Earlier this week, EnerNOC had its largest ever demand response event, providing 1,200 megawatts from about 1,600 sites on the Eastern seaboard. Despite the growing role of demand response services, the companies that provide negawatts are defending their territory.
In an open letter to electricity customers on Wednesday, CEOs from EnerNOC, Comverge and Energy Curtailment Specialists (ECS) made their case against a proposed rule change in the PJM Interconnection that wouldn’t compensate negawatts contributed during a peak load event that were above and beyond a customer’s pre-defined peak load contribution.
If a company has been assessed as being able to provide 1.5 MW during a DR event, and then curtails 2 MW during an event, that difference would receive no payment under the proposed rule, according to R. Blake Young, President and CEO of Comverge.
“The demand response community advocates that if a customer is in fact providing more load reduction than their peak load contribution factor, then they should be compensated,” said Young, “especially in an emergency situation.”
Back in March, the Federal Energy Regulatory Commission ruled that demand response must receive the same payment as generation resources in wholesale markets. Curtailment service providers lauded the decision by FERC. But the decision was just the beginning of a more nuanced battle over how negawatts are measured and compensated in a changing landscape of energy sources and services.
The letter makes the case in more general terms, pitting DR providers against incumbent generators. They argue that demand response has earned its place at the table of capacity markets. The argument is not without merit. The 2014/2015 PJM capacity auction saw more than 14,000 MW of demand response bid into the market, more than a 50 percent increase over the previous year. “We see demand response continuously proving itself,” said Tim Healy, CEO of EnerNOC.
The megawatts that went to demand response have an estimated value of $650 million, according to Healy. “That’s 650 million reasons why generators are restless,” he said.
PJM is the largest and most mature capacity market for demand response, but all of the Independent System Operators are required to determine a price level at which demand response dispatch is cost-effective compared to generation. The tariff changes for all of the ISOs need to be established by July 22.
Of course, once all of the proposed tariff changes have been submitted, FERC will be able to approve or reject them. Although the decision in March was a final ruling, this is where the nitty-gritty work begins. DR providers are hoping that, like the decision that demand response should be compensated the same way as generation, FERC will again rule on the side of this relatively new resource.
Demand response may have arrived, but in PJM, it still only makes up about 10 percent of the capacity resources for the 2014/2015 market. “We realize we’re not as large a resource contributor as legacy generators,” said Young, “but that doesn’t mean the resource being provided isn’t as impressive.”
The voice of DR providers is already being heard at FERC, but this letter asks customers to also get more involved. “What’s most egregious is that because demand response passes cost savings on to electricity consumers, it is the electricity consumer who has the most to lose if the incumbents prevail in discrediting this resource,” the demand response CEOs wrote.
Ultimately, however, it will be FERC, and not the DR customers, that will decide whether the tariff changes fit the ruling to pay the full market price. Even after all of the filings in July, the debate is likely to continue as grid operators must also put together studies that look at the requirements for and the effects of this ruling and file the results in 2012.