Demand Response As a Power System Resource Program Designs, Performance, and Lessons Learned in the United States

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Demand Response As a Power System Resource Program Designs, Performance, and Lessons Learned in the United States Demand Response as a Power System Resource Program Designs, Performance, and Lessons Learned in the United States Authors Doug Hurley Paul Peterson Melissa Whited May 2013 About The Regulatory Assistance Project (RAP) The Regulatory Assistance Project (RAP) is a global, non-profit team of experts focusing on the long-term economic and environmental sustainability of the power and natural gas sectors. RAP has deep expertise in regulatory and market policies that promote economic efficiency, protect the environment, ensure system reliability, and allocate system benefits and costs fairly among all consumers. RAP works extensively in the European Union, the US, China, and India. We have assisted governments in more than 25 nations and 50 states and provinces. In Europe, RAP maintains offices in Brussels and Berlin, with a team of more than 10 professional experts in power systems, regulation, and environmental policy. For additional information, visit the RAP website www. raponline.org. Electronic copies of this paper and other RAP publications can be found on our website at www.raponline.org. To be added to our distribution list, please send relevant contact information to [email protected]. Demand Response as a Power System Resource RAP Foreword he nations of Europe, and the European Union power providers examine options to tap DR resources, as a whole are in the midst of a transition across it is very useful to build on lessons from those power the power sector that, at the highest level, aims markets and system operators that have had some years of to deliver the benefits of market competition experience in this arena. Due to the expressed interest of Tand transnational market integration to customers across European policymakers, including the electric power team all of the Member States – and to do so while meeting 21st at ACER, Europe’s Agency for the Cooperation of Energy century power reliability standards, increasing the share of Regulators, the Regulatory Assistance Project commissioned variable renewable generation, decreasing the climate and this paper to provide a detailed and highly expert review environmental impacts of power generation, and managing of DR tools and results in several of the leading markets total power costs for the benefit of families and businesses in North America, where DR has become a significant and that must compete in world markets. This is, all in all, a tall valued resource. RAP itself has had substantial experience order. with these policies, having launched and led several of European policy-makers, power providers, and utilities the national and regional initiatives that advanced DR as are making significant progress towards these challenging a resource in US power, reserves, and ancillary services goals, but challenges are also evolving and growing. Greater markets. reliance on competitive markets exposes customers and This paper was completed by a team of highly-regarded investors to more volatile prices, and greater reliance on experts from Synapse Energy Economics, who have been renewable generation will put pressure on grid transfer deeply involved in many of those measures. The scoping capabilities and will make it harder for system operators to and drafting was prepared in close collaboration with Meg align generation and customer demand levels in real time. Gottstein and Mike Hogan, senior RAP policy advisors For these and other reasons, it is increasingly apparent that on market design, along with the invaluable project investments on the supply-side alone will be insufficient to management assistance of RAP Associate Sarah Keay- optimize the costs and environmental footprint of European Bright. We are grateful for the opportunity to provide power systems in the coming decade. It is crucial now to this information in the European context, and stand examine options on the demand side of the power system, ready to assist Governments, system operators, and other and to design market rules and public policies that will stakeholders on DR policies and programme designs as DR enlist customers and their agents as power sector resource resources rise in importance in Europe’s power systems. providers. Demand-response (DR) resources can provide numerous Richard Cowart benefits to power systems, particularly those seeking to Director of European Programmes integrate a large fraction of renewable generation, but Regulatory Assistance Project DR is a challenging new area for most utilities and grid Brussels, May 2013 managers. As EU policy-makers, system operators and Demand Response as a Power System Resource Synapse Foreword emand Response as a Power System Resource energy, and ancillary services. Demand response resources was prepared by Synapse Energy Economics, have varied capabilities and services that they can provide, Inc. for the Regulatory Assistance Project. just as supply resources such as central station power The report focuses on the ways that demand plants do. We have minimized the use of acronyms in an Dresponse resources effectively participate in and improve industry that flourishes with them because the challenges the performance of coordinated electric systems in the facing the electric industry are complex and technical United States. The report reviews the many types of enough; the language itself should not be an additional services that demand response can provide and the early barrier to communication and problem-solving. history of demand response programs in the United We appreciate the information, suggestions, and insights States. The bulk of our research examined the specific provided by numerous members of the electric industry, applications of demand response in several US regions. colleagues, and friends that assisted us in writing this This report includes numerous examples of demand report. We are particularly grateful for comments from staff response successfully providing reliable system services at members at the Lawrence Berkeley National Laboratory and competitive prices, and ends with lessons learned and key the Regulatory Assistance Project who reviewed early drafts challenges for the near future. of the report. Instead of attempting to translate the American experience into numerous European structures, we have Doug Hurley, Melissa Whited, and Paul Peterson tried to use well-defined, simple terms to describe how a Synapse Energy Economics variety of demand response resources provide reliability, 1 Demand Response as a Power System Resource Contents LIST OF ACRONYMS AND ABBREVIATIONS ..................................................................................................... I EXECUTIVE SUMMARY ................................................................................................................................... III A. Services Provided by Demand Response in the United States .......................................... iii B. Lessons Learned from Existing Programs .............................................................................. v C. New Opportunities and Challenges for Demand Response ............................................... vii D. Summary and Conclusions..................................................................................................... viii 1. INTRODUCTION .......................................................................................................................................... 1 2. BACKGROUND........................................................................................................................................... 2 A. What is Demand Response? .................................................................................................... 2 B. Demand Response Provision and Classification ................................................................... 4 Infrastructure Requirements ................................................................................................ 6 Customer Baselines .............................................................................................................. 7 3. HISTORY .................................................................................................................................................... 9 A. Demand Response as a Reliability Resource Prior to Restructuring .................................. 9 B. Early Wholesale Market Programs ......................................................................................... 10 C. Recent Developments to Enable Demand Response in US Markets ............................... 13 D. Demand Response Today ....................................................................................................... 15 Fully-Integrated Market-Based Demand Response ....................................................... 16 Market-Reactive Demand Response Programs ............................................................. 17 Non-Market Local Demand Response Programs........................................................... 17 4. DEMAND RESPONSE FOR RESOURCE ADEQUACY ................................................................................ 18 A. Forward Capacity Markets ....................................................................................................... 18 Independent System Operator of New England ............................................................. 18 PJM ....................................................................................................................................... 23 B. Other
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