FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
AMI/Demand Response: Getting It Right the First Time
Each DR portfolio will have a different set of AMI needs, based on overall technology infrastructure.
spend millions of dollars evaluating new AMI. Having DR enabling technologies like AMI almost certainly will be beneficial to the electric industry. However, the AMI evaluations will benefit greatly from creating an appropriate DR portfolio as part of the overall solution. Each DR portfolio will have a different set of AMI needs. These need to be accounted for when determining the overall technology infrastructure.
The Contribution of Demand-Response Resources
Any efficient market depends upon the free interaction of demand and supply to achieve market balance. DR is the ability of the customer to influence their electric loads at key times. These actions are a viable option for peak-load reduction and for providing pathways for demand and price elasticity and high price mitigation, not to mention just keeping the lights on.
Barriers to DR exist in many electricity markets. Often, these stem from a history of regulated retail pricing based on a supply-side structure designed to deliver customers all the electricity they want at a fixed price. Now, there is a unique opportunity to bring the demand side back into the electricity market with potentially large efficiency gains. Three factors contribute to this current opportunity associated with DR:
• Technology advances in communication and controls;
• Increasingly favorable economics for DR resources because of rising fuel costs; and
• Uncertainty in the costs of future environmental mitigation associated with fossil fuel plants.
In addition, many parts of the country that have had excess demand for the past four years are projecting near-term shortfalls.
As a result, this is a time to explore a complete solution. A complete solution would incorporate the development of an AMI that would enable and enhance demand-side options, and allow for the development of DR as part of a portfolio of options to meet future electricity demand. Equally as important, expanding the DR portfolio also helps manage system risks going forward. This more diversified portfolio of both supply-side and demand-side resources is more robust in its ability to handle future shocks and mitigate the costs associated with the stress events all system planners worry about—a hot summer, with record peak demands, combined with a major plant outage and transmission constraints.
These once-a-decade events are characterized as low-probability, high-consequence. DR can go a long way in mitigating the adverse consequences of events to the substantial benefit of customers who eventually must pay for them.
Applying a Resource Planning Framework to DR
We developed a case study modeling effort for valuing demand-response resources (DRR) using a resource-planning context, and we examined changes in system costs with and without DRR included in a portfolio of resources. The difference in system costs over a 19-year time horizon provides an estimate of the value of DRR for the electric system. The specific model used for this effort was New Energy Associates’ Strategist Strategic Planning Model. 3
The base case for the model realistically represents an electricity market that allows for appropriate tradeoffs between resources—both supply-side and DRR—and which is able to address issues such as off-system sales/purchases and system constraints ( e.g., transmission