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Smart Grid: Wholesale Market Realities

Granular customer data will revolutionize megawatt markets.

Fortnightly Magazine - September 2009

the wholesale power markets will be the large-scale and even real-time gathering, processing and analysis of customer load and consumption information. Such capability doesn’t currently exist in the industry at scale and will have to be acquired or developed in the years to come if companies want to be successful in the wholesale business.

DR’s Hidden Costs

Demand response is the second of two cornerstone benefits that will be delivered by smart technologies. These DR programs are used to temporarily curtail on-peak power consumption, thereby increasing the amount of capacity available during peak periods. Usually, DR programs consist of: interruptible power participation programs where industrial and commercial customers agree to curtail their load or make their back-up emergency DG available for dispatching; and residential programs where remote controlled thermostats are used to interrupt power flow to HVAC systems, pool pumps and home appliances.

One important observation is that residential DR represents only a small share of the total DR resources available in the United States. In its 2008 report, FERC highlights this phenomenon by cataloguing DR resources in 2007 (see Figure 1).

The introduction of smart technologies likely will expand the prevalence of DR in the residential segment as utility or power-service providers will be able to determine the magnitude of customer demand that can be interrupted at the time of seasonal peak loads. As a result, utilities and power providers will be able to optimize the control of both linear and non-linear loads by interrupting the power supply to individual appliances or equipment at the customer premise. Also, smart technologies will provide for two-way communications between the utility and the customer system and will support the large-scale penetration of DR that is driven by the power provider or by the customer.

Finally, smart technologies will permit the introduction and adoption of variable power tariffs—such as TOU and CPP. Although variable tariffs are not considered a classic DR resource, they allow customers to respond to price signals by curbing and shifting consumption patterns in the same way DR resources do. The introduction of these variable tariffs will allow utilities and power providers to measure the customer’s individual elasticity to different tariff structures. By understanding their individual and aggregate elasticity, utilities and power providers will be able to shape load curves through price signals.

Another key observation is that, as the incremental amount of DR resources on the system increases, the more important it will be for utilities and power providers to have a deeper understanding of DR resource economics. On the surface, DR is not much different than peaking power plants, generally used only during peak periods. In theory, DR resources also are much cheaper to install (see Figure 2) and utilize than megawatt-hours from other sources. This is because the cost of fuel is zero and the amount of variable O&M is negligible.

With lower construction costs and lower theoretical energy costs, it would be natural for these resources to become a larger part of the generation asset. Economically, they would be a better option to raise reserve margins and improve