FERC this week established a rule establishing an approach to compensation for demand response in wholesale energy markets. It requires wholesale energy market operators to pay demand response participants the market price for energy when those resources have the capability to balance supply and demand as an alternative to additional generation, and when demand response dispatch is cost-effective.
“The Commission’s decision recognizes the value demand response provides to the nation’s electric grid and to customers,” said Viridity president and CEO Audrey Zibelman. “The decision empowers customers to take control of their electric bills and to provide a service that enhances the reliability of the grid while improving the competitiveness of electric markets.”
“Demand response” refers to programs or incentives that allow electricity customers to respond to prices as they change over time on a daily or hourly basis. These methods can include utilities offering rates that reflect the variation in electricity costs over time, or incentives to reduce the electric load at peak times.
Viridity, which offers distributed demand management software and services, said the ruling will encourage customers to be more engaged in energy markets, promote efficiency and facilitate the broader adoption of demand response.
“The rule adopted by the Commission recognizes that demand response is a valuable service provided by customers to both the electric grid and to other users and in turn will provide the incentives for such service to flourish,” added Zibelman.
FERC Chairman Jon Wellinghoff said, “Today’s final rule is about bringing benefits to consumers. The approach to compensating demand response resources as we require here will help to provide more resource options for efficient and reliable system operation, encourage new entry and innovation in energy markets, and spur the deployment of new technologies.
“All of this contributes to just and reasonable rates,” Wellinghoff (pictured) added.
Utility regulators at the state and federal level have both shown strong support for expanded use of demand-respond resources, and utilities have also shown a great deal of interest in demand-response programs and technologies, according to a new report by Research and Markets.
“Demand Response and Energy Efficiency” says that crisis and near-crisis conditions and events have spurred the development and practice of demand response in many states and regions. Proponents of demand response programs say that its benefits include improved system reliability, cost avoidance, greater market efficiency, improved risk management, reduced negative environmental impacts, improved customer service, and market power mitigation.
Picture credit: Photo courtesy of FERC.