merit order. Loads and generators that failed to respond to the ISO's dispatch signal during a DCS event would face the same nonperformance penalties.
  3. Review Regional Reliability Rules. The regional reliability councils should continue to review their requirements related to DCS and contingency reserves to ensure they