Demand Response Workshop

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Demand Response Workshop

• September 15, 2006

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Definitions are important

• Demand response
• Changes in electricity usage by end-use
  customers from their normal consumption patterns
  in response to changes in the price of
  electricity over time, or to incentive payments
  designed to induce lower electricity use at times
  of high wholesale market prices or when system
  reliability is jeopardized.
• US Department of Energy, Benefits of Demand
  Response in Electricity Markets and
  Recommendations for Achieving Them A Report to
  the United States Congress Pursuant to Section
  1252 of the Energy Policy Act of 2005, February
  2006

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Important Distinctions

• lower electricity use at times of high
  wholesale market prices
• Focus on enabling short-term response to high
  prices, but will be an optional response
  (sometimes it may be worth it to pay more)
• Can be check on/response to market power abuse
• lower electricity use when system reliability
  is threatened
• Focus on use of demand reductions to provide
  reserves for the system reduction must occur
  when needed by grid operator
• Can provide short-term solution to capacity
  shortages while longer-term investments are being
  made
• Energy efficiency not directly included in these
  definitions
• Long-term, more permanent demand reduction based
  on persistent or expected long-term higher prices
  and investment costs.
• Does not, by itself, provide real-time response
  to price spikes or reliability needs

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The More Things Change..

• Robust load participation is a key element in
  well functioning, competitive electricity
  markets. - Finding of Fact 46 Docket 23320
• ERCOT should develop additional measures and
  refine existing measures to enable load resources
  a greater opportunity to participate in the ERCOT
  markets. -Finding of Fact 47 Docket 23320

• Load participation is a key element in
  well-functioning, competitive electricity
  markets Finding of Fact 40 Docket 31540
• It is appropriate to defer further consideration
  of load-participation issues to a subsequent
  project. The investigation of load participation
  in wholesale and retail markets is necessary to
  ensure that the full benefits of these programs
  are included in the new wholesale market. -
  Finding of Fact 42- Docket 31540

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Current load response options

• Passive load response (short-term response to
  high prices)
• Price transparency issues
• Effect of price mitigation
• Occurrence and duration of balancing energy
  market price spikes is often uncertain
• Settlement issues for some customers
• Management of demand during 4CP months
• Ancillary service markets (system reliability
  services)
• Responsive reserves market limited to 1,150 MW
• Non-spinning reserves market not much
  participation
• Implementation of PRR 307 could allow
  controllable loads to provide other services

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So whats the goal?

• Competitive wholesale and retail markets should,
  absent barriers, result in demand response when
  and where in makes sense
• Economic decision valued by market
• Cheaper provision of reserves/ancillary services
• Check against market power
• What is needed to facilitate demand response?
• Ensure adequate price signals
• Eliminate barriers in market rules that prevent
  load from providing ancillary services when loads
  can do so reliably
• Ensure regulated services (meter and settlement
  infrastructure) needed for effective demand
  response are provided in a cost-effective manner

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Another way to think about it

• Market demand response
• Market should value
• Customers have options to curtail or not based on
  price, production processes, business demands,
  etc.
• Market price is cause of curtailment.
  Curtailment may have reliability benefits. But
  that is a consequence of the decision to curtail,
  not the cause.
• Available to all customers

• Reliability demand response
• Provision required by ERCOT
• Customers providing these products must curtail
  when called upon.
• Reliability is cause of curtailment, although
  service is provided through market based
  mechanism. May also impact real-time price, but
  that is a consequence of the curtailment.
• Can only be provided by customers that can
  provide the service.

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Things to think about Market Load Response

• Price transparency
• Balancing energy price
• Effect of after the fact adjustments
• Uncertainty as to duration of price spikes
• Effects of reserves deployment on price
• Utilization of additional signals given by a
  day-ahead market
• Infrastructure needs
• Access to interval metering for those who want
  them
• Possible need for real-time info for some
  customers
• Proper settlement critical

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Things to think about Reliability Services

• Not all load (or generation) was created equal
• In the case of reliability products, it is
  critical that the resource actually be available
  and respond if it is needed.
• Verification of response needed.
• Frequency/probability of deployment matters
• Amount of demand response made available may
  depend on expected frequency and duration of
  curtailment
• Can solve contractually
• A load providing ancillary services cannot
  curtail in response to prices (opportunity cost
  incurred).

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Immediate Issues

• Summer 2007 peak
• Expectation of reserve margins at or near minimum
  levels (2008 projected to be even lower)
• Return of additional mothballed generation?
  Additional mothballing? Other additional
  resources?
• Demand response/additional resources
• LAAR availability what happens if routine or
  repetitive deployment?
• Additional procurement of existing A/S (i.e.
  additional NSRS/RRS/RPRS)? If so, when does
  market need to know thats the plan in order to
  evaluate possible return to service of
  gen/additional load response?
• Should existing or additional LAARs or other load
  response be procured by ERCOT in a different
  manner than daily?
• Possibility of more market demand response
• Effect of termination of MCSM and higher offer
  caps