April 27, 2011
S11-18875: S11-Engineering and Economics of Electric Energy Systems
REAL-TIME DEMAND RESPONSE
Objectives, implementation, technical and economic issues
Objectives – ORNL’s Definitions
Source: ORNL 2006. Demand Response For Power System Reliability: FAQ.
¨ Demand response, whereby customers reduce
electricity consumption from normal usage levels in
response to price signals, can generally occur in two
¤ (1) customers reduce demand by responding to retail
rates that are based on wholesale prices (sometimes
called “price-responsive demand”); and
¤ (2) customers provide demand response that acts as a
resource in organized wholesale energy markets to
balance supply and demand.
Implementation – PJM’s Terms
Implementation – Examples
¨ PG&E’s SmartAC
¤ No cost, participants receive $25 once
¨ Wisconsin Public Service
¤ Contracted DLC of AC and water heaters
¤ Participants pay $6 to $28 monthly for I&M
¤ Benefit $4.35/kWh to $6.50/kWh
Real-time pricing is NOT real-time DR
¨ Market friction
¨ Behavioral economics
¨ US & EU price elasticity
(-0.21 to -0.18)
Source: Azevedo 2010. US and EU residential electricity consumptions: can electricity price, household income or weather explain regional differences?
¨ Mostly systems design & programming problems
¨ Switching individual loads is mostly an ECE issue
¤ Phase, communications reliability, communications security
¨ Switching aggregated loads are ECE and Econ issues
¤ Also: step functions, servers, transmission, congestion
¨ “Metadata” info. or self-awareness is missing or inaccurate
¨ Dispatching services at the ISO/RTO are Econ issues
¨ Local to Aggregator
¤ Return on investment, scalability, participant incentives
¤ Structure: time per hour, day year?
¤ Devices connected: HVAC, water heater, other?
¤ Who has control, and what are the penalties?
¨ Aggregator to Transmission Operator
¤ What are we measuring? (KW, KWh, KWh/t)
¤ How? and relative to what?
¤ How and when are bids placed?
n Remember: the whole reason we’re doing this is because we
CAN’T predict the load any better!
Economic issues – Business Analysis
¨ Remember: Policy issues = business issues
¤ When are Markets Best?
(externalities?, competition?, good information?)
n GHGs, intermittent generation
n Incumbent reliability services, monopolistic markets
n Market transparency?
¤ Iron Law of Government: winners & losers
n Winners: Program participants, CSPs, some utilities, switch
manufacturers, local jobs, solar & wind, society/environment
n Losers: Incumbent generators, NG industry, some utilities
¤ Regulation: Command & Control v Market Incentives
Economic Issues – FERC’s Order
¨ March 15, 2011 – DR in wholesale market with
RTO/ISO that can balance supply and demand
instead of generation resources:
¨ To be compensated at the LMP
¤ If it’s “cost-effective”
¤ DR must pass “net benefits test”
n Concern over “billing unit effect”
Economic Issues – Billing unit effect
¨ êΔD = éΔP
¨ What’s wrong with this thinking?
¨ Not a free market!
¨ Supply MUST = Demand!
¨ So, what happens
when êΔD ?
¤ êmarginal gen.
¤ Who wins/loses?
Economic Issues – FERC’s Order contd...
¨ By July 22, 2011 – ISOs/RTOs must file
¤ Net benefits test
¤ Measurement and verification explanation
¤ Proposed policy changes
¤ Cost allocation mechanism
¨ By Sept 21, 2012 – ISOs/RTOs must file
¤ Requirements and impacts to modify the dispatch
algorithm and implement a “dynamic approach.”
¨ Real Time DR = Automated DR = Direct load control
¨ No standard exists yet, but we’re working on it
¨ Wholesale economic issues are more traditional economic issues
¤ Prices will be based on energy and the LMP.
¨ Retail economic issues are more behavioral economic issues
¤ Best programs will consider consumers’ values and indirect costs
¤ Standardized contracts through local aggregators such as utilities and
CSPs will probably become the norm
¨ Technical implementation issues are solvable – for a price
¤ Economies of scale are not currently very attractive for most residential
¨ Need modification of ISO/RTO dispatch algorithms to cross the
¨ ORNL 2006. Demand Response For Power System Reliability: FAQ.
¨ FERC 2011. Demand Response Compensation in Organized Wholesale Energy Markets
¨ FERC 2010. DRIVE Model
¨ FERC 2010. Demand Response/Time-Based Rate Programs and Advanced Metering
¨ PG&E SmartAC program
¨ Wisconsin DLC program