Flexible load, responding to real-time price signals: an energy economist’s dream come true. Customers avoid paying electricity prices that drive the costs of production higher than the value of the widgets being made, simultaneously reducing demand on the system and associated costs.
In practice, however, economic curtailment can be
- Tricky to get right &
- Operationally challenging.
For certain businesses that can provide fast-response load curtailment, Operating Reserves (OR) is a better alternative, resulting in lower net electricity costs without the frequent hassles of economic curtailment.
Tricky to get right
Accurately predicting price spikes, especially with enough notice to drive curtailment decisions, is not straightforward. System operators tend to either under- or over-forecast electricity prices the majority of the time. Forecasts are often biased high, and often by a significant margin when actual prices turn out to be low.1, 2
In addition, earlier price forecasts leading up to a given hour can vary wildly based on shifting expectations of system conditions (imports/exports, renewable generation output, etc.). From one hour to the next, a price spike that very afternoon could go from looking implausible to imminent. Sophisticated modeling services can help improve accuracy, but the reality remains that predicting price spikes is just tricky to get right.
Curtailing load to avoid high prices can impose operational challenges. Periods of sustained high prices may merit prolonged shutdowns. Very brief load reductions would be required to avoid isolated price spikes, and are likely not worth the shutdown/startup costs and operational hassle.
A better alternative
In fast-response OR programs, loads help balance real-time supply and demand on the grid by curtailing when called upon by the system operator. Businesses get paid to be available to reduce their load, and they are called upon at most a few times per month. Operating Reserves participation is open to customers regardless of retail rate structure, not just to those who are exposed to real-time rates.
While a business on real-time rates does end up using “expensive electricity” to produce its widgets, payments for being available for OR are linked to the real-time price (i.e. you get paid more to be available when prices are high). On net, electricity costs minus OR revenues generally turn out to be less for a customer participating in OR than for the same customer tracking prices and curtailing economically (even assuming they do hit the majority of high-priced hours accurately). To achieve the same net electricity costs through economic curtailment, a customer would need to curtail for hundreds of hours per year!3
If you want to minimize electricity costs and your business can provide fast-response load curtailment, Operating Reserves is in short a better alternative. The end result? Lower overall costs for much less curtailment.
1All figures are illustrative, based on a case study for Alberta, Canada.
2Peak shaving to avoid system capacity charges is a separate electricity cost management strategy. This article focuses purely on energy ($/MWh) related charges.
3Assumes 60% customer accuracy for avoiding price spikes.
Energy Markets Manager
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