Changes in regulatory requirements, market structures, and operational technologies have introduced complexities that traditional ratemaking approaches can’t address. Poorly designed rates lead to...
Demand Response Drivers
Identifying correlations between adoption rates and market factors.
storage capabilities, hydroelectric operators alleviate peak demand issues and thereby reduce the need for demand response. This seems to be a factor in the evolution of demand response in the Northwest, evidenced by the tail of high-hydro, low-DR points in Figure 6. An important note here is the tipping point at which hydroelectric resources can no longer provide adequate flexibility for the system. Operators in hydro-heavy regions are seeing these events with increasing frequency in the face of growing load, annual fluctuations in water levels, and increasing policy constraints on hydro plant operations. As a result, decision-makers in these regions are turning to demand response to mitigate risk and improve system economics.
Reserve Margin and Reliability
One of the most frequently mentioned benefits of demand response is its ability to alleviate short-term reliability concerns on the electric grid. With aging infrastructure and rapidly increasing demand for power in many parts of the U.S., balancing supply and demand has presented a challenge.
Because of its ability to be quickly deployed without major infrastructure investments, demand response has been proposed as one solution to maintain sufficient reserve margins. 18 To test the adoption of this theory in practice, annual reported reserve margins from 22 unique NERC regions and sub-regions are compared to NERC data on demand response for the same regions, between 2003 and 2010 (See Figure 7) .
As expected, regions with higher reserve margins have lower levels of demand response. The correlation—logarithmic for best fit—is much weaker than those in Figures 2 through 6; there are many instances of low DR coupled with slim reserve margins and high DR levels with healthy reserve margins. However, the directional relationship in these results suggests that, at least to a small degree, the designers and operators of power markets are viewing DR as a viable option for managing the grid. This uptake is remarkable considering the strong emphasis on reducing risk in the power industry; DR has very limited performance data when compared to conventional generation assets, and those concerned with grid reliability raise questions about the duration of demand response resources beyond the short (one-to-three year) contracts typical among today’s participants.
As noted above, demand response in the last decade has been characterized primarily by its use as a capacity resource, with curtailments of several consecutive hours— e.g., hot summer afternoons. While DR appears to have been utilized as a solution for conventional peak demand issues, the rise of renewable portfolio standards and other policies are quickly changing market dynamics and system needs. With high fractions of electricity provided by variable energy resources such as wind and solar, it could be necessary to compensate for unexpected variations of up to 20 or 30 percent of the total system load on a short timescale—when clouds cover solar panels or wind drops suddenly. 19 In the future, the reliability value of demand response has potential for alleviating these problems, “any day, any time.” 20
While the factors explored above appear to have had an impact on the evolution of demand response adoption, several