Energy markets play key role in taking DR to big stage

Smart Grid Today
July 12, 2020

The chairmanship of Jon Wellinghoff at FERC saw a lot of action on DR and a lot of the big debates are over, but the commission still has to work out the details, Commissioner Cheryl LaFleur said this week at the National Town Meeting on Demand Response and the Smart Grid. The event was held from July 9 through today in Washington, DC, by the Assn for Demand Response & the Smart Grid (ADS).

"Now that we've more or less finished the cases under Order 745 for how you compensate demand response in the competitive energy markets, there's a lot that has to be worked out on measurement and verification and baselines -- and interaction between the energy market and the capacity market and so forth," she added.
"It's really like the devil is in the details. We're seeing really a lot of cases all the time as different markets look to get those rules cleared up."

While FERC is working through the details on DR, a lot of action should be happening at the states, noted LaFleur.
Economic DR in the PJM market yielded $8.7 million in revenue from April-October 2012 under FERC Order 745, the RTO reported in April, well above the $7.1 million that accrued in a 41-month period before the FERC compensation rules were in place (SGT, Apr-2).

But one of the biggest areas of interest for the DR community of late has been Texas, where the PUC oversees ERCOT's wholesale market. ERCOT is one of the few areas in the country where demand is growing and thus far supply has not kept up with it and the region is projected to slip below its reserve margin target in the next couple of years.

The PUC has worked to address that, including raising the offer cap to $5,000/MWH this year and on up to $9,000/MWHs in 2015, noted its Chairman Donna Nelson, at the conference. But so far the commission has stuck with the energy-only market design, which would mean that reserve margins will likely level out at 8-10%, she added.

Nelson left the door open for a capacity market but the other current half of the commission, Commissioner Kenneth Anderson, seems to have slammed it shut in his vote. Such a market could allow big growth for DR, using PJM as an example.

If Texas does start offering capacity payments, it will not be directed at DR alone, as some in that industry suggested to the PUC in comments earlier in its process, said Nelson. Any Texas capacity market would be open to generation and DR, she added.

Even FERC is far from done on its work on capacity markets, despite issuing several major orders in on the subject recently, Commissioner LaFleur told us after her panel.

FERC sets conference

FERC is hosting a technical conference on capacity markets on Sept 25, the details of which are really just starting to be planned, said LaFleur.

"The concept is to step back and take a broader look at how the capacity markets are performing -- are they doing what they are designed to do -- and look at some of the big policy issues, whereas the orders tend to be very specific," LaFleur told us at the event.

Technical conferences can give birth to broader rulemakings at FERC but that might not happen in this case. At least, the FERC technical conference will inform the commission's work on capacity markets going forward, even if those future cases are relevant to just one market, said LaFleur.

Prices drive industry

Texas might not have nearly the same amount of capacity-style DR as PJM or the other East Coast ISO/RTOs, but Nelson said those higher offer caps are leading to more price-responsive demand as retailers seek to hedge their risks.

Nest Founder and VP of Engineering Matt Rogers noted at the event that his smart-thermostat firm's largest market is now Texas for just those reasons.

The resource adequacy situation in Texas really comes down to about 75 hours/year and that is an ideal timeframe for using DR, noted CPS Energy CFO Cris Eugster.

Capacity markets have been very good for DR in the East with New York ISO VP of Market Structures Rana Mukerji noting his market initially set a goal of 400 MWs of DR and is up to 2,000 MWs with regular responses during heat waves of 1,500 MWs.

That would put DR in NYISO at a level where it will not really ruffle the feathers of an industry that has ingrained comfort level with how things have been done with central generation and the grid for most of its history, Mukerji noted. DR has to be acting in the correct way in terms of reliability and market rules at all levels, but as soon as it hits a higher level of penetration, other market participants start to look askance at it, he noted.

Generation pushes back
The generation sector has started pushing back on DR significantly due to its success, ADS Executive Director Dan Delurey said. PJM might have seen DR drop by 2,400 MWs to 12,408 MWs in the most recent capacity auction due to lower prices and stricter measurement rules (Restructuring Today, May-28).

But parts of that RTO have some of the most developed DR in the country, to the point where the resource is basically saturated in some zones, said Comverge CEO Blake Young. Once you hit 20% or so, it really makes more economic sense to move into efficiency, he added.

LaFleur noted that both generators and DR providers were hurt by low energy prices in the past few years, which has intensified competition.

© 2013 Modern Markets Intelligence, Inc. IMPORTANT: This article was reproduced from the July 12, 2020 issue of Smart Grid Today with the limited permission of the owner. To view the full story on Smart Grid Today’s website, please visit

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