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An Untapped Energy Resource For The Grid


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With increasingly hot summers, energy companies are having difficulty meeting demand, and the threat of blackouts looms ever closer. Energy companies and utility commissions are going to have to rethink how grid reliability is maintained in order to increase the available supply of electricity to meet growing demand. Demand response, a program that pays consumers to reduce their electricity usage at periods of peak demand, could help strengthen grid reliability and should be an integral part of this reframing.

In August, the Electric Reliability Council of Texas (ERCOT), the grid operator for much of Texas, reported a record high for energy demand due to the abnormally hot temperatures. ERCOT also reported a historically low reserve margin of 7.4% due to the retirement of several large generators.

A reserve margin is the anticipated availability of electricity compared to the predicted demand for electricity. When energy capacity or supply is not enough to meet demand, the electrical grid crashes, and people lose their access to electricity.

By paying consumers, like households and businesses of any size, to reduce energy consumption, generators and public utility commissions can effectively create a new energy source that has the added bonus of negative carbon emissions. Demand response participants are seen as generators, or producers of electricity, because by reducing energy consumption, they are effectively increasing the available supply of electricity.

There are currently several demand response products available in the ERCOT region, including programs administered by ERCOT and by utility companies. In 2017, peak demand was reduced by about 3.7% through utility-run demand response programs across the ERCOT grid, the largest amount achieved by any grid operator in the United States. However, demand response is still a largely untapped resource because not all utility companies have programs and the ERCOT programs are limited in scope . Thus, there is still ample room for demand response to grow.

For example, were the Public Utility Commission of Texas (PUCT) to require all utility companies to have demand response programs, peak demand would be reduced by significantly more than 3.7%.

In early 2013, the PUCT, which is charged with regulating ERCOT, requested comments from interested parties about the potential impact of demand response in the region served by ERCOT. There were over 65 submitted comments, and the majority of the interested parties expressed their desire for increased use of demand response as a tool in the ERCOT market for several notable reasons. For example, they said that because demand response is more diversely located geographically than generating plants, it can be tailored to achieve a specific amount of generation, with no negative environmental impacts.

The PUCT has yet to implement any of the recommendations arising from these comments.

There were several common suggestions that, if followed by the PUCT and ERCOT, would help increase grid reliability by fostering an electric market capable of supporting demand response.

The Security Constrained Economic Dispatch (SCED) is the platform ERCOT uses to determine the most efficient distribution of all individual energy resources across the grid. Currently, participation on SCED is reserved to limited entities and does not allow customers wanting to engage in demand response to sign up on their own or with the help of a third-party services provider. Thus, demand response participation is severely hindered. In order to reverse this trend and promote demand response growth, the PUCT and ERCOT need to issue rules allowing third parties to sell the reduction of demand into SCED and to be paid for this transaction. Otherwise there is no great incentive to reduce energy consumption by consumers during extreme temperatures.

Additionally, the PUCT needs to decide what level of market inefficiency it is willing to tolerate when it comes to calculating demand response compensation. The Federal Energy Regulatory Commission (FERC) uses a method that is different than what the ERCOT Technical Advisory Committee has accepted. The PUCT has yet to address the issue. It is necessary for the PUCT to officially issue a set formula so that there will be market certainty as to how to compensate third-party demand response providers. In other words, in order for consumers to determine whether it is worth it for them to reduce their energy consumption, they need to know exactly how much they will get paid in return. Once a formula is set for compensation, consumers can make more informed decisions regarding their demand response participation.

Lastly, the chief technical barrier to increased demand response participation in the ERCOT market is the requirement that aggregated generators be able to adjust energy production within five minutes. Otherwise stated, when demand increases, generators must be able to “ramp-up” energy production within a 5-minute interval. This requirement does not acknowledge the reality of equipment, systems and processes for generators. Specifically, according to the PUCT comment submitted by MP2 Energy, five minutes is not enough time “to safely and reliably reduce load for most electric consumer's equipment and processes; most equipment cannot be turned off and on every five minutes as might be required by SCED, and consumption generally cannot be moved up and down incrementally at a customer's location with fine granularity.” Implementation of a Multi-Interval Real Time Market could address this issue by changing the requirements of SCED to allow for slow demand response loads to participate in the real-time electricity market.

The PUCT has always been innovative when it comes to enhancing the ERCOT grid and improving overall reliability. Issuing new rules supporting demand response is the logical next step in the face of more extreme temperatures. It will become even more crucial with the increased integration of intermittent renewable energy sources that are less reliable than coal and natural gas.


Elizabeth George is currently an Energy Scholar with the Energy Initiative at the University of Houston. She is a recent graduate of the University of Houston Law Center and is a 2016 graduate of The Ohio State University in Columbus, Ohio where she received her B.S. in Environment and Natural Resources.

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.

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Getty

With increasingly hot summers, energy companies are having difficulty meeting demand, and the threat of blackouts looms ever closer. Energy companies and utility commissions are going to have to rethink how grid reliability is maintained in order to increase the available supply of electricity to meet growing demand. Demand response, a program that pays consumers to reduce their electricity usage at periods of peak demand, could help strengthen grid reliability and should be an integral part of this reframing.

In August, the Electric Reliability Council of Texas (ERCOT), the grid operator for much of Texas, reported a record high for energy demand due to the abnormally hot temperatures. ERCOT also reported a historically low reserve margin of 7.4% due to the retirement of several large generators.

A reserve margin is the anticipated availability of electricity compared to the predicted demand for electricity. When energy capacity or supply is not enough to meet demand, the electrical grid crashes, and people lose their access to electricity.

By paying consumers, like households and businesses of any size, to reduce energy consumption, generators and public utility commissions can effectively create a new energy source that has the added bonus of negative carbon emissions. Demand response participants are seen as generators, or producers of electricity, because by reducing energy consumption, they are effectively increasing the available supply of electricity.

There are currently several demand response products available in the ERCOT region, including programs administered by ERCOT and by utility companies. In 2017, peak demand was reduced by about 3.7% through utility-run demand response programs across the ERCOT grid, the largest amount achieved by any grid operator in the United States. However, demand response is still a largely untapped resource because not all utility companies have programs and the ERCOT programs are limited in scope . Thus, there is still ample room for demand response to grow.

For example, were the Public Utility Commission of Texas (PUCT) to require all utility companies to have demand response programs, peak demand would be reduced by significantly more than 3.7%.

In early 2013, the PUCT, which is charged with regulating ERCOT, requested comments from interested parties about the potential impact of demand response in the region served by ERCOT. There were over 65 submitted comments, and the majority of the interested parties expressed their desire for increased use of demand response as a tool in the ERCOT market for several notable reasons. For example, they said that because demand response is more diversely located geographically than generating plants, it can be tailored to achieve a specific amount of generation, with no negative environmental impacts.

The PUCT has yet to implement any of the recommendations arising from these comments.

There were several common suggestions that, if followed by the PUCT and ERCOT, would help increase grid reliability by fostering an electric market capable of supporting demand response.

The Security Constrained Economic Dispatch (SCED) is the platform ERCOT uses to determine the most efficient distribution of all individual energy resources across the grid. Currently, participation on SCED is reserved to limited entities and does not allow customers wanting to engage in demand response to sign up on their own or with the help of a third-party services provider. Thus, demand response participation is severely hindered. In order to reverse this trend and promote demand response growth, the PUCT and ERCOT need to issue rules allowing third parties to sell the reduction of demand into SCED and to be paid for this transaction. Otherwise there is no great incentive to reduce energy consumption by consumers during extreme temperatures.

Additionally, the PUCT needs to decide what level of market inefficiency it is willing to tolerate when it comes to calculating demand response compensation. The Federal Energy Regulatory Commission (FERC) uses a method that is different than what the ERCOT Technical Advisory Committee has accepted. The PUCT has yet to address the issue. It is necessary for the PUCT to officially issue a set formula so that there will be market certainty as to how to compensate third-party demand response providers. In other words, in order for consumers to determine whether it is worth it for them to reduce their energy consumption, they need to know exactly how much they will get paid in return. Once a formula is set for compensation, consumers can make more informed decisions regarding their demand response participation.

Lastly, the chief technical barrier to increased demand response participation in the ERCOT market is the requirement that aggregated generators be able to adjust energy production within five minutes. Otherwise stated, when demand increases, generators must be able to “ramp-up” energy production within a 5-minute interval. This requirement does not acknowledge the reality of equipment, systems and processes for generators. Specifically, according to the PUCT comment submitted by MP2 Energy, five minutes is not enough time “to safely and reliably reduce load for most electric consumer's equipment and processes; most equipment cannot be turned off and on every five minutes as might be required by SCED, and consumption generally cannot be moved up and down incrementally at a customer's location with fine granularity.” Implementation of a Multi-Interval Real Time Market could address this issue by changing the requirements of SCED to allow for slow demand response loads to participate in the real-time electricity market.

The PUCT has always been innovative when it comes to enhancing the ERCOT grid and improving overall reliability. Issuing new rules supporting demand response is the logical next step in the face of more extreme temperatures. It will become even more crucial with the increased integration of intermittent renewable energy sources that are less reliable than coal and natural gas.


Elizabeth George is currently an Energy Scholar with the Energy Initiative at the University of Houston. She is a recent graduate of the University of Houston Law Center and is a 2016 graduate of The Ohio State University in Columbus, Ohio where she received her B.S. in Environment and Natural Resources.

UH Energy is the University of Houston’s hub for energy education, research and technology incubation, working to shape the energy future and forge new business approaches in the energy industry.


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