[BETA] Fortnightly

Security constrained economic dispatch (SCED) has long been recognized as the most efficient approach to operating a multi-unit electric grid. However, policy makers also have recognized that improvements to the standard SCED algorithms are possible and would be beneficial. For example, the Energy Policy Act of 2005 directed the FERC to convene a Joint Board to examine SCED in the various regions. The board’s report dated May 24, 2006 , contained a number of recommendations for improvements to SCED practices.

The Joint Board defined SCED as “the operation of generation facilities to produce energy at the lowest cost to reliably serve consumers, recognizing any operational limits, of generation and transmission facilities.” As the board noted, “SCED is designed to be an optimization process that takes account of these factors in selecting the generating units to dispatch so that a reliable supply of electricity at the lowest cost possible under the conditions prevailing in each dispatch time interval can be delivered.”

The Joint Board made several recommendations for improvements in SCED, and stated that “The PJM and MISO markets must develop more ways for demand response to participate in the dispatch… Most of the electricity demand enters into the SCED algorithm as non-price responsive must-serve load. It is treated as load that must be served and energy that must be provided regardless of price, taking into account the practical limits of the system. Such large levels of non-price responsive demand provide conditions precedent for volatile spot prices.” The board went on to note that demand response capability increases the efficiency of SCED by increasing dispatch flexibility and resource diversity, and urged the RTOs to improve demand-side participation in dispatch.

On March 15, 2011, the FERC published Order 745. The order provides the financial compensation that is a necessary corollary to the Joint Board’s earlier recommendation. In that order, FERC required grid operators to eliminate the historic discrimination between the pricing of traditional in front of the meter generation and behind the meter demand resources on the grid. The FERC correctly held :

“We find, based on the record here that, when a demand response resource has the capability to balance supply and demand as an alternative to a generation resource, and when dispatching and paying LMP to that demand response resource is shown to be cost-effective as determined by the net benefits test described herein, payment by an RTO or ISO of compensation other than the LMP is