Starting June 2018, the PJM/ComEd region will have some of the largest Demand Response capacity payments of any region in the PJM territory. While Demand Response is not suitable for all consumers, for some customers it can be a large offset to the higher capacity prices that will start in June 2018. We would like to do a quick review of both the capacity market and the Demand Response market so that customers can understand the dynamics behind these markets and try and make an assessment if Demand Response is something that is suitable for them.
Demand Response as defined by the Federal Energy Regulatory Commission (FERC) is “changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity use at times of high wholesale market prices or when system reliability is jeopardized”. The growth of Electricity Demand Response programs in the United States has been concurrent with the development of “smart grid” applications, the growth of formal capacity markets and capacity prices, and the high cost of building new electricity generation. The most popular form of Demand Response to date has been emergency capacity response where Independent System Operators have designed programs that enable customers to be paid a capacity payment for agreeing to curtail their electricity usage at times of high system demand and/or power system emergencies. FERC Order 745 issued in March 2011 ensures that Demand Response Providers are compensated in the same manner and form as generation owners. This order was challenged in court by several generator groups over several years, but the order was affirmed by a 6-2 Supreme Court decision in January 2016. The Supreme Court ruling ensures that Demand Response is going to continue and it should be a component to be analyzed and understood as part of an overall energy purchasing strategy for commercial customers.