How California is bringing DER aggregation to wholesale markets

Third party aggregators were given the green light to bid into the CAISO market for the first time

Despite getting off to a slow start, California has been pushing forward quickly with demand response. 

While its largest power providers are executing a variety of standard programs and cutting edge pilots, utilities will make awards later this month in the most advanced and complicated demand response auction yet.

The Demand Response Auction Mechanism (DRAM) pilot is designed to do many things, but the primary function is to help test utilities' ability to procure aggregated demand response for resource adequacy. For the first time in the state's history, third-party aggregators will be able to bid distributed energy resources into the California ISO market next year, potentially profiting in the wholesale day-ahead market as well as from capacity.

In many ways, the auction represents a marketplace laboratory where data aggregators, solar companies and storage providers will put a price on the power they believe they can provide. The structure envisions a wide range of resources  from residential PV to commercial storage projects  and there is strong interest in the value that bidders will place on their capacity.

California's three largest utilities were directed to procure at least 22 MW in this auction — 10 MW each for SoCal Edison and PG&E, and 2 MW for San Diego Gas & Electric. And at least 20% of the resource must come from residential resources.

Bids were submitted last month and are now being evaluated by the investor-owned utilities. Winning bidders will be notified by Nov. 30.

For now, most of the utilities are playing it close to the vest, keeping the bids confidential.

Representatives from Southern California Edison and Pacific Gas & Electric told Utility Dive that they would not comment on the bids at this time. 

San Diego Gas & Electric spokeswoman Stephanie Donovan, however, was able to give some broad insight into bids the utility received, though again, specifics were confidential.

“We had a very robust response to the DRAM,” she said in an email, with eight different companies making offers. “We had hoped to get enough bids to meet our RFP — which was a required minimum of 2 MW … We actually received 7 MW worth of bids, of which 35% were residential — and much of the pricing came in close to our benchmark.”

“All in all, we were very happy with the results,” Donovan said. “We’re in the process now of working with our procurement review group on a short list of bidders to whom we would extend offers.”

The structure of the DRAM

Grid services provider Olivine is acting as a scheduling coordinator for the DRAM auction. Participating companies, or sellers, must secure a scheduling coordinator to transact in the market on their behalf. The company's technology platform was used in a PG&E supply-side pilot that allowed Stem to bid into CAISO's market two months ago. When the winning resources begin bidding into the wholesale market next year, they will do so under the usual market rules and not as a pilot. But in the resource adequacy capacity auction, sellers will operate under strict limits on how much they must make available, when and where.

Sellers must meet certain requirements for their Proxy Demand Resources (PDR), including offering 100 kW in one CAISO Sub-Load Aggregation Point, limited geographic areas within the system. And each PDR must meet certain requirements, including being available for four consecutive hours on three consecutive days, up to 24 hours a month. Utilities will not be using their traditional cost-effectiveness measures, however, to judge resources.

Of the 20% residential carve-out, 90% of the accounts must actually be residential and the remainder can come from small and medium-sized businesses.

The MW targets for the three utilities serve as a floor, not a cap, on what resources can be acquired, though there are limits on what the utilities can spend. If SDG&E's auction returns are scaled up to represent the larger auction, that could mean more than 75 MW of demand response bid into the DRAM pilot, or 350% more than utilities were required to procure.

Tight lid on potential bidders, but Tesla could be one

As tight-lipped as the utilities are about the auction, so have the companies about their bids. But looking back at announcements recently, it's possible to pick out some likely DRAM competitors.

Stem is one likely bidder. The company essentially proved it had the resources last month when it successfully bid an aggregated storage load into CAISO. Much like the DRAM auction, Stem was required to aggregate its bid up to at least 100 kW in one Sub-LAT, and it sourced the bid from six customers it works with.

“Bidding demand response into wholesale markets is not a particularly new concept,” said Ted Ko, Stem's director of policy. “But aggregating distributed fleets into wholesale markets is new, and I actually think we're one of the first places anywhere around the country to do this.”

Ko called it a "new form of demand response," but couldn't comment on whether the company had participated in the most recent auction. He noted, however, that the DRAM auction uses the "same structure as the supply-side pilot."

And last month, Schneider Electric and OhmConnect announced they would be partnering on a DR program that will allow residences to be aggregated and bid into the CAISO market, using the state's direct participation market rules. The program gives homes access to Schneider’s energy management devices, which include the usual connected thermostats and smart plugs, but also can access larger loads like pool pumps and electric vehicle charging stations. OhmConnect can then aggregate those devices into a predictable, flexible load. 

According to the company's website, a typical customer can earn anywhere from $50 to $150 per year using the program, and with revenues from CAISO, the program could shorten the time needed for homeowners to pay for installing energy upgrades.

On the electric vehicle front, EMotorWerks last year launched a pilot where it gave away an open-source charger, and OhmConnect pops up in this story as well. To be eligible for the free charger, you had to be a customer of one of the three IOUs, have a reliable wireless internet connection and be willing to allow the company to control the amount and timing of vehicle charging.

The "JuiceBox" charger will act as a customer's energy meter, the company explains on its website, eliminating the need for a separate sub-meter. The device will periodically transmit usage data to OhmConnect over the customer's WiFi connection. In the pilot phase, administered by state regulators, all payments were passed back to the customer, but the DRAM auction could present an opportunity to bring those revenues back to the company.

And of course, there is Tesla. The company founded by Elon Musk is focused on storage development, and announced earlier this year it was collaborating with EnerNOC, which provides energy intelligence software.

The companies said they were working on "deployment and management of energy storage systems in commercial and industrial buildings," with the aim of monetizing the storage through demand charge management. The initial collaboration included EnerNOC customers in California.

EnerNOC indicated in a May earnings call with analysts that it is not expecting a significant revenue stream from its collaboration with Tesla immediately, but sees room for growth down the line.

"This could be a sizable channel to market for EnerNOC," Chairman and CEO Tim Healy said on the call. "We've got the attention of the folks at these customer sites that are really geared to looking at their energy bill more closely and want to manage this expense. And so I think it’s a really good opportunity for us. ... And my expectation is that there will be a few more companies that we’ll start to work with over the coming quarters and years, that will also be like Tesla in that. It should be a good channel to market for us and we hope that they are needle moving accordingly."

Correction: A previous version of this post incorrectly stated Olivine is acting as the scheduling coordinator for the DRAM auction. Any registered scheduling coordinator can provide services in the DRAM. Olivine is one of them. 


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Filed Under: Efficiency & Demand Response
Top image credit: Flickr; Evan Blaser