PROJECT EASY GREEN

When triple-digit temperatures pushed across the U.S. last week, the nation’s electric grid was stressed but did not break down. For leading demand response providers like EnerNOC and Comverge, which both delivered about 1,250 megawatts during the heat wave, it was an affirmation of the role that demand response contributes to maintaining reliability. EnerNOC's delivery of 1,230 MW on Friday was a record for the company.

Although demand response plays an increasingly important role in different regions of the country, the hot weather showed that there is still great variability in how and to what extent the resource is dispatched. 

Midwest Independent System Operator says it did not call on demand response at all last week, despite a record 103,975 megawatts used on Wednesday. PJM Interconnection did not use demand response on Thursday, when it hit a record for peak power at 158,450 MW, but it did call up about 2,300 MW on Friday (it has nearly 12,000 MW in demand response capacity total for 2011) to help with localized issues in its territory.

New York ISO tapped both its special case resource and emergency demand response program on Thursday and Friday, requesting 852 MW and 1743 MW in load drop, respectively.

In New England, the Independent System Operator called on 643 MW of demand response, which was similar to the amount called upon during the region’s all-time peak in August of 2006.

The variation is due in large part to the limited role to which demand response is relegated in the capacity markets. At PJM, for example, the operator can only call on those resources for six hours at a time, 10 times a year, according to Ray Dotter, Manager of Strategic Communications for PJM. Operators don't want to call on too much too soon, only to be left without it in the case of hot days at the end of summer.

New products, like an unlimited demand response offering in the PJM market in 2014, will expand the options for demand response companies to take part. Also, the Federal Energy Regulatory Commission ruling earlier this year, which mandates that demand response will be paid the same as generation when it is cost effective, will help drive the market.

Currently, companies that take part in the price-responsive markets are far fewer than those that bid into capacity markets. Also, price-responsive markets are voluntary, so grid operators do not rely on those the same way they do capacity. Peter Langbein, Manager of Demand Side Response Operations for PJM Interconnection, estimates that once the price structure changes, far more companies will want to participate in price-responsive (or economic) demand response. However, the rules will also change so that system operators will have more control over those resources.

All of the ISOs agree that once the new FERC rules are implemented, they expect to see far more demand response, which means that it could play a much bigger role than it does now. “We expect to have these resources be dispatchable and therefore more operational than today,” Langbein said during a webinar hosted by Restructuring Today.  Demand response is also being evaluated in different markets for its ability to provide frequency regulation when there’s high penetration of renewables.

It will take more than just rule changes, as well. A wave of complaints crashed upon Baltimore Gas & Electric when customers who voluntarily signed up for utility's PeakRewards program, which turns residential AC units down or off during peak load. For demand response to enter more markets, there will have to be far more automation that can shave kilowatts without sacrificing comfort. Demand response is also just one tool enabled by the smart grid that can ease the stress during high demand days. More renewable integration, volt/VAR optimization and distribution automation can also help mitigate supply and demand. 

“Demand response load management isn’t a special exception, but it’s one of the equal resources,” said Dotter. “In the future, it will give us more flexibility.”

For now, everything will stay the same.

That is the update from the Federal Energy Regulatory Commission, which ordered that existing market rules would be in place for how “guaranteed load drop” (GLD) is measured in the PJM interconnection through the 2011/2012 year.

The ongoing saga is just that: still going. While some demand response providers, especially market leader EnerNOC, hailed the decision by FERC to suspend the filing, the filing was actually accepted with some big caveats.

“We accept and suspend PJM’s filing for a five-month period to become effective November 7, 2011,” the ruling stated, “subject to refund, and to the outcome of a technical conference and further order.”

Despite the dry language, the 28-page document reads largely as a 'he said, she said' between EnerNOC and PJM. The issue at the heart of the changes is whether customers providing emergency demand response load should only be able to earn payment for less than their peak load contribution (PLC), which is established based on peak load in previous years.

PJM argues that the move is geared to keep aggregators from enrolling customers that won’t curtail their load while others are over-performing to make up for the difference. For next year, PJM wanted to cap guaranteed load drop at 125 percent. If the PLC is 1 MW, but really the customer can drop 1.5 MW, it would still only be paid for up to 1.25 MW.

While this is often painted as a fight between PJM and demand response providers, the ruling shows that it’s much more complicated than that. This is about a level playing field, where DR providers disagree about the value of aggregation. Some participants, like Viridity, argue that tweaking the GLD rules is necessary to let smaller players compete alongside bigger participants, like Comverge and EnerNOC.

Just last week, Blake Young, CEO of Comverge, saw the battle between legacy generators and demand response companies as a natural tension in a shifting market with new players. As demand response matures, the rules need to be strengthened and clarified so that it cannot only compete fairly against generation or other resources, but can also have fair competition amongst players within demand response.

Luke McAuliffe, Vice President of Demand Response at World Energy, argues that this ruling, which sparked a public letter from three of the largest DR providers, is actually asking the wrong question. While everyone is fighting over how customers are enrolled in GLD programs, he said there is a larger issue as to whether the PLC is even a good baseline methodology.

“If you have someone who can say they reduce 80 MW but can’t be compensated more than 60 MW,” he said, “something’s wrong.” It's one issue most DR providers can agree on.

McAuliffe’s argument is that if you started with changing how the PLC is measured — then the issue of measuring GLD might fix itself. “If we went about it in a different order, there might be a lot less contention,” he said. There was some discussion in the filing whether PLC is even an appropriate benchmark. It was unclear, however, whether this issue would be taken up in the technical conference that FERC called for to hammer out the GLD issue.

If you’re not confused yet, or are not yet sick of acronyms, you likely will be soon. Besides the ruling on this GLD issue in PJM, FERC is also waiting for filings from all of the Independent System Operators (ISO) and Regional Transmission Operators (RTO) on tariff changes to create a more level playing field between demand response and generators in their capacity markets.

And for all of the noise about this one issue on PJM, McAuliffe noted that you don’t hear a lot about the other ISOs. New York ISO recently changed its baseline methodology. “It affected compensation for demand response dramatically,” he said.

In the past, NYISO looked at a customer’s highest peak for each month of summer and then averaged them. Now they take far more peak days into account and then look at the top five. The changes, he said, were viewed as positive for everyone in demand response, and so there was no chatter about it, and certainly no uproar.

The growing pains in PJM will certainly continue as the market matures, and as other ISOs become as robust as PJM in their demand response offerings, the din likely will only get louder. “It’s evolving and it’s healthy,” said McAuliffe. “And this won’t be the first or last time.”