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Demand Response in PJM

2009 NASUCA Mid-Year MeetingJune 30, 2009 Boston, MA

Panel: Price Responsive Demand – A Long-Term Bargain for Consumers?

Paul M. Sotkiewicz, Ph.D.Senior Economist, MarketsPJM Interconnection, LLC

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PJM Market Participants in Demand Response

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Electric Distribution Company (EDC):

PJM Member that owns, or leases, electric distribution facilities that are used to provide electric distribution service to electric load within the PJM Control Areas.

Who Can be a CSP?:•Any LSE•Any EDC•Any third party (PJM member) specializing in Demand Response

Curtailment Service Provider (CSP):

PJM Members that will act on behalf of end-use customers who wish to participate in PJM Load Response opportunities.

Load Serving Entity (LSE):

PJM Member, including Load aggregator or power marketer, serving end-users within the PJM Control Area, to sell electric energy to end-users with the PJM Control Areas. End Use Customer:

Cannot directly participate

Unless it is a PJM Member

(e.g. as an LSE or CSP)

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What is Demand Response?

From an operational perspective:

• It is the ability of consumers to change consumption in response to energy market prices.

• It is the ability of consumers to reduce consumption in response to a notice from a system operator to meet system needs such as a contingency or emergency situation to maintain reliability.

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What is Demand Response?

From a customer perspective:

• It is the ability of consumers to control energy expenditures through reductions in, or changing patterns of, consumption.– Reduction of consumption during high price events and possibly

shifting that consumption to lower priced periods– Committing to reductions in usage during peak periods and/or

“emergency of contingency events” for reliability needs

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What is Demand Response?

From a load serving entity (LSE) or electricity distribution company (EDC) perspective:

• It is the ability of consumers to help the LSE/EDC to avoid high cost purchases/production or avoid new capacity purchases/builds– May help reduce overall costs for remaining LSE/EDC customers

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Energy Market Capacity Market Ancillary Services

• Economic Load Response Program (ELRP)•Reductions are voluntary•Reductions measured against a consumption baseline (CBL)

•Emergency only…little used

• Emergency – Capacity Only• Emergency – Full (also gets an energy payment when responding at PJM’s direction)•DR (3 year ahead commitment)•ILR (3 month ahead commitment…phased out for 2012-2013 delivery year)•Mandatory reduction when PJM request Emergency Load Management resources during a peak event•Testing now required

• Synchronous Reserves• Regulation• DA Scheduling Reserves•Load bids into these markets and responds to an event exactly like a generator•Mandatory response to a Synchronous Reserve event if cleared in the Synchronous Reserve market

Demand Response Opportunities in PJM

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Responding to Wholesale Prices in the Energy Market

$0

$50

$100

$150

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$300

$350

HR1HR2

HR3HR4

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HR7HR8

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HR15HR16

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Wholesale Price (Hourly LMP)

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Retail Rate

An End-Use-Customer reduce consumption when wholesale prices are high

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Revenue Opportunities in Economic Load Response 2007

• Total revenue a 1 MW Demand Resource could have generated.• Payment is LMP less the generation and transmission portion of the retail rate (no

incentives included in 2007 figures). • Strike price is the price at which reductions occur based on PJM load-weighted

average LMP.• Does not account for any increased consumption in off-peak periods at the retail

price.www.pjm.com

Revenue Opportunities in 2007

Trigger or Strike Price LMP ($/MWh)

RetailRate($/MWh)

LMP≥75 LMP≥100 LMP≥125

50 115,757 64,093 19,928

75 60,407 44,443 16,653

100 n/a 24,793 13,378

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Revenue Opportunities in Economic Load Response 2008

• Total revenue a 1 MW Demand Resource could have generated.• Payment is LMP less the generation and transmission portion of the retail rate (no

incentives included in 2007 figures). • Strike price is the price at which reductions occur based on PJM load-weighted

average LMP.• Does not account for any increased consumption in off-peak periods at the retail rate.

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Revenue Opportunities in 2008

Trigger or Strike Price LMP ($/MWh)

RetailRate($/MWh)

LMP≥75 LMP≥100 LMP≥12550 166,412 122,770 48,65775 100,162 86,820 39,507

100 n/a 50,870 30,357

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Revenue Opportunities as Capacity

Capacity Clearing Prices ($/MW-day)

RTO EMAAC SWMAAC2007/2008 40.80 197.67 188.542008/2009 111.92 148.80 210.112009/2010 102.04 191.32 237.332010/2011 174.29 174.29 174.292011/2012 110.00 110.00 110.002012/2013 16.46 139.73 133.37

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Prices are those paid to DR committing 3 years forward.

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Revenue Opportunities as Capacity

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Resulting Annual Revenue ($/MW-year)

RTO EMAAC SWMAAC2007/2008 14,892 72,150 68,8172008/2009 40,851 54,312 76,6902009/2010 37,245 69,832 86,6252010/2011 63,616 63,616 63,6162011/2012 40,260 40,260 40,2602012/2013 6,008 51,001 48,680

Revenues are for DR committed 3 years forward

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Revenue Opportunities in Ancillary Services

• For a 1 MW resource clearing Synchronous Reserve in all hours– In 2007: RFC $192, Mid-Atlantic $63,522, Dominion $232– In 2008: RFC $1,033, Mid-Atlantic $45,971, Dominion $0

• For a 1 MW resources clearing in Regulation when the price (inclusive of opportunity cost) exceeds $100/MW– In 2007: $47,306 for 305 hours – In 2008: $85,477 for 503 hours– To date there has been no Demand Resource that has bid into

Regulation• For Day-ahead Scheduling Reserve (operating since June 1, 2008

through August 31, 2008) $1,236

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Long-Term Vision for Demand Response

• “Price Responsive Demand (PRD)” is the long-term vision for demand response.

• What is PRD?– Deployment of advanced metering to end-use customers so they can see

wholesale market prices in real-time; AND– End-use customers responding to wholesale market prices through the use of

dynamic retail rates.• PRD allows end-use customers to respond to wholesale prices in real-time.

– Changing consumption patterns to reduce energy expenditures– By reducing during peak days can avoid costs of capacity

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PJM Preparations for PRD • PJM must enhance load forecast methods • Day-ahead forecasts and real-time updates for the energy

market.– Account for demand, by location, that will respond to prices to ensure

resources are not over-committed • Forecasting for capacity adequacy and transmission planning

– Account for quantity and location of demand that will have responded to price and not be on the system during the forecast peak

• PJM to develop communication capabilities to provide price information to customers

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PJM Working in Concert with States

• Provide assistance if requested to coordinate integration of dynamic retail rates

• PJM is willing and able to support various retail rate structures that fit each State’s needs

• Work with States to aid in understanding what information PJM can provide to facilitate PRD– Day-ahead and real-time LMP, for example

• Assist, to the extent possible, in analyzing potential impacts of PRD• Shifts the locus of demand response to the retail level while accounting

fully for it at the wholesale level

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PRD vs. Current PJM Demand Response • PRD – Long Term Vision

– Benefits from responding to price embodied in dynamic retail rate linked to PJM prices. No measurement against a CBL or PJM settlement is necessary.

– For capacity benefits, reduction in consumption at peak accounted for in reduced demand for capacity reflected in forecast. No need to offer reductions into capacity market.

• Current PJM DR– Benefits from reductions in

response to price as measured against CBL are submitted for settlement at PJM.

– For capacity benefits, offer reductions in a manner similar to a supply side resource into capacity market. Reductions not included in forecast demand for capacity.

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