Week #2 – Getting the Most Cheese from Demand Response: Unlocking the Value of In-Market and Out-of-Market DR Programs
Take a dive into in-market vs. out-of-market demand response.
Last week we kicked off our multi-week Vlog series dedicated to unmasking some of the little known tips and tricks of the demand response market.
We started by explaining how easy it is to eliminate capacity charges through Voltus’s Peak Saver program. Peak Saver is an out-of-market, peak shaving program that leverages Voltus’s real-time, cloud-based technology platform. Peak Saver has the potential to more than double your demand response dollars when combined with traditional in-market programs. Who doesn’t like more cash?
But wait … in-market? Out-of-market? What is the difference between these approaches to turning operational flexibility into cash? Read on to learn more.
#2 – In-Market vs. Out-of-market Demand Response
When most people think demand response (DR), they think FERC-regulated programs that only exist in the wholesale energy markets of the US and Canada. ISO-NE, NYISO, PJM, MISO, ERCOT, SPP, and CAISO, as well as IESO and AESO in Canada, have demand response programs that focus on procuring reliable generation capacity, as well energy and ancillary services. Each market has its own variations, but all “in-market” demand response programs are subject to strict market-specific rules and a decent dose of regulatory risk. These programs are constantly evolving, but offer significant cash payments to market participants who commit their negawatts to meet program criteria.
Voltus has created “out-of-market” Peak Saver programs, bringing cash savings opportunities to every region in the US and Canada. Peak Saver leverages VoltApp, our real-time energy technology platform, to predict peak hours, eliminate capacity charges, and lower electric bills by up to 30%. Because there are no strictly defined market rules, there is also no barrier to entry for these programs. Commercial, industrial, and institutional customers can stack in-market and out-of-market demand response programs increasing their net earnings.
To demonstrate the relative value of in-market and out-of-market DR, let’s break it down by looking at the the value of 1 MW of curtailment in AEP Ohio. In the chart below, “in-market” opportunities – Emergency Load Response Program (ELRP), Synchronized Reserves Program (SRP), and the Gross-up (more on that in coming weeks) – represented in green, account for only 28% of the potential value of that MW of curtailment. Voltus’s “out-of-market” PJM program, represented in blue, allows consumers to not only reduce their generation capacity charges (the other side of the coin of in-market demand response revenue) but also transmission capacity charges. In this example, the out-of-market demand response opportunities account for 72% of the value, more than doubling this company’s net demand response dollars.
There are some important trade-offs to consider when optimizing the cash earned from these approaches. First, an energy consumer can benefit from implementing both of these approaches, but typically for only one season. In-market programs limit a customer’s ability to enroll by their peak load contribution value. The value of your peak load contribution is reduced when you participate in out-of-market peak shaving programs, eroding your ability to benefit from the in-market program.
Operationally speaking, in-market demand response programs have a different operational profile than out-of-market programs, summarized in the table below comparing PJM’s ELRP program with Peak Saver. In-market programs historically require fewer hours of annual response. However, with substantially more challenging performance requirements that are fully implemented in 2020, PJM’s ELRP program requires a 24/7/365 response requirement with advance notice of 30 minutes and an unlimited number of potential response hours. Of course, it’s very difficult to predict just how much PJM’s ELRP program will be called under new program requirements. On the other hand, out-of-market demand response in PJM likely requires more actual response hours each year, but the predictability of program requirements is clearer. With about 30 hours of highly predictable curtailment coupled with very clear and easy operational requirements, capturing out-of-market demand response value is often a better approach than in-market demand response alone.
There are additional nuances to comparing the two approaches (out-of-market vs. in-market) and stacking multiple demand response value streams (up to seven distinct programs in Pennsylvania, for instance) requires even deeper consideration. We can help you navigate the host of options. Chat with us below or email us at email@example.com
#3 – Incremental Auction Sell-Off
How to avoid absorbing the in-market risk from your demand response service provider … more to come on Thursday, 3/12.