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...
Optimizing Demand Response
A comprehensive DR business case quantifies a full range of concurrent benefits.
Electricity load-serving entities (LSEs) face rapid peak demand growth, skyrocketing expansion costs, mounting risks with electricity resource siting, and unprecedented environmental constraints. As a result, the regulatory metric for resource selection has become least-cost, least-risk.
In this context, utilities and regulators increasingly are attracted to the benefits and market potential of new demand-response (DR) capabilities.
DR offers operational flexibility, and emerging third-party DR contracts minimize risks to LSEs and their customers. But after 25 years of using standard practices to evaluate DR’s cost-effectiveness, the primary DR benefits remain poorly defined. In most analysis to date, some of DR’s most important wholesale and retail benefits have been given short shrift, or ignored completely. For example, the reduction in region-wide prices from the use of DR rarely is quantified or included at all.
It is well accepted that fast, dispatchable DR can avoid the capital and operating costs of peaking-power capacity such as combustion turbines (CT). Increasingly DR also is demonstrating its ability to avoid capital costs and energy losses related to transmission and distribution. DR resources can be offered and traded in capacity markets, and scheduled by an ISO/RTO to avoid operating reserves, short-term energy, and congestion costs.
DR offers a range of business-case benefits. High-value DR can avoid the need for incremental generation, transmission and distribution capacity, while providing environmental mitigation, reducing prices, helping to mitigate market power, and providing additional option value for market participants.
The challenge is to demonstrate how DR can be used to concurrently capture as many high-value benefits as possible. Optimizing DR capabilities to target the highest and best uses will allow utilities and their customers to achieve maximum value and net concurrent benefits.
DR reduces electricity use with a spectrum of technologies ranging from simple manual controls to automated digital systems. Dispatchable DR can harness direct load-control (DLC) devices, load-management controls, smart thermostats, advanced metering infrastructure (AMI), and digital energy management systems (EMS). Digital controls can cycle and curtail discretionary loads (lights, motor drives, HVAC systems, etc.) and automatically be triggered by price or reliability.
A continuum of DR services illustrates its relative value in comparison to the supply-side capital and operating costs it can avoid. The ability of DR to reduce supply-side costs is largely a function of the following:
• The specific changes in load shape that result from DR;
• The long-term certainty (predictability) of DR over time;
• The short-term reliability of DR over time— i.e., the equivalent of planned and forced outage rates;
• The response rate of DR— i.e., the ramp-rate or load-shift rate; and
• The type of supply-side resources avoided and the subsequent costs reduced.
The ability to avoid supply-side capital cost is directly related to the certainty and predictability of the DR, its availability, and the speed of the DR response. DR that is highly certain and in place for a predictable time has the potential to