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.
reducing specific variable costs.
In order for DR to be credited with avoiding supply-side capital cost it must avoid load equally or better than a comparable supply-side resource (proxy) would serve load if the DR weren’t available. It must respond operationally as quickly as, or quicker than, the supply-side proxy. It also must be equivalent or better in terms of certainty and predictability, and must exhibit a ramp-rate that is equal or better than the supply-side resource. Finally, it must have comparable or higher short-term reliability (in terms of FOR and POR) than the supply-side resource.
DR’s value for avoiding supply-side capital costs depends on the resource it’s displacing. A critical distinction in power markets is the difference between firm power and non-firm power. Firm power is backed up by operating reserves (spinning reserves and non-spinning reserves), while non-firm power is not.
Avoided firm resources should account for, and sum up, all related capital costs and variable costs. Non-firm DR such as voluntary DR or voluntary price response is less certain, as it lacks the obligation to perform when a contingency occurs, such as a forced outage in generation or transmission. During repeated days of a heat-storm, voluntary price response becomes less reliable, because customer response to price declines as summer heat increases. DLC, on the other hand, performs as a firm resource with certainty and predictability, and thus can avoid the construction of dedicated supply-side resources.
For DR to avoid a supply-side resource it must be needed for system reliability, or it must be more cost-effective than the replacement resource. In either case, the reliability of the DR resource must equal or exceed that of the supply resource it’s displacing.
The need for long-run capacity may be based on LSE requirements to satisfy planning-reserve criteria, which usually are set by states. An alternative to planning-reserve criteria is regional or local resource adequacy (RA). RA better defines specific reliability requirements, including ramp rate and availability during specific hours and in specific locations.
Separately, operating-reserve (OR) requirements are defined in each region to ensure short-run reliability. OR includes at least non-spinning reserves (or cold reserves) and spinning reserves (hot reserves). Non-spinning and spinning reserves must be available on a timely basis under specific notice provisions and at pre-specified capacity levels. Thus, the ability of DR to qualify as OR capacity depends on its responsiveness and speed as well as its communications system.
DR can provide dispatchable ramping capacity that displaces older, less efficient, more polluting resources, and enables integration of renewable resources ( e.g., solar and wind resources). The use of long-term dispatchable DR contracts to provide non-spinning reserve is accepted by the Western Electric Coordinating Council (WECC). Other DR features, such as verifiability, may needed to meet OR requirements. PacifiCorp uses 90 MWs of residential and commercial DR on the Wasatch Front transmission constraint (the Cool Keeper resource) to satisfy WECC requirements for Non-Spinning Reserve. Adding value, RA and OR criteria can be simultaneously satisfied by dispatchable DR that provides ramping capacity with certainty to meet system or local