- A new analysis by the Federal Energy Regulatory Commission concludes that in organized wholesale markets, demand response was called on to meet 5.7% of peak demand in 2016 — a significant decline from the 6.6% that demand response supplied in 2015.
- The report, required by the Energy Policy Act of 2005, found demand response market participation fell across all ISO/RTO regions to 28,673 MW, a 10% decrease from 2015: a level roughly equal to participation in 2013 and 2014. But peak demand, which demand response is typically used to meet, move or mitigate, actually grew by 3% from 2015 to 2016.
- The decline of demand response in wholesale markets was largely driven by new rules in PJM Interconnection that led to an almost 2,900 MW decrease in demand response capacity enrolled in its reliability program and a 900 MW decrease in economic program enrollments.
Utilities are increasingly turning to demand response as a tool to balance the grid, but the resource played less of a role in wholesale markets in 2016. While much of that has to do with PJM's new capacity performance rules, there were declines in other markets as well, according to FERC's annual assessment.
Since 2009, demand resource participation in wholesale markets has increased by about 6%, but it has also been outpaced by an approximately 16% increase in peak demand.
"This decrease in demand resource participation across the RTO/ISO regions was primarily due to an approximately 24% (3,030 MW) drop in demand resource enrollment in PJM Interconnection," FERC's report found.
The changes were somewhat offset by approximately 600 MW of demand response in PJM’s capacity performance product.
The Polar Vortex winter of 2014 caused widespread generator outages, leading PJM to develop new requirements in its capacity market. The changes were meant to ensure generators would be online in extreme weather, and among the changes was a requirement that resources be available year-round.
In the PJM market, demand response tends to be a summer resource, particularly on the residential side. The more stringent requirements were introduced in a new product called "Capacity Performance," and phased in through a pair of transitional auctions. The transition ended last year and capacity in the latest auction had to be available year-round.
About 9,850 MW of demand response was offered in the 2020/2021 Base Residual Auction, declining nearly 17% from last year. Out of that, 7,820 MW of resources cleared the auction — about a 25% drop compared with 10,348 MW last year.
But FERC's report identified declines in other markets as well.
Demand resource participation also fell in the California ISO by 8% (about 163 MW) due to decreased enrollment in price-responsive demand programs.
"Participation in utility-sponsored programs has been gradually declining over the last several years, while participation in CAISO’s wholesale demand response products has been growing," FERC's report said. "In 2016, demand resource enrollment in CAISO’s two wholesale products totaled 1,480 MW."
Deployment of advanced metering infrastructure is a major factor underpinning the role of demand response. The report notes there were almost 65 million smart meters installed in 2015 out of a total of 151 million meters. Penetration rates, now about 43.9%, have been rising steadily for years.
Demand resources in the ISO New England and New York ISO markets also decreased by approximately 4%. However, net demand response participation rose in the Midcontinent ISO due to an increase in demand resource capacity registered as emergency demand response.
Time-varying rates are increasingly being implemented — California IOUs will transition to residential default time-of-use rates by 2019 — but the report notes that "barriers remain to the wide-spread uptake of timebased
rates." Remaining hurdles include understanding how customer bills will change as rates are redesigned, and outreach and education necessary to inform consumers.
"In addition, a gradual transition to the new tariffs—with an opt-out for certain populations—and appropriately designed pilots to test customer response, may ease the transition," the report finds.
FERC's assessment also concluded that a "lack of coordination among policies at the federal and state levels could slow the development of demand response resources."