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FERC Rule Could Benefit Demand Response Initiatives

A decision by the Federal Energy Regulatory Commission (FERC) has opened the door to growth in demand response deployment, according to energy management company Viridity Energy.

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.

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One thought on “FERC Rule Could Benefit Demand Response Initiatives

  1. This is a good summary of FERC’s Order No. 745. The value of demand response is clear, but until Tuesday’s FERC ruling, how people should be compensated for demand response was up in the air. Each of the nation’s organized wholesale markets has been compensating demand response resources differently. Some markets, like the Midwest ISO and California ISO, paid the same wholesale energy price to demand resources for their negawatt-hours as generators received for their megawatt-hours. Other markets, like mid-Atlantic grid operator PJM, paid demand resources a reduced price for their negawatt-hours.

    In Order No. 745, FERC found that this lack of uniformity of compensation across the nation’s energy markets created barriers to reaching demand response’s full potential. FERC also found that other barriers to demand response existed under the status quo, including a disconnection between the wholesale and retail rates for energy. By establishing a nation-wide policy that — as long as they are cost-effective and capable of displacing the need for generation — demand resources should be paid just like generators in organized wholesale markets, FERC hopes to eliminate these barriers.

    So what does this mean? In the wake of Order No. 745, we are likely to see greater use of demand response as a tool to save energy and lower its cost. A number of businesses already help consumers participate in demand response, providing the technologies and strategies needed to make consumer participation a success. Through the elimination of uncertainty and the establishment of a clear and fair compensation standard, these companies may see their businesses grow. End-use consumers will also see a benefit, whether or not they participate in demand response. Those consumers who do enroll in demand response programs will now know that they will be compensated fairly for their negawatts, a strong incentive to help the grid by curtailing their load during peak demand. Even for those consumers who don’t directly participate, greater implementation of demand response will lower everyone’s electricity costs by displacing expensive marginal peaking generation.

    This FERC order suggests DR is poised to grow yet again.


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