Cali Opens the Market to Demand Response

Updated: Wanted: California electricity consumers who can turn off 100 megakilowatts or more of power use on a moment’s notice. In return, you can get paid as if you’re actually generating that same amount of power, with prices set on the open market. That’s the offer that the California Independent System Operator (CalISO), the group that runs the state’s power grid, put out this week, and it could usher in a whole new revenue stream for the demand response industry.

The so-called Proxy Demand Resources (PDR) program is named as such because it treats demand response — the ability to turn down power use to meet peak power demand times — the same as electricity provided by a power plant. The vast majority of the 40 or so gigawatts of demand response in the country today is run through contracts between utilities and customers that call for set prices to be paid when utilities have a power emergency.

The PDR program, on the other hand, doesn’t require a utility contract to participate, Stephanie McCorkle, CalISO’s communications director, explained to us Wednesday. Instead, it opens demand response to CalISO’s day-ahead and real-time markets that actual power producers bid into.

This step means that 100 “negawatts” of energy reduction bid into the system can compete against all the megawatts on offer from power plant operators. Those market prices are expected to offer more lucrative returns than the contractual terms given by utilities to so-called “emergency” demand response curtailment; although, to be fair, those contracts usually also offer a flat fee just for signing up.

On the other hand, the Federal Energy Regulatory Commission (FERC) wants to see demand response opened to market pricing across the country, not just California. Back in March, FERC issued a proposal that would require all ISO’s and RTOs (regional transmission operators) to pay demand response providers the market price for the energy they’ve curtailed.

CalISO’s PDR program has been approved by FERC, McCorkle said, and other ISOs and RTOs can be expected to comply with FERC’s wishes. However, power generators are complaining that paying full market prices for negawatts constitutes a form of double dipping, since those that participate also avoid paying high peak prices for the power they don’t use.

Update: CalISO touts the new program as a new way for power consumers to participate in energy markets, but this won’t be open to every homeowner with a smart meter, at least not directly. Bidders have to be able to promise at least 100 megakilowatts of power reduction, McCorkle said. That limits participation to those that can wield big blocks of power-down capacity, either by collecting thousands of houses into one system or organizing big commercial and industrial customers.

That essentially means the big, publicly traded demand response aggregators EnerNOC and Comverge, or perhaps private counterparts like CPower and Energy Connect, will be the most likely participants. It will be interesting to see which companies end up bidding for the right to sell their negawatts on the open market, however, and new contenders could emerge: think of data centers arbitraging idle backup power systems.

Lafayette, Calif.-based startup UISOL will provide the software to run CalISO’s new PDR program. Called DRBizNet, it’s meant to manage everything from verifying that bidders actually can turn down their power as promised to paying them for the service, and is integrated into CalISO’s market and dispatch systems.

Interestingly enough, UISOL is also the company that’s opening the source code for the OpenADR standard for automated demand response, a Berkeley Labs-developed standard now being used to manage more than 70 megawatts of demand response capacity through the state’s three big utilities. McCorkle said that some level of investment into smart grid technology will be necessary for bidders to participate in the PDR program.

No doubt UISOL will be working to integrate their software to talk with proprietary systems from the likes of EnerNoc and others, but they’re almost assured of supporting OpenADR as well. For that reason, Honeywell could be one company set to fit well into PDR — it’s working on a big demand response project with Southern California Edison, and in May bought Akuacom, the company that builds the servers now operating OpenADR-based demand response programs in the state.

For more research on smart grid opportunities check out GigaOM Pro (subscription required):

Demand Response Gets a Boost from Proposed FERC Ruling

Report: An Open Source Smart Grid Primer


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