Objections to Demand Response are Ludicrous
Demand response is making national news thanks to some disconcerted utilities and a New Mexico senator.
Utilities, including FirstEnergy and several New England generators, are petitioning the Federal Energy Regulatory Commission (FERC) to eliminate demand response as a resource in capacity energy markets. Capacity markets involve power generators (or demand response providers) promising to deliver a certain amount of electricity generation ahead of time. For example, an electric generator in Pennsylvania may enter 100MW of electricty into a capacity market because that is what the power plant is sure to deliver. In PJM, capacity auctions are held every year, with the date of energy “delivery” occuring three years into the future (i.e. if a generator commits to deliver 10MW of electricity, it must be able to provide that electricity in 2017.) Demand response aggregators have participated in these markets successfully for decades.
What is Demand Response?
Demand response (DR) is an energy efficiency program in which participants are compensated for reducing energy use during periods of high stress on the power grid. Customers get paid for energy reduction as if they had generated the additonal power instead of providing it via curtailment. The environmental benefits are clear: less energy use means a reduced need for power plants. They are expensive and emit sinful amounts of greenhouse gases into the atmosphere.
What’s the Problem?
Utilities petitioning FERC are concerned that more DR resources in the energy market will force the closure of power plants.
How is this argument valid?
Demand response should be putting power plants out of business; it’s supposed to reduce our reliance on expensive peaking power plants! Energy that is reduced is just as valuable (if not moreso, given environmental concerns) as energy generated from fossil fuels, which make up the majority of the United States’ energy mix.
While I’m disappointed to see an emerging shift in the utility paradigm from energy efficiency to energy consumption, I’m also optimistic to see utilities behaving this way. These all but desperate attempts by energy companies to boost demand for electricity indicate that revenue is falling for the fossil fuel power industry. The world is transitioning away from fossil fuels, and that’s outstanding progress.
Petitioning against a program designed to stabilize the electric grid, for doing exactly what it is supposed to do, is absurd. Companies are petitioning the Federal Government to remove competition in order to boost profits.
That represents everything capitalism is not.
FERC’s authority to regulate policies is meant to hinder questionable or illegal activity, not to help unhappy companies boost their bottom line.
The Government Steps In
The Federal Government is turning some attention to the issue of adding demand response to our energy mix. Senator Martin Henrich (D-NM) is introducing a bill to give demand response a prominent position in the modern electric grid. According to the official press release,
The bill clarifies that the Federal Energy Regulatory Commission (FERC) has the legal authority to require regional grid operators in interstate wholesale markets to allow consumers to be compensated for voluntarily reducing their electricity consumption-a tool referred to as demand response. By providing incentives for consumers to reduce their use of power, demand response lowers overall electricity costs, improves reliability and efficiency, and reduces emissions.
Senator Heinrich said, “Modernizing our electrical grid is central to becoming a nation that’s more energy efficient and provides cost savings for everyone. There is no kilowatt-hour more valuable than the one you don’t use in the first place.”
In May 2014, the U.S. Court of Appeals for the District of Columbia overturned FERC order 745, which required grid operators to pay the full market price of electricity to economic demand response resource in both real-time and day-ahead markets. According to the court, the reason for the ruling was that FERC overstepped its authority by mandating prices and payments for demand response resources. Sen. Heinrich’s bill would give FERC authority to oversee demand response under the Federal Power Act, which, according to FERC’s website, grants FERC jurisdiction to “[Regulate] the transmission and wholesale sales of electricity in interstate commerce.”
Benefits for Customers or Corporation?
Robert Kelter, an attorney for the Environmental Law and Policy Center in Chicago stated, “It’s clear from this filing that they want . . . to be able to sell more higher-priced electricity and are throwing their customers under the bus.”
It certainly looks that way. FirstEnergy’s stance seems to be a little more than a ploy to increase profit, and it doesn’t seem like a positive step for customers losing efficiency perks.
FirstEnergy even scrapped efficiency incentives and programs for customers. Clearly, the company is rolling back on customer care to conserve the cash it believes it is losing.
If making money is the primary concern for utilities upset with DR, perhaps they should diversify their interests. The number one way to do that is to invest in alternative energy and energy efficiency. The energy industry is not done with fossil fuels yet, but that day will come, and the energy companies that survive will be the ones that invest in clean and sustainable electric generation. Utilities that strive to preserve their old-fashioned business models will find themselves without business.
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