Demand response integrated into New England energy markets
New market structure includes the opportunity to more precisely optimize risk-forward and maximize the value of energy.
On June 1, New England's grid operator launched a new market structure, Price Responsive Demand (PRD), which integrated demand response into the core energy and reserves markets. As demand rises and real-time energy prices rise, demand response now submits the same kind of price-based offers in ISO New England’s markets as any other supply resource, rather than solely being a "call me in an emergency" option.
Energy market integration is a major chunk of ISO New England's response to 2011's Order 745 from the Federal Energy Regulatory Commission, which said that demand response must get the same compensation for meeting peak demand as if extra electricity had been generated instead.
PRD brings challenges and opportunities for demand response: higher penalties for non-compliance and additional system complexity, such as day-ahead and real-time bidding, while giving access to new markets and allowing intelligently-managed resources to more precisely optimize the risk-reward that they’re comfortable with.
Market overhauls of this size do not happen regularly, and rollout by ISO New England, Designated Demand Entities and other stakeholders took over a year. Despite the breadth and depth of the planning process, there were some concerns about how the market would function after switchover. Now that we’ve seen the new setup in operation for six weeks, what are the early lessons?
1. The sky has not fallen.
Despite the scale of the change, the markets have continued to operate safely and reliably. Where there have been minor behind-the-scenes issues (see below), ISO staff have worked quickly and efficiently with stakeholders such as ourselves to fix them.
2. Regular ISO communication is essential to address novel issues as they arise.
In the world of generators, if the unit is known to be online, then a data feed showing output of “0kW” is generally assumed to be a data error and thrown out. Some demand response resources can and do curtail to net zero usage, so a “0kW” load may be entirely as expected. Data validation procedures for operating reserves were updated to ensure that the full value of demand response resources is being correctly recorded.
3. If a demand response aggregator meaningfully understands their customers’ business processes, then risk-reward can be fine-tuned much more precisely than previous years.
PRD does bring the potential of greater risks than previous demand response programs, such as higher penalties for missing telemetry or non-performance. However, if your aggregator fully understands your business processes and flexibility, then custom strategies can be enacted to ensure that non-performance risks are minimized, while maximizing the value of your energy flexibility through participation in all available markets.
If you’d like to learn more about what joining demand response in New England could mean for your business, please contact us.