Demand response, customer-provided grid support

This summer, the electric grid has largely weathered the increased demand for power during heat waves.  Grid operators have a variety of tools to ensure sufficient energy supply to meet peak demands.  In recent years, the smart-grid star in the grid's toolkit has been demand response: programs that allow customers to respond to signals about the scarcity of electricity by temporarily reducing their consumption from the grid.  This summer, customer-provided demand response has not only kept the lights on, but has also reduced society’s energy costs by reducing the need for the most expensive marginal peaking generation units.

Last March, the Federal Energy Regulatory Commission issued a landmark ruling that demand response should be compensated fairly.  In this ruling – Order No. 745 – FERC held that demand resources should be paid at market-based prices when two criteria are met: capability and cost-effectiveness.  When demand resources can displace the need for bringing additional generation online, and when doing so lowers our grid costs, Order No. 745 requires organized wholesale energy market operators to pay demand response resources for the full value they provide to the grid.

Now, some regional grid operators are proposing major changes to their demand response programs.  While some of these changes are designed to comply with Order No. 745, other changes seek to place new limits on who can participate in demand response.  For example, northeastern grid operator ISO New England has asked FERC to approve its proposal to eliminate the demand response value provided by consumers capable of using existing on-site generation to produce power to support the grid during times of crisis.

Decades of federal and state policy have supported investment in distributed generation projects, ranging from micro-combined heat and power (micro-CHP) and cogeneration to small and medium-sized wind, rooftop solar photovoltaic systems and even fuel cells.  Distributed generation has a strong history of policy support, but if FERC accepts ISO New England’s proposal to limit behind-the-meter generation’s ability to provide demand response, the region will need other resources to keep the lights on during times of peak demand – new generating units, transmission lines, and substations.

FERC has docketed ISO New England’s request as Docket No. ER11-4336-000, and is accepting public comment through 5:00 pm Eastern time on Friday, September 09, 2011.