Are subsidies the best way to achieve smart grid goals?
FERC has proposed that wholesale energy markets should subsidize load reductions with full LMP (locational marginal price), without deducting the customers’ retail savings. Such a policy could distort the market, and other solutions might achieve the same objectives more efficiently.
Which path leads to the smart grid?
A fierce debate has erupted in the utility policy community, with battle lines drawn within FERC itself. In the effort to improve system efficiency, two competing alternatives stand out: to build the smart grid on large-scale demand response (DR) programs, or to build it around consumer behavior in retail markets.
DR design flaws create perverse incentives.
Demand response isn’t energy: It’s a separate product, traded in a separate market. Policy trends, however, are moving toward equal treatment for demand and supply resources in electricity markets. Does treating DR as energy inflate its value and create perverse incentives?
Has demand response hit an evolutionary dead end?
On March 18, the day after this issue went to press, FERC was scheduled at its decisional meeting to open a new formal inquiry on the role of demand response in regions that already have competitive wholesale power markets. In particular, how much money should grid operators pay to electric customers who promise not to buy wholesale power?
Proving market performance requires detailed analysis.
Now that fuel prices have fallen recently from the highs seen in 2008 and wholesale electricity prices also have decreased, it might be tempting to attribute the lower prices to the restructuring of the wholesale electricity markets. Unfortunately, it’s a little more complicated than that.
Locational marginal prices in PJM respond to demand and fuel costs.
The evolution of real-time locational marginal prices (LMP) in PJM Interconnection’s wholesale electricity markets demonstrates the characteristics of a well functioning and competitive market; prices are driven by supply and demand fundamentals. Although critics of wholesale electricity markets frequently have pointed to increases in LMP as proof that the wholesale markets aren’t working, in reality, the markets are working as they should. Increases in LMP are driven by higher demand for electricity or increasing fuel prices.
Economists take sides in the battle for DR’s soul.
Back when the U.S. economy and power consumption still were bubbling, PJM reported in August 2006 that customer curtailments during a week-long August heat wave had generated more than $650 million in market-wide energy savings—all at a mere $5 million cost, as measured in direct payments made to the demand response (DR) providers, set according to wholesale power prices prevailing at the time. Where else but the lottery can you get an instant payoff of 130-1?
Transmission expansion costs are spread unevenly, driving a wedge between utilities and regions.
Back in June, the Bismarck Tribune ran an interview with North Dakota Public Service Commissioner Tony Clark that showed just how difficult it is to build national consensus for renewable energy.
Defining the mission when the consumer plays second-fiddle to the needs of the market.
Six months back, when ISO New England was mulling over various reforms that FERC had mandated last fall in Order 719 for the nation’s six regional transmission organizations and independent system operators (RTOs and ISOs are interchangeable terms in this column), the ISO refused point blank to include in its mission statement a proposal by stakeholders that it should operate the bulk power system at the “lowest reasonable cost.”
A tale of two energy worlds.
As federal policy makers push for GHG regulation and transparent markets, the California experience shows what works and what doesn’t work.