Demand Response in New England's Wholesale Electricity Market

1
Demand Response in New England's Wholesale
Electricity Market

• Massachusetts Electric Restructuring Roundtable
• Boston, Massachusetts
• November 19, 2004
• Henry Yoshimura
• Manager, Demand Response
• ISO New England Inc.

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Presentation Outline

• ISO New Englands current demand response
  programs
• Southwest Connecticut Gap RFP
• New program initiatives
• Demand Response Reserves Pilot
• Day-Ahead Load Response
• Integration of wholesale and retail markets
• Dynamic Retail Pricing

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ISO Market Development Projects

• Electricity markets are a work in progress
• ISO New Englands 2005 Wholesale Markets Plan
  addresses the following six important areas
• LICAP/Resource Adequacy
• Ancillary Services Market
• Improved Integration of Operational Decisions and
  Market Pricing
• Seams
• Cold Snap Task Force Recommendations
• Demand Participation in the Market

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Current DR Program Types

• Reliability (Demand) Programs
• Customers respond to System Reliability
  Conditions (OP-4) as determined by the system
  operators
• Price Programs
• Customers respond to Wholesale Price Levels as
  determined by the Market

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Customer Characteristics

• Enrollment fluctuating around 500 customers and
  400 MW
• Reliability Programs 70 of the MWs, 30 of the
  customers
• Price Program 30 of the MWs, 70 of the
  customers
• Assessment of current market
• CI 162 to 800 MW
• Res 56 to 340 MW
• Most participants have experience with energy
  efficiency
• Most spend less than 10 of their time buying and
  managing energy
• The decision to participate (or not to
  participate) is a function of financial incentive
  levels

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SWCT Gap RFP

• Local generation and transmission is not capable
  serving SWCT load reliably
• RFP issued in December 2003 for up to 300 MW of
  new emergency resources in Southwest Connecticut
• Eligible resources included
• Quick Start Generation
• Demand Response
• On-Peak Conservation (CLM)

7
RFP Results

• 34 Proposals Received
• Some offered multiple projects and options
• 8 Suppliers Selected
• Selection criteria cost, viability, reliability
  benefit
• 4-Year Contract Term with 5th Year Option
• Total cost about 128 Million over 4 years
• 12.50/kW-month
• All Selected Resources were either CLM or Demand
  Response

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Summary of Selected Resources
9
August 20th Performance All SWCT Gap RFP
Resources
Notice sent at 1045 a.m. Event Started at 11
a.m. Resources had 30 Minutes to Respond Event
ended at 130 p.m
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Demand Participation in Reserve Markets Whats
the Problem?

• Current Ancillary Services Market design is not
  attractive to many existing Demand Response
  customers. Why?
• 4-Second Metering Requirement
• 5 MW Minimum (must be an individual end-use
  metered customer)
• Must be Available to 11 p.m. (Weekdays)
• Nodal Pricing for All Usage

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Demand Response Reserves Pilot

• Obtain experimental (operational) data to
  validate DRs usefulness to meet system
  reliability
• Determine if there is a functionally equivalent
  telemetry for DR
• Provide ground work to obtain NPCC acceptability
  of DR to provide reserves
• Provide the basis for Ancillary Services Market
  rule changes

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Day-Ahead Demand Response (for 2005)
Who? Individuals or Groups. All Real-Time Program participants will be given the opportunity to make day-ahead offers.
When? Participant submits optional day-ahead load reduction offers acceptable bid range 0.05/kWh to 1.00/kWh.
How fast? Reduction is scheduled for the next day if the offer is accepted.
How much? Energy Payment Accepted offers are paid the Day-Ahead LMP. Load deviations purchased or paid at the Real-Time LMP. Capacity Payment Eligible for capacity credit (ICAP) if the asset is registered in Real-Time reliability-based programs.
How long? Based on accepted schedule a minimum interruption duration of up to 4 hours can be specified in the offer.
Metering Based on the Real-Time program within which the customer is registered.
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Why Promote Price Responsive Load?

• Lower short-term (LMP) and long-term prices for
  all customers
• Both participants and non-participants benefit
• Promotes economic development and customer
  retention
• Conserve scarce resources (fuel, capital, and the
  environment)
• Reduce the potential for suppliers to exercise
  market power
• Reduce need for regulatory intervention and
  mitigation
• Improve system reliability

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Whats the Problem?

• Customers are not price responsive
• Few customers are exposed to LMP
• Few customers are motivated to reduce load when
  wholesale prices are high
• Why? Retail rates and wholesale prices are
  disconnected in real-time!
• Few customers have the technology to
  automatically respond to price

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Whats a Solution?

• Give customers the option of reducing load at
  times of high wholesale prices in exchange for
  lowering their electricity bill
• Dynamic Retail Pricing is the best way to achieve
  the goal
• Dynamic Retail Pricing coupled with Controls
  Technology makes it easy for customers to save
  money
• Recent studies conclude that customers prefer
  dynamic pricing after experiencing it
• States should consider Dynamic Retail Pricing
  Pilots consistent with NEDRI recommendations

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Henry YoshimuraISO New EnglandOffice
413-540-4460hyoshimura_at_iso-ne.com