Demand Response Markets
Demand response is an umbrella term encompassing a customer’s ability to reduce its energy usage in response to several signals. These signals could be from the power grid itself, such as a reliability issue. There are also pricing signals, which consumers can use to reduce their energy usage when energy prices are high. With the right response, the reductions made by customers are essentially the equivalent of the power that an energy-generating plant would create.
Keeping demand and supply in balance is important to the entire energy grid. Unfortunately, customers tend to be unresponsive to high prices—perhaps even insulated from the shifting prices altogether due to their supply agreements. As a result, when demand is high, power plants must be ramped up to serve the increase in demand. Through demand response, customers can simply reduce their usage. This helps balance out the demand and supply without having to call upon the less efficient power plants.
Customers can lower the short-term consumption in response to one of these signals by, for instance, slightly adjusting the building’s set temperature, dimming common-area lighting on sunny days, or turning off unnecessary fixtures like fountains. These modest changes can result in significant reductions in energy usage without inconveniencing tenants.
Demand response transactions are handled through an entity authorized by the federal government to act as a neutral and independent coordinator to move and trade wholesale electricity. These entities are known as Regional Transmission Organizations (RTO).
BOMA/Chicago buildings are in the territory covered by the PJM Interconnection, which covers all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
PJM breaks down its demand response markets into two broad classifications: economic and emergency. A customer may participate in either or both, depending on their circumstances.
Emergency Demand Response
Emergency demand response, otherwise referred to as “Capacity,” is a commitment that a customer makes to reduce its load or only consumer a certain amount of electricity when PJM requires emergency assistance to maintain the grid. Examples of emergency conditions include capacity shortages, hot weather, or a power plant failures.
There are three specific types of emergency demand response programs:
- Limited Demand Response, where a customer agrees to be available for 10 weekdays from June through September (up to six hours for a given day);
- Extended Summer Demand Response, which requires customers to be available for an unlimited number of days between May through October for up to 10 hours at a time; and
- Annual Demand Response, where a customer is available for every day of the year.
These emergency resources are treated just like power plants; PJM completely relies upon their demand response performance when the grid most needs it. Customers who make themselves available through these emergency markets are paid by PJM simply to be available during any expected emergency conditions. But if a customer fails to reduce its load when called upon, that customer can face a significant penalty from PJM.
Another way customers can participate in emergency demand response is on a voluntary basis, where the customer chooses to reduce its load when an emergency event is called. If the customer can successfully reduce its load and measure its reduction, PJM will pay the customer for its voluntary participation.
Economic Demand Response
On the economic side of the demand response programs, PJM offers voluntary programs that allow customers to reduce their load and realize new revenue streams through several markets. These include the Energy Market, Synchronized Reserve Market, Day-Ahead Scheduling Reserve Market, and the Regulation Market. PJM pays customers for their responses based on the specific market.
PJM’s Energy Market is the most basic form of demand response. It allows customer to voluntarily respond to PJM’s prices by reducing their consumption when it makes economic sense (i.e., when the net benefits of the reduction exceed the costs of the reduction itself). Customers who reduce their usage sufficiently and measurably will receive a payment for their reduction.
Synchronized Reserve Market
The Synchronized Reserve Market is designed to supply electricity to the grid if there is an unexpected need for more power on a short notice. Customers submit specific offers to reduce their energy notice quickly—PJM requires customers to reduce their consumption in the Synchronized Reserve Market within 10 minutes of a PJM dispatch.
Customers who wish to supply synchronized reserve through demand response must have the appropriate metering infrastructure in place to verify their response down to one-minute intervals and comply with PJM’s rules and requirements.
Day-Ahead Scheduling Reserves Market
Day-Ahead Scheduling Reserves is a market-based mechanism designed to supply 30-minute “reserves” on the PJM system. PJM requires this do be done within a half-hour of a PJM dispatch. The market provides a pricing method and price signals that encourage customers to schedule additional capacity that will not be used the following day.
Regulation service corrects for short-term changes in electricity use that may affect the stability of the power grid. The Regulation Market, essentially, helps match the power that is being generated with the power that is being consumed, so it is a constant response effort from the customer. Demand response customers utilizing regulation service adjust their consumption to help maintain the grid’s ideal frequency.