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DR Distortion

Are subsidies the best way to achieve smart grid goals?

Fortnightly Magazine - November 2010

( e.g., regulation).

Now, however, the expansion of wind resources is increasing the demand for these ancillary services and for flexibility in the system generally. Numerous RTOs and utilities are analyzing how much of each ancillary service product (or new products) will be needed. 20

DR could be one way to satisfy the additional needs, potentially providing fast ramping reserve response or other ancillary services. However, DR provides little ancillary services in the RTOs. DR provides a substantial amount of spinning reserves in PJM and responsive reserves in ERCOT, 21 and some regulation in MISO. 22 There are pilot programs in other RTOs. For example, ISO-NE recently completed its demand response reserve pilot to determine if small generation and DR resources can provide ancillary services. DR currently can provide ancillary services as a dispatchable asset-related demand (DARD). NYISO’s demand-side ancillary services program (DSASP) enables retail customers that can meet telemetry and other qualification requirements to provide ancillary services. DR provision of ancillary services has been limited primarily by the lack of adequate controls and meters at customer sites ( e.g., the RTO has to have direct control and real-time telemetry on any resource or load-providing regulation). In addition, most RTOs are at an early stage of developing the best market designs and operational procedures for using DR for ancillary services. Expanding DR provision of ancillary services will require addressing these challenges directly ( i.e., by creating a market for the right ancillary service market products). It’s difficult to see how subsidizing DR activity in the energy market would help.

Promoting the Smart Grid : It’s unclear how subsidizing DR participation in energy markets might fit into a coherent vision of the smart grid, since DR is only one component of the smart grid. The smart grid refers to communication and control enhancements all along the power system, from customer devices and meters, to the distribution and transmission systems, to the RTO control room. Because the smart grid includes AMI, it will enable widespread DR and dynamic pricing. But the effects of AMI can be greatly enhanced by in-home displays and feedback that “inform, engage, empower, and motivate people” to reduce their annual energy usage (not just peak) 23 by 3 to 13 percent. 24 Other components of the smart grid could enable RTOs and transmission operators to manage a higher penetration of distributed technologies that may be part of state or federal energy strategies, such as distributed renewable generation and plug-in hybrid electric vehicles (PHEVs). The RTOs will be able to adjust PHEVs and other flexible loads in response to imbalances and price signals in response to variations in the output of large amounts of intermittent renewables. In the long run, the smart grid also could reduce some transmission and distribution costs. The effects on costs, the environment, operations, utility business models, and regulations could be profound. 25 Thus, policy makers should be discussing overall policy direction and the best market and regulatory strategies for getting there.

More Questions

There are more efficient ways to achieve various policy objectives