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.
avoid major supply-side capital costs. In the short-term, neither voluntary price response nor voluntary curtailment can avoid capital-cost additions, because neither are certain enough for planning purposes. The speed of DR in terms of response time must be comparable to the generation that it is credited with avoiding. Generation response is defined by ramp-rate—the ability to change power output in megawatts per minute. DR that responds as fast as a combustion turbine can qualify to avoid a CT. Moreover, DR that responds in an hour is much less valuable than either DR or a CT that responds in 10 minutes or less.
The short-term certainty of DR—reliability of operation—can be directly compared to the supply-side measure of forced-outage-rate (FOR), which indicates the expected frequency with which it will fail in use. A related measure is the planned-outage-rate (POR), defined as the portion of time the resource is unavailable, for such reasons as planned maintenance. In combination, FOR and POR reflect the amount of time a resource is forecast to be unavailable. DR can be directly compared to supply-side resources in terms of FOR and POR. The track record of some DR shows a low FOR and a POR of almost zero. This demonstrates that some DR resources are more than comparable to a CT, while other DR resources are inferior in terms of reliability.
Often DR is defined as either price response or reliability response. Going beyond this, a DR value continuum is based on two technology categories, dispatchable DR and voluntary DR (see Table 1) . Higher-value DR can avoid significant long-term capital costs and variable costs. Low-value DR only can reduce short-run variable costs.
Greater value can be captured by DR resources that tap concurrent DR services. The highest value DR concurrently can provide major benefits from all seven benefit categories, including: 1) generation capacity and energy/congestion; 2) transmission capacity and losses; 3) distribution capacity and losses; 4) environmental benefits; 5) lower market prices for capacity and energy; 26) market mitigation (price volatility and market power); and 7) option value to hedge risks and provide insurance.
Communications and controls are essential to leverage high-value DR technology. New AMI can leverage DR technology to provide greater certainty of DR control and to communicate results, which then allows the utility to harness concurrent benefits. Additionally, other direct consumer benefits allow utilities and regulators to address a range of customer concerns, including the ability to better control their utility bills, energy consumption and carbon footprint.
A critical question to answer is which specific services can a DR resource concurrently provide, to avoid the need for specific supply-side resources? DR resources that provide a larger portfolio of services obviously provide greater value.
DR’s primary benefits arise from its ability to reduce or avoid generation resources, both in terms of fixed capital costs and variable energy costs.
Avoided variable costs include fuel, line and transformer losses, and variable O&M—the energy components of electricity costs. Both firm and non-firm DR resources properly can be credited with