Demand Response in Capacity

Market
 Basic Concept of Demand Response
• Classical Philosophy :
Supply all required demand whenever occurs.

• New Philosophy :
The system will be most efficient if fluctuations in demand is kept as small as
possible.

• Basic Mechanism :
Reduce or transfer the power load in a certain period of time
 Definition of Demand Response
Demand Response (DR) can be defined as the changes in electric usage by
end-use customers from their normal consumption patterns in response to
changes in the price of electricity over time
Or incentive payments designed to induce lower electricity use at times of
high wholesale market prices.
 General Action of Customer Response
1 . Reduction in Consumption :
Customer can reduce his electricity usage during critical peak periods when prices are high
without changing consumption pattern during other periods.
Example : When thermostat setting of heaters or air conditioners are temporary changed.
 General Action of Customer Response
1 . Reduction in Consumption :
Customer can reduce his electricity usage during critical peak periods when prices are high
without changing consumption pattern during other periods.
Example : When thermostat setting of heaters or air conditioners are temporary changed.
2 . Shifting Peak Demand Operations:
customers may respond to high electricity prices by shifting some of their peak demand
operations to off-peak periods.
Example : Shifting some household activities (e.g. dishwashers, pool pumps) to off-peak periods.
 General Action of Customer Response
1 . Reduction in Consumption :
Customer can reduce his electricity usage during critical peak periods when prices are high
without changing consumption pattern during other periods.
Example : When thermostat setting of heaters or air conditioners are temporary changed.
2 . Shifting Peak Demand Operations:
customers may respond to high electricity prices by shifting some of their peak demand
operations to off-peak periods.
Example : Shifting some household activities (e.g. dishwashers, pool pumps) to off-peak periods.
3 . Using onsite generation (customer owned Distributed Generation):
By utilizing onsite generation, customers may experience no or very little change in their electricity
usage pattern.
Effect of Demand Response on Electricity Market Prices
 Characteristics Of Demand Response in Power System

SCALE:
A large and diversified group of customers should participate in DR program
 Characteristics Of Demand Response in Power System

SCALE:
A large and diversified group of customers should participate in DR program

Normalization:
Should be implemented on an ongoing basis not interruptedly in order to deal
with high load in summer or fluctuations in new energy sources.
 Drawbacks of Demand Response Resources
1. Lack of Technological upliftment:
Telemetry infrastructure, Database System, Energy Management System is
estimated about $750,000

• Lack of any proper BUSINESS MODEL is the main constraint for this big
investment.
 Drawbacks of Demand Response(DR) Resources
2. Lack of competent bidding option:
• Too high subsidy leads to unnecessary loss of funds.
• Too low subsidy leads to lack to enthusiasm in participation for the users.
• Presently DR subsidy based on fixed price basis.
• But it should be fully market-oriented.
• According to the high or low offer to determine the amount of each user
reduction and reduction period requirements.
Why Capacity Market is important for Demand Response Resources ?

• Based on the experience of the US electricity market, the capacity

market is the most important revenue source for DR resources

• So it’ll be beneficial for the DR resources in terms of high

construction costs and lack of suitable profit models to recover costs
Why Capacity Market is important for Demand Response Resources ?

• Based on the experience of the US electricity market, the capacity

market is the most important revenue source for DR resources

• So it’ll be beneficial for the DR resources in terms of high

construction costs and lack of suitable profit models to recover costs
Impact :
1. Contribution of DR resources to the capacity market adequacy.
2. DR resources on transmission planning upgrades
 Types of DR resources participating in the capacity market
1. Electric Distribution Company (EDC)
Provides distribution services to users in market by using the distribution
equipment owned or leased.
 Types of DR resources participating in the capacity market
1.Electric Distribution Company (EDC)
Provides distribution services to users in market by using the distribution
equipment owned or leased.
2. Load serving entity (LSE):
Main difference from EDC is LSE does not own distribution equipment. Includes load
aggregators & other power marketers. sells electricity or provides other power
services to its contracted end-users.
 Types of DR resources participating in the capacity market
1.Electric Distribution Company (EDC)
Provides distribution services to users in market by using the distribution
equipment owned or leased.
2. Load serving entity (LSE):
Main difference from EDC is LSE does not own distribution equipment.
Includes load aggregators & other power marketers. sells electricity or provides
other power services to its contracted end-users.
3. Curtailment Service Provider (CSP):
Main difference from EDC & LSE is CSP is not responsible for supplying electricity to users.
It refers to the agents who use their professional technology and service to organize
power end-users with the potential of load reduction and willing to participate in DR
market transactions.
 Types of DR resources participating in the capacity market
1.Electric Distribution Company (EDC)
Provides distribution services to users in market by using the distribution equipment
owned or leased.
2. Load serving entity (LSE):
Main difference from EDC is LSE does not own distribution equipment.
Includes load aggregators & other power marketers. sells electricity or provides other
power services to its contracted end-users.
3. Curtailment Service Provider (CSP):
Main difference from EDC & LSE is CSP is not responsible for supplying electricity to users.
It refers to the agents who use their professional technology and service to organize power
end-users with the potential of load reduction and willing to participate in DR market
transactions.
4. End Use Customer (EUC):
Participants for DR Response
 Types of Demand Response Products
1.Emergency & pre-emergency (EP) Demand Response :
Refers to the behavior of DR resources as a capacity resource to curtail the load according to the
instructions of dispatch agency in emergency situations such as when the PJM power market price
reaches the specified price ceiling or the system operation reserve is insufficient.
 Types of Demand Response Products
1.Emergency & pre-emergency (EP) Demand Response :
Refers to the behavior of DR resources as a capacity resource to curtail the load according to the
instructions of dispatch agency in emergency situations such as when the PJM power market price
reaches the specified price ceiling or the system operation reserve is insufficient.
2.Price responsive demand (PRD):
Forecastable load variation in response to changing electricity prices.
 Types of Demand Response Products
1.Emergency & pre-emergency (EP) Demand Response :
Refers to the behavior of DR resources as a capacity resource to curtail the load according to the
instructions of dispatch agency in emergency situations such as when the PJM power market price
reaches the specified price ceiling or the system operation reserve is insufficient.
2.Price responsive demand (PRD):
Forecastable load variation in response to changing electricity prices.
3.Economic Demand Response :
A voluntary commitment to reduce load in the energy market when the wholesale price is higher
than the published monthly net benefits price.

[Net Benefit Price : It represents the price at which the benefits incurred by a reduction in wholesale prices
from the economic demand response will exceed the cost to pay for the economic demand response]
 How PRD resources participate in the capacity market
1 .Participates as a predictable variable load in the market not as a power generation
resource.
 How PRD resources participate in the capacity market
1 .Participates as a predictable variable load in the market not as a power generation
resource.
2 . Capacity markets in which PRD resources can participate include Base Residual Auction
promise that the maximum nominated amount of PRD resources can be provided in the
delivery year.
 How PRD resources participate in the capacity market
1 .Participates as a predictable variable load in the market not as a power generation
resource.
2 . Capacity markets in which PRD resources can participate include Base Residual Auction
promise that the maximum nominated amount of PRD resources can be provided in the
delivery year.
3. PJM determines the capacity of the PRD resource based on the capacity-price information
provided by the PRD provider
 How PRD resources participate in the capacity market
1 .Participates as a predictable variable load in the market not as a power generation
resource.
2 . Capacity markets in which PRD resources can participate include Base Residual Auction
promise that the maximum nominated amount of PRD resources can be provided in the
delivery year.
3. PJM determines the capacity of the PRD resource based on the capacity-price information
provided by the PRD provider
4. When it is less than or equal to the clearing price, the PRD provider will provide its
committed PRD capacity in the delivery year
 How PRD resources participate in the capacity market
1 .Participates as a predictable variable load in the market not as a power generation
resource.
2 . Capacity markets in which PRD resources can participate include Base Residual Auction
promise that the maximum nominated amount of PRD resources can be provided in the
delivery year.
3. PJM determines the capacity of the PRD resource based on the capacity-price information
provided by the PRD provider
4. When it is less than or equal to the clearing price, the PRD provider will provide its
committed PRD capacity in the delivery year
5. If a PRD provider cannot deliver the capacity promised in the Base Residual Auction or
Third Incremental Auction, the PRD obligation can be transferred to another PRD provider
bilaterally to avoid penalty.
 How PRD resources participate in the capacity market
1 .Participates as a predictable variable load in the market not as a power generation
resource.
2 . Capacity markets in which PRD resources can participate include Base Residual Auction
promise that the maximum nominated amount of PRD resources can be provided in the
delivery year.
3. PJM determines the capacity of the PRD resource based on the capacity-price information
provided by the PRD provider
4. When it is less than or equal to the clearing price, the PRD provider will provide its
committed PRD capacity in the delivery year
5. If a PRD provider cannot deliver the capacity promised in the Base Residual Auction or
Third Incremental Auction, the PRD obligation can be transferred to another PRD provider
bilaterally to avoid penalty.
6. To ensure the reliability of system operation, PJM negotiates with PRD resource providers that the
load level of PRD resources shall not be higher than the Maximum emergency load level (MESL)
when the Locational Marginal Pricing(LMP) is greater than or equal to a certain threshold.
 Impact of PRD on Market Clearing Price
Participation of PRD Demand for power generation capacity is reduced

Forecasted load is also reduced

Reduction in Market Clearing Price

Operation cost of power grid reduces

 How PRD accepts payment ?

• Not in terms of any financial remuneration.

• Profit is reflected in reduction of electricity consumption cost.

Key parameters for DR resource participating in capacity Market

Installed Capacity (ICAP) Unforced Capacity(UCAP)

Equivalent to the installed capacity of Equivalent to the available capacity

traditional generators, which refers to
the maximum load reduction of end
users.
of conventional generators, i.e. the
remaining available generation
capacity at any given time after
discounting the generation capacity
that is not available
 Notification period of DR resources
1 . Quick Lead (30 Minute Lead Time) : Need to be completed within 30
minutes from the time the dispatcher notifies the Market Operations Center of
the power restriction.

2 . Short Lead (60 Minute Lead Time) : Need to be completed within 30

minutes and less than 1 hour from the time the dispatcher notifies the Market
Operations Center of the power restriction.

3 . Long Lead (120 Minute Lead Time) : Need to be completed within 1

minutes and less than 2 hour from the time the dispatcher notifies the Market
Operations Center of the power restriction.
 Comparative analysis of PRD and EP products participating in
the Capacity Market
Price Responsive Demand Products
1. Participate in the market as a predictable
variable
load.
2. Reflected in the reduction of electricity
consumption costs and have no direct
remuneration.
3. Participate in the Base residual auction, the
third incremental auction and Bilateral Market.
4. Self-scheduling
Emergency & Pre-Emergency
Products
1. Participate in the capacity market as a
generation resource.
2. Receive the corresponding remuneration
when participating in the capacity market
3. EP Products can participate in the Base
residual auction, the three Incremental actions,
the Conditional incremental actions, and the
Bilateral Market.
4. Scheduled by PJM
 Challenges in Demand Response
• Uncertainties in participation
• Certain revenue risk
• Strategy for forward planning prior to several years
(forecasting issues)