Dive Brief:
- A new report from the South-central Partnership for Energy Efficiency as a Resource (SPEER) delves into the benefits of demand response, as well as the difficulties in creating efficient markets that properly value the resource.
- The report takes a hard look at the Electric Reliability Council of Texas (ERCOT)’s market, and the debate over how demand response should be valued, ultimately arguing for a middle-ground pricing policy.
- While most of the country is focused on Federal Energy Regulatory Commission (FERC) Order 745 and the U.S. Supreme Court case surrounding who has jurisdiction over DR markets, Texas has continued to develop the resource but has found itself facing many of the same issues, Smart Grid News reports.
Dive Insight:
They say that everything is bigger in Texas. And with the country's only organized market without federal oversight – ERCOT exists totally within the state's boundaries – one would think that developing a demand response market would also be simpler. Not so, according to SPEER's new demand response report.
"Texans are not immune to national debates on economic and legal matters that affect our market design," the group said. "ERCOT has allowed DR to participate in its wholesale market in a variety of ways."
The report concludes that wholesale market prices in ERCOT could be "reduced substantially by the participation of even a modest increment of additional demand response in this energy market." SPEER found incremental demand response of 1,500 MW or less, in a few critical hours on only five days across the mild weather years of 2012 and 2013, "could have led to a total reduction in spot market costs of as much as $200 million."
SPEER said daily energy markets are an "appropriate and organic expansion" of demand response, but also said that ERCOT is struggling to develop pricing measures in a debate that closely mirrors national issues. While the debate generally hinges on locational marginal pricing v. avoided cost, the report concludes that accuracy should not necessarily trump precision.
"The optimal compensation for economic demand response resources, and what limitations should be placed on demand response bidding into energy markets, is an open question," SPEER concluded. "The optimal compensation probably lies between LMP and LMP-G [actual retail cost of generation for the energy not consumed]. ... While some sort of threshold trigger might be appropriate if there is a danger of overcompensation with using LMP, but not with LMP-G."
The report considers that the administrative cost and complexity of using LMP-G is substantial, and therefore it may make more sense to use a less accurate way of valuing demand response.
"There has been too much effort expended to determine the 'perfect' formula, and too little effort expended gathering empirical data on how different demand response resources respond to different incentives," SPEER said. "Given the limited quantity of demand response resources actively participating in energy markets, the optimal short-term strategy may be to err on the side of potentially excessive compensation, gather data on demand response resources and their impact on electricity markets, then revisit the issue when there is sufficient experience."
