March 29, 2024

Hidden Treasures:
The Benefits of Demand Response Resources

by Pete Scarpelli, Vice President Marketing & Business Development, RETX
Have you ever watched “The Antique Road Show” on PBS Television? The premise of the show is captivating because it is based on finding value in something that people have just lying around somewhere. People bring things that have been sitting in their attic for years and the show’s appraisers provide an estimated value for it. Many times these “little treasures” have substantial value, but the owners either didn’t know it had value or they didn’t know how to acquire the value. Demand Response Resources (DRR) are very similar to the little attic treasures on the “Antique Road Show.”

Demand Response Resources can be defined as energy consumer load shedding and/or distributed onsite generation. These are “little treasures” that the energy industry has not fully utilized. Many electric markets, Ontario in particular, are facing severe capacity shortfalls. Tapping into the “little treasures” that the market already has, but is not using, can provide extra capacity needed to ensure a safe, fair, and reliable energy grid. Not only can these resources be made available very quickly, they are also economical and environmentally friendly.

Toromont Energy, Olameter, and RETX have teamed together to demonstrate the ease, speed, and reliability of DRR assets. Our demonstration will show that Ontario can tap into the unused (and perhaps even the unknown) assets that already exist. With a coordinated effort, regulatory support, and a little bit of will power we believe that DRR can help Ontario escape its current capacity crisis and lay the groundwork for responsible use of all available resources for the future.

Benefits of Demand Response Resources
The Independent Market Operator (IMO) submitted a report on January 22, 2003 to the Minster of Energy Consultation Process titled “Reliability through Markets in Ontario.” In this report the IMO stated, “A successful market is two-sided, with both supply and demand reacting to price. There needs to be opportunities for demand response and energy efficiency to be efficiently developed.”


The following validates the IMO’s contention:

  • FERC recently unveiled a cost-benefit analysis that shows a $60 billion savings over the next 20 years if demand response is incorporated into RTO market design and operations.

  • Electric Power Research Institute (EPRI) estimates that demand response has the potential to reduce U.S. peak demand by 45,000 MWs by 2010 and 90,000 MWs by 2030.

  • Edison Electric Institute (EEI) estimates that a 5% demand response can reduce peak market prices by nearly 50%

  • NARUC states that “Responsible estimates of the demand-side potential concluded that as much as 40% - 50% of the nation’s peak load growth over the next twenty years could be met through energy efficiency, price-response, and load management measures that would be less expensive than their supply-side substitutes.”

Ontario Capacity Challenges
Ontario’s Installed Capacity is about 30,500 Megawatts supplied by a mix of resources including nuclear, hydroelectric, coal and natural gas. The power system is interconnected with bordering utilities in Manitoba, Minnesota, Quebec, New York and Michigan.

In its March 2003 10-Year Energy Outlook, the IMO forecasted that energy demand will increase by 1% per year through 2013. The IMO also projected that Ontario will have sufficient supply resources through the end of the decade if the new power plants are built as planned and they do not have any unplanned plant outages. However, they warned that if additional generation does not come on line and/or unplanned outages occur, the province might need additional development sooner.

In 2002, the Ontario energy market ran into significant problems and prices rose by more than 25%. This is due in part to rise in cost of hydroelectric power, forced outages, heat waves, and decrease in operating reserves. In addition, several fossil and nuclear generating units were forced out of service for technical reasons. Among other things, these challenges caused the Ontario Operating Reserve to fall from 19.2% in 1996 to 1.5% in Summer 2002. To deal with the critical Operating Reserve level in 2002, the Independent Market Operator (IMO) issued six Power Advisory Notices to request voluntary consumer power reductions. The IMO also had to import power 38 times to balance their power supply needs.


“Even with 4,500 megawatts of added electrical capacity expected soon in Ontario, Canada’s most populous province could experience power shortfalls as early as 2005” Toronto-based Navigant Consulting states in a press release in February 2003.

The forecasted Operating Reserve margin is expected to be approximately 13% in 2005. This is an extremely tight reserve margin and it is based on strategies that may or may not be implemented. If measures are not taken to deal with this situation, Ontario could face reliability problems over the next several years.

Demand Response Resource Examples
Other markets have faced similar challenges. or example, Southwest Connecticut (SWCT) faces significant transmission congestion issues. This problem makes it difficult for ISO New England (ISO-NE) to maintain grid reliability for the SWCT region. In the summer of 2002 ISO-NE relied on the demand response resources in that region to maintain an adequate reserve margin and mitigate price spikes. Over 80 MW were brought “online” within a matter of weeks. These resources are expected to help with the problem in 2003 as well.

The New York ISO operates one of the most successful DRR programs in North America. Their program has approximately 1,500 MW available at any one time. An independent analysis concluded that the program has reduced system wide energy costs by several millions.

The California Example
The California crisis provides some insightful experiences for Ontario.
California did not have a substantial demand response program in place during their 2000-2001 energy crisis. Consumers did not have the information or the incentive to modify their behavior. They eventually began to modify their behavior “six to nine months after the wholesale prices first spiked in the summer of 2001. Ideally, customers, who saw a 200 percent price increase would have reduced their aggregate demand levels by 4,000 to 5,000 MW within minutes to hours of the first price spikes in May 2000 (California Energy Commission 2002 Action Plan).”

As the crisis in California grew worse, the regulators changed their strategies. In 2002, the California Energy Commission (CEC) released an action plan to add demand response to the market. The CEC stated that “Competitive markets cannot function without customers who have both access to timely price signals and the capability to reduce their aggregate demand as prices rises… It is ironic that the retail price freeze designed to protect customers probably left them more exposed to the exercise of market power and ultimately higher prices that price controls were supposed to prevent.”

California has since developed multiple DRR programs and strategies. The state is now investing heavily in demand response and energy efficiency efforts. The CEC has shown that their efforts reduced 2002 monthly peak demand up to 11% from 2001 levels.

What is needed for a successful Ontario Energy Market?
The benefits of DRR are abundantly clear. Almost every industry group, consultant, and market analyst agrees that DRR can help improve grid reliability and market fairness. In fact, the International Energy Agency is currently debating strategies for managing DRR that are similar to way that they manage the Strategic Petroleum Reserve. DRR is simply that valuable.

In its October 2002 Market Surveillance Panel Report the IMO stated, “There is a serious shortage of generating capacity to meet Ontario’s growing demand for electricity. If steps are not taken to address this situation, Ontario could face even more serious reliability problems next summer, leading to the possibility of supply interruptions and continued upward pressure on prices during periods of peak demand.”

In order for Ontario to tap the benefits of DRR, our team recommends the following:

Regulatory Support
Regulatory support is required for almost every aspect of the energy industry. Regulators like FERC and NARUC have concluded that demand response resources are extremely valuable part of a vibrant energy market. Ontario regulators have begun to draw similar conclusions. With appropriate regulatory support and economic signals, demand response resources can flourish in Ontario.

Simplicity
Consumers don’t understand the “ins and outs” of the energy industry, nor should they be expected to. They are focused on building their businesses and living their lives. All DRR efforts must be easy to understand. As noted above, many DRR programs are being tested throughout world. Ontario can leverage their experiences to develop a successful program.

Price Signals
Proper price signals and economic incentives are necessary for the DRR industry to develop. Consumers need a reason to participate. Experience in other markets has proven that commercial, industrial, and residential participation can be achieved with appropriate incentives to do so.

Market Infrastructure
Infrastructure is needed at the market level to monitor participation and financially settle accurately. Participation in DRR programs will be contingent on the proper incentives. The market will need to manage new data streams to ensure that the incentives are being credited to the right account.

Consumer Infrastructure
Accurate recording of consumer behavior is a fundamental requirement for DRR efforts. In some instances, load profiling and/or load sampling may be sufficient (e.g. residential water heaters). However, it is likely that investment in new metering technologies will be required to provide interval data in a timely manor. Depending on its configuration, these systems can also be used to remotely control generation or load shedding assets thereby ensuring its participation when needed.

Onsite Generators
There are thousands of Megawatts of onsite generation in Ontario. These resources are “low hanging fruit” and could be operational in short order. This would provide instant capacity for the current crisis.

In the long term, DRR programs can fundamentally change the value proposition for these assets. Consumers will be able to receive a real return on their investment instead of simply purchasing the asset for backup power purposes. This will encourage them to invest in more efficient and reliable units. Furthermore, appropriate program structures will provide incentives for installing environmental friendly units.

Ontario Pilot Project
Toromont Energy, Olameter, and RETX have initiated a distributed generation pilot project in Ontario. As noted above, appropriate market and consumer infrastructure is required to make DRR a viable resource in Ontario. Our project will demonstrate both of these capabilities. We intend to show that technologies exist to bring distributed generation assets to the energy market. We will also show that it can be done in a matter of weeks at a cost radically lower than equivalent traditional capacity.

The systems will show that the resources can be viewed in near real-time, activated within minutes, and visible to the wholesale marketplace. We believe that distributed generation can be operated remotely based on the needs of the energy market. We will be tracking the Hourly Ontario Energy Price (HOEP) and activating the generation resources when it makes economic sense to do so. The generators can be initiated automatically when the price hits a certain threshold. The generators will also be able to mitigate transmission congestion like it is envisioned for SWCT.


We are confident that the technology will perform as anticipated. We are also confident that the aggregation of these existing untapped resources in Ontario can bring significant value to Ontario. Our project will show that the resources can be brought to the market very quickly and with much lower cost than other available options.

We intend to demonstrate the system capabilities to Ontario utilities and regulators in the coming weeks.

Conclusion
When someone on the “Antique Road Show” learns that their “little treasure” is worth thousands of dollars their face beams with pride and enthusiasm. The Ontario energy market has the chance to feel this same sense of joy. There are thousands of “little DRR treasures” all around the province. We are attempting to show the market how these resources can be put to use in order to help avert the current capacity crisis.

The capacity crisis in Ontario will not disappear by wishing it away. Action is required and creative solutions are necessary. It will take several years to build new generating facilities and the neighboring electrical systems are facing their own challenges. Ontario has resources that can be activated quickly given the proper incentives. We hope that our pilot effort provides shows that Ontario can mitigate the current problem by fully utilizing resources that already exist in the province.


Our team has the technology, market knowledge, and resource availability to achieve the goal. We will seek regulatory and utility support for our effort in the coming weeks. We are confident that with this support we can help Ontario tap into the value of these “little treasures” and manage the current supply shortages.

About the Author:
Pete Scarpelli, Vice President Marketing & Business Development
Pete Scarpelli is responsible for driving the strategy and business development efforts for RETX. He is the inventor of RETX’s Load Management DispatcherTM (LMD) application and the coinventor of RETX’s Regional Negawatt HubTM (RNH) application. Pete has been active in the demand response industry by way of the Peak Load Management Alliance, and various speaking engagements. Pete also led a cross sectional industry group in developing a “pro-forma” demand response tariff that was submitted to FERC in February 2002.