There are several strong drivers for the integration of demand side resources into energy markets and operations today. One is the development of various Smart Grid technologies and business models. The ability to manage demand at the end use level in reaction to market price signals and controls, promises to save consumers money, enhance grid operations, and make markets more efficient. Many smart grid projects are financially viable only when energy market impacts are estimated and considered in the overall cost-benefit equation. The future scenarios of high penetrations of Variable Energy Resources (i.e., renewable resources such as wind and solar) has led to numerous studies of the impacts these will have on markets and operations. One consequence is an increased need for load following capabilities. This can be provided in several ways: increased use of fast responding conventional generation such as gas turbines and hydroelectric facilities; development and use of fast storage as a grid resource; and use of fast responding demand side resources to assist in grid operations.
There are multiple ways in which demand side resources can interact with the market. First is an autonomous response to a market price signal, or “Dynamic Pricing” (DP). Several appliance makers are developing smart appliances that can accept an energy price signal and control their on/off status or starting time accordingly. More complex local controls could include a Home Automation System that manages thermostat settings, air conditioner controls, and other loads against energy prices. In such schemes one question is “which price” do the resources follow – the day ahead (DA), Hour Ahead (HA), or intra hour (Real Time or RT) prices? Anticipating the dynamic response of such autonomous price sensitive load becomes a new dimension in load forecasting for market operators. Estimating potential demand elasticity has been of great interest in recent years as smart grid projects and technologies are anticipated.
A second way of interaction is for Demand Response to occur in response to control / dispatch signals from the market and system operator, or ISO. This kind of “Dispatchable Demand Response” or DDR makes DR look like a resource akin to conventional generation – it has to participate in various energy and ancillary markets and is paid a market price for responding to dispatch. FERC has recently issued Order 745 which spells out some principles of compensating Demand Response providers in the markets.