Comments on: Negawatts vs. Megawatts: What’s the Right Price?

By: Demand Response

Demand Response — Wed, 23 Mar 2011 23:53:08 +0000

Andy does it again.

Seems like end of discussion to me. How can you even debate that?

By: Andy

Andy — Wed, 23 Mar 2011 21:17:52 +0000

Maybe I’m missing something, but this all seems pretty straightforward. You pay the same price for peak demand reductions that you would pay for peak supply (principle FERC is enshrining). From a grid operator perspective, a MWh reduced is the same a MWh produced. I understand that the politics are complicated, but from an academic perspective this is Econ 101, matching supply (peak supply & DR resources) and demand (capacity needed to keep the grid functional). Sure, some DR players will get a higher price than the lowest marginal price that would incentivize them to reduce demand, but that’s capitalism. Push comes to shove Walmart can lower their prices and accept a lower profit margin if market demand is reduced or competition becomes more intense, but as long as they are cheaper than anyone else, they win in the market. Until you get to a point where there is a “DR monopoly”, there are no market distortions.

Only big question I see is the specific methodology used to calculate the demand reduction, not the price issue. You don’t want to flood the market with a lot of phantom DR that isn’t going to hold up in the light of day.

My understanding is the generators are making the separate point that since there are “real” costs with supply they can’t compete against DR, which will affect the market. But that’s like the Horse & Buggy Lobby saying cars should have an extra tax because they are so different from the “normal” way of transporting someone from point A to point B.

By: Jeff St. John

Jeff St. John — Wed, 23 Mar 2011 15:55:07 +0000

Good point, you two. I’m not an energy economist, but I believe the point the generators are making in their arguments is that, at a certain point, the effect of bidding demand response assets into the energy markets can lead to a less efficient process for allocating incentives to both demand and supply-side resources. That is, while getting rid of peaker plants is a good thing, you can’t get rid of TOO many of them… but just how the ISOs and RTOs should achieve that balance is a topic of much debate. I’ll keep reporting on this as the plans roll out in mid-summer — perhaps there will be more clarity at that point.

By: Demand Response

Demand Response — Tue, 22 Mar 2011 22:16:05 +0000

Andy,

My thoughts exactly. Not having to build peaker plants is exactly the point of demand response.

Its like saying “now that you have insulated your home, we are upset because we cant sell you natural gas” ???

By: Andy

Andy — Tue, 22 Mar 2011 16:48:05 +0000

Isn’t this the point of this rule:

“That could lead to some peak power plants shutting down, and new ones not getting built, which would pretty much cancel out the benefits of more demand response.”

Why isn’t reducing the operation and building of peak power plants the goal of increased demand response? If demand resources reduce total costs then it shouldn’t matter what happens to the generation industry (from a policy perspective)…