Demand Response
Types of Demand Response Programs
Information on the various types of demand response programs, both load and price response.
ISO-NE Demand Response Programs
Information on demand response programs offered by ISO-NE, their requirements and benefits.
For more detailed information:
- www.iso-ne.com
- New England Demand Response Initiative (NEDRI) (DOC - 1,287 KB)
- www.peaklma.com
- “Demand Response: Design Principles for Creating Customer and Market Value.” Prepared by the Peak Load Management Alliance , November 2002.
- www.sustainenergy.org
- “An Assessment and Report of Load Management Opportunities in Southwest Connecticut”, ISE, June 4, 2003
- “Comprehensive Assessment & Report Part II - Environmental Resources and Energy Infrastructure of Long Island Sound”, ISE, June 3, 2003
Types of Demand Response Programs
Demand Response (DR) programs vary widely. The Peak Load Management Alliance (PLMA) provides a useful categorization of DR programs, and the following discussion is adapted from their efforts:
Load Response
Load response programs operate in response to requests for peak load reductions with little, if any, discretion in compliance on the part of the customer. The buyer or operator, such as a traditional utility, load serving entity, curtailment service provider, or grid operator, directs load response programs.
- Mass Market Direct Load Control Programs
Eligible customers are residential and small commercial facilities with equipment that may be “cycled” (turned off) for limited periods of time. Participating customers agree, under many program designs, to a limited number of events and durations, as well as cycling times for certain types of technologies (e.g. central air conditioning).
- Curtailable Load Programs
Target customers are large commercial and industrial facilities that can reduce at least some of their load with a minimum threshold, such as 100 kW per event. Notification is generally from thirty minutes to two hours before the requested curtailment. Participating customers agree to attempt curtailment for a maximum number of events and durations within a period defined by season and hours of the day. Participation may be voluntary for each event, but failure to meet target reductions may result in reduced payments or penalty costs to the customer. Some programs require mandatory reductions to a contracted firm service level, subject to penalties or reduced payments. Payments are typically based on amounts of load reduction from baseline consumption to a firm service level and made through billing adjustments.
Target customers tend to be industrial operations that can shed all or major portions of their load. Commercial facilities may also participate, particularly if backup generators can provide large portions of the load. Participation in each event is mandatory and may be required at any time during the year or within prescribed periods. Incentives take the form of rate discounts throughout the term of the agreement and are reflected on monthly energy bills. Failure to comply with requests often leads to financial penalties. As can be seen the differences between interruptible and curtailable load programs are imprecise and the categorization is a matter of degree. Generally interruptible programs are targeted at larger customers, are not voluntary for each event, have more severe financial penalties for non-performance, include a larger percentage of the customer’s load, incentives are a discount of base rates, and there is no positive inducement for participation in a called event, only penalties.
Price Response
Price response programs operate based on voluntary actions of customers in response to economic signals. The differences between Price Response and Load Response programs are a matter of degree. The most pronounced difference is price response programs rely on wholesale clearing prices as a primary signal or method to reimburse customers for their participation, and are much more likely to be voluntary. Some load response programs have the same characteristics, but are skewed toward a command-and-control methodology.
Participating end-use customers are typically large commercial and industrial facilities that can provide a minimum amount of load reduction, such as 100 kW per event. Emergency programs are triggered by grid conditions considered threatening to system reliability. Emergency price response programs may give the customer the option to not participate on any particular event. However, some installed capacity programs (ICAP) are called only in emergency situations and load reductions are mandatory because the capacity payment has been previously locked-in. Emergency programs have a variable payment usually based on locational marginal price (LMP) or some high minimum payment, such as $500 per megawatt hour (MWh).
Economic programs target similar participants and resources as emergency programs. Participants may offer load reductions in certain amounts for certain time periods in response to a proposed price or set of hourly prices in the day-ahead market (or potentially the hour ahead or real time market). Payment is based on the market-clearing price in the day-ahead market bid by the participant and accepted by the buyer for day-ahead programs.
Target customers are commercial and industrial facilities with the ability to reduce or shift loads. Advanced communication systems allow customers to observe real-time energy usage and forward prices. In one version, customers are provided hourly prices for the next day. Facility managers are free to maintain operations as planned or adjust operations to take advantage of lower rates. “Two-part” tariffs establish a baseline energy usage for each hour of the year. Baseline usage is agreed upon by both parties based on historical use subject to appropriate adjustments, such as changes in operations or weather. Variances in usage from baseline estimates are charged a premium if above, and a discount if below, the baseline using spot market clearing prices. An alternative to the two-part tariff is a “one-part” tariff that links all usage to hourly prices to market clearing spot prices and avoids baseline estimation.
Eligible customers may be residential, commercial, and industrial markets depending on the target class or segment. Participation may be mandatory or voluntary depending on the jurisdiction. Special meters are installed to measure consumption during peak, off-peak, and in some cases, intermediate hours. Rates vary with time of day, day-of-week (since weekends are generally considered off-peak), and season of year (since winter weekdays may be considered off-peak or intermediate hours). Rates are fixed for each period so the customer knows well in advance what the prices will be.
Source: www.peaklma.com
- “Demand Response: Design Principles for Creating Customer and Market Value.” Prepared by the Peak Load Management Alliance , November 2002.
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ISO New England Programs
Demand response programs provide an important resource for New England. They help ensure the power grid's reliability, reduce wholesale price volatility that drives up the cost of power for everyone, and reduce air pollution by enabling older, less efficient power plants to run less often.
ISO-NE is responsible for administering the Demand Response Program (DRP) for the New England Power Pool (NEPOOL). There are approximately 254 commercial and industrial customers throughout New England enrolled in the DRP that could provide 343 MW of demand response to help manage peak demand for electricity in New England.
Customers can receive incentive payments if they reduce their electricity consumption or operate generation in response to high real-time wholesale electricity prices or when the reliability of the region's electricity grid is stressed. Customers can contribute load reduction in a variety of ways:
- Turning off non-essential lights and office equipment
- Adjusting HVAC, refrigeration and water heater temperatures
- Delaying or reducing manufacturing processes
- Operating on-site generators
- Using energy management system (EMS)
Real Time Demand Response
The Real Time Demand Response Program is designed for customers who can make a commitment to reduce electricity demand within either 30 minutes or 2 hours advance notice. By making a commitment, customers will receive a guaranteed minimum payment of $0.50 per kilowatt-hour (kWh) in the 30 minute program and $0.35 per kWh in the 2 hour program. Payments may be higher (up to a maximum of $1.00 per kWh) based on the actual hourly wholesale prices. In addition, customers may receive additional credit for Installed Capacity (ICAP) and reserve margin.
Real-Time Profiled Response
The Real Time Profile Response program is designed for groups of customers who can reduce their loads within 30 minute notice from ISO-NE. This program is intended for:
- Businesses with similar facilities in multiple locations such as retail stores, office buildings, etc.
- Companies installing direct load control technologies in residential homes or commercial buildings (e.g., super-thermostat programs, water heater and pool pump controls, etc.)
- Distributed generation installed in multiple locations
A minimum of 1 MW of load reduction for this program is required to provide a statistical response factor for the group. For example, an aggregated 10 MW demand resource having a 50 percent response rate would be credited for 5 MW of response. In addition, customers may receive additional credit for Installed Capacity (ICAP) and reserve margin.
Real Time Price Response
The Real Time Price Response Program is designed for customers who can reduce electricity demand when wholesale prices are projected to be greater than $0.10 per kWh. This is a voluntary program. Customers are not required but can choose to reduce demand on a case-by-case basis. These customers are paid the actual hourly wholesale prices (up to a maximum of $1.00 per kWh) with a guaranteed minimum price of $0.10 per kWh. Customers in this program do not qualify for Installed Capacity (ICAP) credit.
Most customers pay about $0.05 per kWh for retail electricity supply; however, wholesale electricity prices can reach as high as $1.00 per kWh during peak demand periods. For example, in the summer of 2002 wholesale electricity prices exceeded $0.10 per kWh for over 40 hours on 12 different days. Each hour over $0.10 per kWh represents an opportunity for customers to reduce their consumption and receive incentive payments.
Hourly Metering and Data Reporting
With the exception of the Real Time Profile Response Program, an advanced meter capable of recording energy consumption every 5 to 15 minutes is required to participate in these programs. Interval meter data must be reported to ISO New England to determine the customer's load reductions. ISO-NE offers internet based communications system (IBCS) and low-tech data reporting options.
Source: www.iso-ne.com
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