Demand Response: Next Steps OPSI Annual Meeting October 1, 2012 Howard J. Haas.

Demand Response: Next Steps

OPSI Annual Meeting

October 1, 2012

Howard J. Haas

Defining the Goal: Demand Response

• A fully functional demand side of the electricity market means that end use customers will have the: • the ability to see real-time energy price signals in

real time• will have the ability to react to real-time energy

prices in real time• will have the ability to receive the direct benefits or

costs of changes in real-time energy use.

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• A fully functional demand side of the capacity market will be able to see current capacity prices will have the ability:• to react to capacity prices • to receive the direct benefits or costs of changes in

the demand for capacity.




S

Price

MW

D

PW

PR

P*

MW*

S=D*

MWR

S = DR

DWL

MC

MB

Demand Response: Work in Progress• Market failure when behavior is inconsistent with

the market value.

• Occurs because:• Customers do not know the market price • Customer do not pay the market price

o Do not benefit from response at market price

• Disconnect between wholesale markets and retail pricing

• Assumes behavior would be different if prices and the costs of consumption were directly linked


Demand Response: Work In Progress • Today, most end use customers do not face the

market price for energy or capacity:• Locational marginal price of energy (LMP) • Locational capacity market clearing price.

• Most end use customers pay a fixed retail rate with no direct relationship to the hourly wholesale market LMP, either on an average zonal or on a nodal basis.


PJM’s Demand Response: Interim State

• PJM’s demand side programs, by design, provide a work around for end use customers that are not otherwise exposed to the incremental, locational costs of energy and capacity.

• PJM’s programs are a transitional step towards a fully functional demand side for its markets.

• The complete transition to a fully functional demand side will require explicit agreement and coordination among the Commission, state public utility commissions and RTOs/ISOs.


PJM Demand Response Programs


Energy Demand Response Program: Issues

• In PJM’s Economic Load Response Program

• LMP signal is zonal not nodal

o Nodal is the right price signal

• Measurement challenges


Energy Demand Response Program: Issues

• Order 745; March 15, 2011: Distorts energy price signal to load

• Net Benefits Test: • Pass the test

o Get Full LMP vs. LMP-Generation Component of Rate

• Fail the testo No payment (retail rate savings)

• Double payment to LMP wholesale customerso Already getting the marginal signal: LMP savingso Paying LMP on top of realized savings is double

payment


Capacity Demand Response Program: Issues

• PJM’s Load Management (LM) Program

o MW equivalence issue– Limited vs. Summer Only vs. Annual

• Should have Annual Only• Current products distort capacity market price

– Need Subzonal Designation• Subzonal dispatch, with target of nodal dispatch


Capacity Demand Response Program: Issues

• PJM’s Load Management (LM) Program

o Emergency vs. Economic (not a scarcity trigger)– Not offsetting emergency MW

o Minimum Dispatch Price– $1,000 – $2,700?– No reason to pay minimum dispatch price

• No call on the economic capacity they are surrendering• Should be paid: LMP – Generation Component of Rate


PJM’s Demand Response: Goal

• Transition to a structure where customers do not require payments to have an incentive to respond to energy or capacity prices.• Real time nodal price transparency• Direct reduction in Capacity Obligations (save on

the margin)• Still a role for third party aggregators/retailers to

provide optionso Active load responseo Fixed price options


Demand Response: Goal

• No need for programs if retail markets reflected hourly wholesale prices and customers received direct savings associated with reducing consumption in response to prices.• No need for a PJM Economic Load Response

Program • No need for extensive measurement and

verification protocols.

• In the transition to that point, however, there is a need for robust measurement and verification techniques to ensure that transitional programs incent the desired behavior.


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Demand Response: Next Steps OPSI Annual Meeting October 1, 2012 Howard J. Haas.

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