Demand Response Jockeys for Position in PJM Capacity Market
Environmental and consumer advocates, along with Illinois’ regional electric grid operator, PJM Interconnection, launched a project on October 6 designed to demonstrate how demand response – a non-generator resource that is now a participant in PJM’s capacity markets – can support grid reliability year-round as well as reduce electricity costs for Chicago businesses, institutions, government, and homeowners.
The pilot program, called the Combined Capacity Asset Performance Project, is a collaboration of, The Accelerate Group, a Midwest consulting firm; Citizens Utility Board (CUB), the Environmental Defense Fund (EDF), and PJM Interconnection.
Each year, PJM manages a capacity auction to buy enough power supply resources to meet the highest forecasted peak energy demand for the area it serves, including all or parts of 13 states and the District of Columbia. In PJM’s wholesale power markets, demand response resources compete directly with other forms of energy. Thus, demand response participants can bid into the auction – offering the amount of electricity they commit to reducing; and receiving the same payments as power companies to meet electricity needs.
Under PJM’s new performance requirements, qualifying sources of energy must respond at any time when there is a critical need. Previously, demand response resources could choose to participate only during summer months, for example, by reducing air conditioning use. Yet PJM’s experience during the 2014 Polar Vortex demonstrated the need to rely on sources of energy – fossil fuels from power plants, energy efficiency, renewable energy, and demand response – that could be counted on year-round, no matter what.
“Demand response has proven to be a very flexible tool that meets a number of needs for the grid,” said PJM Senior Vice President of Markets Stu Bresler. “In addition to helping lower prices and reducing pressure on the generation fleet during periods of peak use, demand response can be used by states and local communities to meet their public policy objectives.”
In the face of these updated requirements, the project will show demand response participants new approaches to providing the year-round availability the grid needs. The project will bundle variable, renewable energy, like wind and solar, and the demand response potential of multiple buildings into combined capacity assets that are bid into the market. These energy resources can work together in real-time during emergency events to meet their electricity commitment.
Over the past several years, EDF and CUB have been working closely with commercial office buildings and residential buildings in Chicago to help them save energy and costs, as well meet the electric grid’s peak needs through demand response, energy efficiency, and energy storage.