Demand response has evolved rapidly in the PJM Interconnection marketplace.

About a decade ago, PJM overhauled its market rules and implemented the Reliability Pricing Model structure for its capacity market. The operator also opened the market to curtailment service providers, where previously only utilities or another load serving entity could participate.

In the 10 years since, demand response revenues have skyrocketed. Across the energy, capacity and ancillary service markets, revenues transitioned from between $50 million and $100 million, to more like $600 to $700 million.

"We've had about a 10x increase in revenues, over those years," said Peter Langbein, PJM's demand response manager. "We've worked over the 10 years to refine how demand response participates."

While those efforts have certainly been a success, the process has not been without hiccups. 

Demand response capacity clearing PJM's annual auction peaked in 2012, a year after the Federal Energy Regulatory Commission issued Order 745. The order stipulated that demand response providers must be compensated for reducing electricity load at the same rates as if they met that demand with generated electricity.

For delivery year 2015/2016, the PJM auction cleared almost 15 GW of demand response resources. But Order 745 was challenged, but was ultimately upheld by the U.S. Supreme Court. The uncertainty took a toll, however, and between the 2012 auction and 2017 auction, cleared volumes declined by about 50%.

More recently, the grid operator instituted rules aimed at boosting the system's reliability. Its new Capacity Performance standards require resources to be available year-round. But many demand response programs are summer-only, based around cooling loads. PJM allows seasonal resources to partner for an aggregated, annual bid, but there are far fewer winter-only resources available.

The change was made to ensure reliability after the polar vortex of 2014, when cold temperatures forced many generators offline But in the last Base Residual Auction, PJM procured 7,820 MW of demand response — down from 10,348 MW in the previous auction, and about a 24% reduction.

The market rules are a work in progress, and it's against this backdrop that the operator released a white paper in June outlining its strategy. And more recently, PJM's Langbein spoke for a Peak Load Management Alliance webinar discussing the report and outlining where demand response fits into the grid's future plans. He followed up via email later with Utility Dive, on some specific points.

Roughly, the PJM grid has about 8,000 MW of demand response resources providing capacity, and about 2,500 MW which are eligible and capable of responding in the energy markets, either to a day-ahead or real-time dispatch. There is another 500 MW that provide synchronous reserves, and a "small but growing" 90 MW in the regulation market.

PJM has a little more than 2 million customers who participate in demand response programs, including 20,000 commercial and industrial customers. 

"To put the capacity portion into perspective, as a total percent of capacity that PJM acquires to ensure reliability, over the last five years or so, 4% to 6% ... has come from demand response," Langbein said.

The operator has expanded the markets for energy, capacity and ancillary services, and converted legacy or utility-based programs into operational resources.

The long-term goal is to "ensure that DR is a predictable, reliable and transparent resource," Langbein said. PJM also wants to enable more price-sensitive demand, "because if we do that, we can have more efficient outcomes." And the operator is increasingly looking at the alignment of the wholesale market it manages and retail market incentives by coordinating with state regulators.

“We thought it was a good time to take a step back and reflect on exactly where we are with respect to DR in the wholesale markets,” Langbein said.

The seasonal resource problem

PJM is making the the summer-only issue a priority. Last month, stakeholders at PJM Interconnection's Markets and Reliability Committee endorsed the creation of a senior task force to study how summer-only demand response may be valued within the PJM marketplace, but outside of the capacity market.

"We're all about the transition of capacity from things like a summer-only product, to [Capacity Performance], which now is an annual capability, through some form of aggregation. That has been our focus, that's where the significant money is for cost savings," Langbein said. "And it is a significant difference in those requirements that have been there for many years. We've really been focused on that."

Langbein said the task force would be considering demand response participation in other markets, "and whether changes to those markets may be an option to help capture summer DR resource flexibility."

Either through the new task force or some other stakeholder process, he said PJM "will continue to look at ways to enhance the aggregation process for seasonal resources."

PJM has already instituted some changes to the market rules and auction process, to enable more aggregation. Whereas previously a summer-only resource would need to find a counterparty, the operator will now shoulder some of that weight.

"We took the next step, and now in our auction clearing process we have the ability for folks with summer-only capacity to offer that in and we will look to match that thru the actual clearing mechanism, to try and help facilitate that aggregation, to get to that annual requirement."

The operator has also expanded geographically how resources can aggregate. Initially, resources needed to be within the same Load Delivery Areas (LDA), but Langbein said that has been expanded to make it easier to partner. The market will now consider clearing paired seasonal resources across LDAs at the least constrained clearing price. 

Changing the way demand response is used

While the basic concepts of demand response have remained the same, advances to the power grid are changing the way the resource is utilized. And going forward, PJM hopes to use a more targeted form of demand response to enable better price signals.

"10 years ago we waited until in an emergency and then we deployed the bulk of demand response resources," Langbein explained. Today though, the grid operator tries to ramp the demand response resources that are needed heading into an event, and then out as well. "That we can try to really hone in on what the need is...and avoid the emergency.”

PJM is also looking to refine its ability to dispatch "so we can potentially dispatch smaller and smaller increments … maybe we need 50 MW as opposed to entire zone."

PJM is also planning to look at at its testing requirements to ensure the resources will actually deliver. If there is no demand response event called in recent years, the operator initiates a one-hour test. But Langbein said changes are being considered to those protocols to "make sure it's clear they actually have the ability to reduce load."

In the longer term, PJM will focus more on demand response participation in energy markets and ancillary markets, and will look to collaborate with load serving entities to expand.

Langbein said that in the capacity market, PJM believes demand response should continue be a a supply resource to help manage the grid. And for the ancillary service markets, the operator holds the same view.  

But "from a purely energy market standpoint, long term, ideally that would occur directly in the retail market through savings on bills, through appropriate retail contract structures," he said.