In January, we discussed the benefits of demand response (DR) and how Texas is not taking full advantage of it. Not only is DR a low cost, zero water source for providing capacity through conservation, but it can also actually directly benefit consumers financially. Furthermore, since residential and small customers account for “more than 70 percent of peak load” it is paramount that we tap into this resource.
The 13 Percent Reserve Margin
Fast forward to this summer, where a few factors have encouraged the situation as Texas’ energy crunch comes to light. In May, the 13.75 percent reserve margin became the center of discussion about how to proceed. Set in 2010 by the Electric Reliability Council of Texas (ERCOT) board, the 13.75 percent target planning reserve margin is to ensure enough power is available for contingencies such as extreme weather and unplanned power plant outages. However, a newly revised Capacity, Demand and Reserves (CDR) report shows that in 2014 we may be only at 9.8 percent and by 2015 this could drop to 6.9 percent, numbers that are very far away from the original goal. A failure to meet this reserve creates instability, not only for the ERCOT market as a whole, but that uncertainty ripples through the state for all businesses and households.
In June, the peak energy forecast for this summer was surpassed. ERCOT had predicted a 66,195 megawatt (MW) peak demand for the whole summer, but we surpassed that with 66,583 MW in June, well before the string of 100+ degree days we have seen recently.
The 15 Percent Potential From Demand Response
In June the Brattle Report came out reiterating FERC’s studies, which demonstrated that the potential for achievable participation in DR is 15 percent of capacity in Texas. This means that “dynamic pricing and load control technologies are deployed on an opt-out basis, with roughly 75 percent of customers participating.”
So if Texas met this DR goal of 15 percent it would be enough to cover our reserve margin of 13.75 percent and then some. Without new power plants. Without any new generation capacity at all. While in actuality we would rely on other demand side resources as well – such as distributed generation and storage – it is very important to point out the link between the 13/15 ratio, and how much potential demand response provides us.
Even better is that unlike other mechanisms that do not benefit consumers financially such as the price cap increase, DR and other demand side resources can provide large gains for consumers. Not only do they encourage reductions in energy consumption and thus energy bills, but because there is an added value in providing that “negawatt” capacity back into the system, customers are compensated. As we noted in an earlier blog, in the PJM market, $20 million of the payments went to residential customers!”
While there are still only a few of these initiatives around the country, the momentum is alive. Last year, FERC Rule 745 was established that “requires wholesale energy market operators to pay DR participants the market price for energy when those resources are able to balance supply and demand as an alternative to additional generation, and when DR dispatch is cost-effective.” This lays the foundation for how consumers will be compensated. FERC Chairman Jon Wellinghoff put it well, “[this] final rule is about bringing benefits to consumers. The approach to compensating demand response resources as we require here will help to provide more resource options for efficient and reliable system operation, encourage new entry and innovation in energy markets, and spur the deployment of new technologies. All of this contributes to just and reasonable rates.”
On June 26, ERCOT moved in the right direction by approving a DR pilot project that “will allow eligible participants a half hour to respond to ERCOT requests to reduce their electric use. The program is open to electric users — either as individual customers or as part of an aggregated group of consumers — who can reduce demand on the ERCOT grid by at least 100 kilowatts, which is the amount 20 homes use during peak demand.”
This follows a rule change adopted by the PUC in May that “authorizes ERCOT to conduct pilot projects to ‘evaluate resources, technologies, services, and processes that demonstrate the potential to advance the operational and market functions of the ERCOT system.’ This is the first pilot project approved under the new rule.” EDF commented on these rule changes and we are pleased to see ERCOT moving forward with these pilots. While many more deployments need to begin, we are headed down the right path and finally waking up the innovations needed in the energy market.