Thirteen states effectively ban customers from participating in demand response programs through their regional wholesale market. Some of these states and the vertically integrated monopoly utilities that dominate them may offer their own programs, but those programs are typically not as large or as accessible as those available in competitive markets.
That’s not only unfair to residential consumers with rooftop solar and storage or some other form of at-home generation source, it’s also unfair to other ratepayers since allowing homeowners with demand response resources to participate in managing the supply and demand could reduce energy costs while improving reliability and resilience for everyone.
Consumers are critical in managing supply and demand on the electricity grid. Consumers have always been able to manage their energy consumption to varying degrees, but many are now generating their own electricity and have the ability to put excess power back onto the grid to help meet demand elsewhere on the system.
As the Department of Energy explains, “demand response programs are being used by some electric system planners and operators as resource options for balancing supply and demand. Such programs can lower the cost of electricity in wholesale markets, and in turn, lead to lower retail rates.”
Fortunately, federal rules designed to increase competition in electricity markets are leading to changes that are benefiting consumers. Federal Energy Regulatory Commission’s (FERC) Order 2222, issued in September 2020, requires regional transmission organizations and independent system operators (RTOs/ISOs) to amend their tariffs to include distributed energy resource (DER) aggregations as a type of market participant.
The order removes barriers to DERs competing in organized wholesale energy and ancillary services markets and enables DERs to participate alongside traditional resources in the regional organized wholesale markets through aggregations. The rule allows several sources of distributed electricity to aggregate to satisfy minimum size and performance requirements that each may not be able to meet individually.
Order 2222 also clarified that behind-the-meter resources that are used solely to facilitate demand response, shall be considered a demand response resource for the purposes of determining whether the opt-out applies and under what circumstances behind-the-meter DERs participating as distributed energy resources in DER aggregations may be paid the full locational marginal price.
Order 2222 does not allow an opt-out option for demand response programs if they are part of aggregations that include more than one technology, i.e., mixing solar with storage. The rule prevents grid operators from being able to refuse aggregated demand response offers where participation is not allowed by state regulators.
Consequently, consumers in states with organized wholesale markets will be able to join whichever programs their DERs are eligible to participate in, which include not only demand response but potentially frequency regulation and other ancillary grid services, as well as being able to bid into capacity markets.
Some states have challenged FERC’s authority to remove the opt-out option for those states that currently prevent customers from participating in demand response programs through wholesale markets.
State opt-out is an issue for vertically integrated states in wholesale energy markets such as MISO and SPP. Removing the state opt-out for demand response program participation in wholesale energy markets benefits renewable project developers, allowing aggregators of solar and energy storage to leverage their experience with demand response products.
FERC defers to states where there is retail choice.
As the deployment of DERs continues to rise, grid operators will need more ways to utilize the availability of these renewable power sources. Doing so, though, will increase the flexibility and reliability of the grid to balance supply and demand.
DER participants often have their own on-site generation that can be utilized instead of additional generation from the marginal power plant, which is often more expensive. This also reduces congestion on the grid since power produced onsite can be used directly by the customer without adding stress to the transmission system.