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...
Demand Response: The Missing Link
Everyone is in favor of more demand response, but little gets delivered when system operators need it the most.
implementation of DR in real time. 20 This project, briefly described in the sidebar (“The Other Mundane but Critical Obstacle”), is, like several others, focused on addressing the challenges to widespread use of DR, namely allowing efficient real-time collaboration among multiple stakeholders, typically the grid operator, utilities and their participating customers as well as DR service providers. 21
Realistically, however, DR is not a substitute for resource planning, maintaining adequate reserve margins, effective price hedging on the part of loads, or having functional markets for ancillary services and the like. But the experience of the past few years in competitive wholesale markets around the country suggests that introducing relatively little elasticity in demand through time-variable prices—be it critical-peak pricing, real-time pricing, or DR—can make a big difference. Just as removing a few vehicles off busy roads during rush-hour traffic eases congestion, getting as little as 1 to 3 percent of the peak load off the network saves bundles of money, not to mention the menace of rolling blackouts.
We, like many others, are convinced that what the industry needs is packaged solutions for managing the demand-side of electricity far better than has been possible up to now. 22
1. The term “primitive” in this context is used to contrast unintelligent and involuntary schemes such as interruptible tariffs, where customers don’t have an option to decline service interruptions, as opposed to more intelligent schemes where customers can decide if they wish to participate or opt out and pay a price premium.
2. Following the passage of the Energy Policy Act in August 2005, there has been increased interest in smart meters, time-variable pricing, and demand-response programs.
3. Following the 200-01 electricity crisis, the California Public Utilities Commission (CPUC) started a proceeding to persuade the investor-owned utilities in the state to explore the costs and cost-effectiveness of installing smart meters for all consumers and engaging in wide-scale RTP and DR programs.
4. This distinction is highly significant because customers who sign up for interruptible loads often drop out of these programs following emergencies when their service is repeatedly interrupted, as happened in California during the 2000-2001 electricity crisis.
5. Assessment of Demand Response & Advanced Metering, FERC, 8 Aug 06.
6. McKinsey Quarterly, 2002
7. Assessment of Demand Response & Advanced Metering, FERC, 8 Aug 06.
8. PJM Press release, 17 Aug 06.
9. "These (DR) voluntary curtailments reduced wholesale energy prices by more than $300 per megawatt-hour during the highest usage hours," according to Andrew L. Ott, PJM vice president - Markets. PJM press release dated 17 Aug 06.
10. Benefits of DR in Electricity Markets & Recommendations for Achieving Them, U.S. DOE Feb 06.
11. Assessment of Demand Response & Advanced Metering, 8 Aug 06, FERC.
12. Impact Evaluation of the California Statewide Pricing Pilot, CRA International, 2005.
13. Real-Time Pricing as a Default or Optional Service for C&I Customers: A Comparative Analysis of Eight Case Studies, Lawrence Berkeley National Laboratory, 2005.
14. Both DOE and FERC reports mention the lack of enabling technology and provide suggestions on how to