Demand Response – Load Resource Participation in the ERCOT Real-Time Energy Market

Demand Response is a relatively new term for a range of actions customers, or customers and their energy services providers, can take to change their ‘demand’ for energy in ‘response’ to energy prices, incentives, or market conditions.   For example, many large customers in ERCOT reduce their consumption on days they anticipate the demand will reach monthly peaks, because their bills for supporting grid infrastructure are based on their consumption at the peak consumption point in each of the four months June through September.  Some customers choose to have rates that vary in real time with wholesale prices and vary their use accordingly.  Some retail electric providers (competitive or regulated utilities) offer customers incentives for responding to called events. And ERCOT has an emergency program that pays for customers to reduce consumption in response to system frequency imbalances or sudden loss of a generation unit, or other events that threaten to require rolling outages to preserve the system.  Whether we are talking about voluntary “price responsive demand,” or participation in more structured “load management programs,” “ancillary services” or “emergency response programs,” Demand Response is becoming an important element of our evolving and efficient energy marketplace.

 Load Resource Participation in the ERCOT Real-Time Energy Market

Although Texas has a highly competitive electricity market, certain load resources have a difficult time participating in ERCOT’s energy-only market.  For example, there is currently no mechanism for demand response (DR) providers to directly bid small commercial or aggregated residential demand response load into the real-time market.  Certified retail electric providers are permitted to place bids for demand response in the real-time market but third-party providers are not.  Market stakeholders are collaborating to develop a solution for third-party load participation in ERCOT’s security constrained economic dispatch (SCED).

The Challenge of Enabling DR Providers to Participate in SCED

Texas’ energy-only market makes load participation more challenging than in most other markets.  There is no forward capacity market for demand-side resources, so the settlement process is a day-ahead and a real-time transaction arena designed for large generation resources and Load Serving Entities (LSEs).  In considering DR providers participation and settlement in the energy market, the ERCOT board decided in 2011 that DR dispatched in the real-time market should not be paid the full locational marginal price (LMP), because this was viewed as an overpayment for DR (in contrast to FERC’s decision earlier in 2011, that DR should be paid full LMP).  Instead, DR was to be paid LMP minus the cost of avoided generation i.e. “LMP minus G”.  At that time, stakeholders collaborated to develop a mechanism for retail electric providers (REPs) to offer dispatchable demand response in the real-time market, known as “Loads in SCED v.1”, which was enabled in 2014.  Stakeholders then turned their attention to the greater challenge of developing a proposal to enable non-REP DR providers participation, known as “Loads in SCED v. 2”, which was presented to the technical advisory committee of the ERCOT board in November 2015.  Although conceptually non-controversial, the complexities and costs associated with implementing the proposal proved too great to achieve sufficient stakeholder support for adopting the policy.

SPEER has developed a simplified approach which reduces costs and complexity, as can be seen in our “Loads in SCED Comparison Chart” which compares various versions of this proposed approach. SPEER’s whitepaper on this subject “A Simplified Approach for Third-Party Management of Loads in the Real-Time Market” explains the details of this proposed approach, which we drafted to enhance the discussion among stakeholders. Specifically, our simplified approach would avoid the need for changes to Commission rules and would reduce the scope of changes required to ERCOT settlement systems. With this simplified approach, a robust competitive DR market would enable load to contribute to wholesale price formation, support grid reliability and enhance consumer value of the advanced metering infrastructure in Texas. We will be working with stakeholders in the coming months to gain market support for this approach.