Clock Strikes Midnight On Emergency Generators And Demand Response
The clock struck midnight Sunday on emergency generation for demand response, and the boom fell today: May Day was supposed to have been a bad day for many of the curtailment response providers (CSPs) – and their customers with emergency generators – that provide demand response to competitive power grids across the United States. That’s because May 1st (well, in reality May 2nd since May 1st fell on a Sunday) was the anniversary of a D.C. Circuit Court of Appeals ruling that affects the ability of emergency generation to serve as a demand response resource. The week was quiet, with no news until a few hours ago, when participants reportedly received notification that the time is now up and emergency generation is off the table as a demand response resource.
Complicated background: This is super inside baseball, so let’s back up a bit and start at the beginning: Many years ago, the Federal Energy Regulatory Commission began to promote demand response – the ability of customers to curtail energy consumption during periods of stress on the power grid. A kilowatt-hour not consumed is essentially the same as a kilowatt-hour generated (actually better, since there are no losses on the transmission and distribution lines), so demand response in essence created a virtual power plant to support the electric grid in times of duress. Some of that curtailment involved customers actually turning things off, such as pumps and motors. But a significant amount involved customers utilizing emergency generators (machines that otherwise would only be used in the event of a blackout to keep the lights on), and a good portion of that emergency generator fleet was fired by diesel fuel.
One problem with this is that diesel generators are not the cleanest beasts in the zoo – they typically emit more particulates, nitrous oxide (a precursor to ozone – especially during the hottest days when a demand response event is more likely to be called), and sulfur dioxide than the average centralized power generation fleet. However, running a number of diesel generators was seen by many as preferable to the potential health and safety risk of incurring a blackout.
So, after much discussion, the U.S. Environmental Protection Agency granted a waiver to back-up diesel generators in 2013, to an original ruling which limited back-up generation to no more than 15 hours. The waiver allowed generators to run up to 100 hours annually for “emergency demand response” or in the event of a 5% drop in frequency or voltage (and they would get paid accordingly for offering capacity to the system). In part, the EPA indicated that it had loosened an initial ruling based on PJM’s (the Mid-Atlantic power pool) comments that they needed generators available for at least 60 hours to participate in emergency demand response programs (in fact, PJM indicated that this availability was only needed in the aggregate, rather than for each individual generator). This waiver was celebrated by the CSPs, as many of them had substantial percentages of their capacity being supplied by emergency generators.
Zero sum game – I win, you lose: However, when it comes to power pools, electricity markets, and economics, one frequently encounters a zero-sum game. If one entity wins (in this case, customers with generators and the CSPs) another party loses (in this case the large merchant generators). So generating companies and the Delaware Department of Natural Resources (concerned about local air quality issues) opposed this ruling. The Delaware DNR stated that the utilization of generators in emergency demand response programs would significantly worsen ozone pollution (especially the emissions blowing to the east into Delaware from other states).
The Independent Market Monitor, charged with overseeing and critiquing the effective functioning of the PJM power pool also weighed in, commenting that allowing emergency generator participation would distort the healthy functioning of the power markets. And Calpine – a generation company – charged that some end-use customers would specifically buy diesel fired back-up generation to participate in demand response, with the result that cleaner generation resources would be displaced. In fact, the generation resources are used very infrequently so to date the air quality issue has not been very significant (and the environmental impact perhaps less so than building a new centralized power plant).
The golden carriage has now become a pumpkin – what next: On May 1, 2015, the DC Federal Court of Appeals found unanimously in favor of the plaintiffs ruling that the EPA acted “arbitrarily and capriciously when it modified the National Emissions Standards and the Performance Standards to allow backup generators to operate without emissions controls for up to 100 hours per year as part of an emergency demand-response program.”
However, the Court also noted that if vacating the provisions of the 2013 rule-making caused administrative or other difficulties, it would allow the EPA