RELIABILITY BENEFITS OF PRICE-RESPONSIVE DEMAND

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RELIABILITY BENEFITS OF PRICE-RESPONSIVE DEMAND

• ERIC HIRST
• Consultant in Electric-Industry Restructuring
• Oak Ridge, TN
• Eric_at_EHirst.com www.EHirst.com
• April 2002

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WHAT IS BULK-POWER RELIABILITY?

• NERC Degree to which performance of system
  results in power being delivered to customers
  within accepted standards and in the amount
  desired.
• Adequacy (planning) enough generation and
  transmission resources installed to meet
  projected needs plus reserves for contingencies
• Security (operations) system will remain intact
  even after sudden disturbances (e.g., lightning
  or generator outage)
• Adequacy and security are both substitutes and
  complements

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TWO UNIQUE FEATURES OFBULK-POWER SYSTEMS

• Near-real-time balancing of generation and load
• (electricity flows at speed of light)
• Passive nature of transmission
• (few valves or booster pumps)

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CAN WE RELY ON SPOT PRICES TO BALANCE GENERATION
AND DEMAND?
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CURRENT POLICIES LIMIT DEMAND PARTICIPATION

• NERC Policy 1 limits spinning reserve to
  unloaded generation that is synchronized
• At least 50 of contingency reserves must be
  spinning
• But NERC Disturbance Control Standard calls only
  for 15-minute recovery with no intermediate
  response
• Demand exclusion affects reliability and economic
  efficiency
• Limits amount of reliability resources
• Raises cost to maintain reliability
• Proposed Policy 1 changes are technology neutral

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DEMAND EXCLUDED FROM LUCRATIVE RESERVE MARKET
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MUNICIPAL WATER SYSTEMS COULD PROVIDE SPINNING
RESERVE

• Water treatment/pumping 3 - 4 of U.S. electric
  use
• Storage in pipelines and tanks makes
• spinning reserve feasible
• could provide up to 50 of U.S. spin needs
• Adjustable speed drives would
• enable provision of spin
• improve efficiency of water operations
• eliminate congestion concerns
• improve local voltage regulation
• Other customers with storage also good candidates

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RETAIL LOADS SHOULD BE ABLE TO PARTICIPATE IN ALL
WHOLESALE MARKETS

• Day-ahead energy and congestion management
• Day-ahead ancillary services
• Spinning reserves
• Nonspinning reserves
• Replacement reserves
• Real-time (intrahour) energy and congestion
  management
• Involuntary load interruptions

Loads should be able to set prices, not just be
price takers!
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DAY-AHEAD MARKET SHOULD TREAT DEMAND AND SUPPLY
EQUALLY
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DAY-AHEAD ANCILLARY SERVICE MARKETS SHOULD ALSO
INCLUDE DEMAND

• Regulation - not likely a good candidate for
  demand
• Spinning reserve
• Supplemental reserve
• Replacement reserve
• Intrahour energy imbalance and congestion
  management - not likely a good candidate for
  demand

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LOADS SHOULD (AND DO) PARTICIPATE IN ICAP MARKETS

• Fundamental question over usefulness of
  installed-capability requirement in competitive
  energy markets
• does capacity per se have any value, unless it
  can be turned into energy at a known strike
  price?
• Need to overcome problems associated with past
  utility interruptible contracts discounts more
  than a reliability service
• On the other hand, PJM Active Load Management
  program provides resources

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PJM LOAD RELIEF CUT ELECTRICITY COSTS BY 10
MILLION
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ISSUES ON DEMAND PARTICIPATION IN RELIABILITY
MARKETS

• Meters (frequency, who pays)
• Communications (one or two way, how often)
• Aggregation
• Advance notice
• Frequency of response
• Duration of response and recovery times
• Penalties
• Payments for capacity and/or energy
• Baseline

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INVOLUNTARY LOAD INTERRUPTIONS UNCOMPENSATED

• Last resort, interrupt loads to protect power
  system
• rolling blackouts, under-frequency and
• under-voltage relays
• Generators paid for contingency reserves, so
  loads should be paid for bulk-power interruptions
• If loads paid, say, 1000/MWh-interrupted, some
  customers will pay more to avoid interruptions
  and others will accept less to be interrupted
• lead to interruption markets

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OPTIONS TO CONSIDER

• Should NERC and NPCC review reliability standards
  to ensure equal opportunity for retail loads?
• Who should educate consumers on how bulk-power
  systems and markets work, and on opportunities
  for their participation in these markets?
• Should RTOs pay retail customers for involuntary
  load interruptions?
• Should RTOs run separate markets for demand
  resources or single, integrated set of markets?

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Program and Policy Issues

• How should ancillary service markets be organized
  to realize the potential value of demand-side
  resources?
• Direct ISO-customer contracts, or only through
  LSEs?
• Coordinating regional DR reliability programs
  with legacy interruptible contracts
• Does DRR qualify as installed capability?
• How to recognize the unique characteristics and
  needs of loads?
• Limits on types or amounts of back-up generation?

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Program and Policy Issues

• Can the rules permit participation by, and
  compensation to, aggregated small loads?
• What actions should STATE regulators take to
  enhance customer participation in reliability
  DRR?
• How to develop Curtailment Service Providers?
• Target levels? How do we know we are succeeding
  or failing?
• Lessons from New York, PJM?