Economic DR participation in energy market

1. Economic DR participation in energy market ERCOT April 14, 2014 Pete Langbein

2. PJM Opportunity by Wholesale Service Emergency resource Economic resource Customer may participate as Emergency and Economic DSR and as EE *PRD recently approved by FERC

3. Market Structure – who does what? Energy Efficiency Provider (EERP): Energy efficiency activity by the customer. Curtailment Service Provider (CSP): Demand side response activity by the customer. End Use Customer Load Serving Entity (LSE): Electricity supply to the customer. Electric Distribution Company (EDC): Distribution assets used to distribute the electricity to the customer.

4. Current (2013) DSR capability ~ 6% of System Peak Load Emergency DR (Capacity) 8,976 MW EE 679 MW Economic DR Capability (Energy) 2,616 MW ~900 MW offered into energy market on peak day Represents over 1 million end use customers (~14,000 C&I) across PJM

5. Evolution of DR in Energy Market Purely voluntary – any that shows up can only help Help balance power flow and set prices ~ 10 Years

6. G&T compensation structure process • Define LSE, retail contract type, and default G&T rate on registration • RT index (only participate in RT market and receive make whole payment) • DA index (only participate in RT market) • “Fixed” Price (participate in either market) • Registration default G&T rate applied to hourly settlement • Registration sent to LSE to review & approve • Each settlement sent to LSE to review and approve • Ensure G&T is accurate.

7. Economic DR resources offer into energy market Small site participation through aggregation Market offer ($) Market offer ($) Market offer ($) Generation & small demand resources in PJM market

8. Summary of Economic DR offer rules • DR must have valid registration • Market offers are by Registration or by Dispatch Group • Dispatch Group = multiple registrations at same price point with one offer curve • DR energy market participation options • Offer in Day-Ahead market • if cleared must respond • Dispatch in Real-Time market • Ability to adjust hourly MW available up to 3 hours prior to operating hour. • LMP => Net Benefits Test (~$30 mwh) to receive compensation • Actual load reduction must be +/-20% of hourly cleared or dispatched MW otherwise: • No “make whole” payment up to Offer price • Balancing Operating Charges are applied

9. Day Ahead Energy Market • If actual load reductions are less than cleared amount then must buy back at real-time LMP • If actual load reduction are more than cleared amount then compensated at real-time LMP • PJM puts in sell offer (negative dec bid) against LSE of record’s account • Intention is to help ensure LSE is not accidently long to market because of DR load reductions.

10. Day-ahead vs Real-time energy market participation

11. Economic Demand Response Dispatched vs SettledReal-Time Energy Market Summary (2013) Average hourly settlement per registration = 6 MW

12. Economic Demand Response Dispatched vs SettledDay-Ahead Energy Market Summary (2013) Average hourly settlement per registration = 12 MW

13. Appendix • Net Benefits Test

14. Net Benefits Test • FERC final rule stipulates that DR be compensated full LMP when two conditions are met: • DR has the capability to balance supply and demand; and • Payment of LMP to DR is cost effective. • Cleared or dispatched DSR resources balance supply and demand. Payment of LMP to DR is cost effective when the LMP of the cleared or dispatched DSR is greater than or equal to the Net Benefits Price. • The net benefits test to define a threshold point on the PJM Supply curve where the net benefit exceeds the cost to load. The net benefit is the point where elasticity is equal to 1. • Supply elasticity is defined as the percentage change in quantity supplied divided by the percentage change in price. When the elasticity is less than or equal to one, supply is considered inelastic. • Generally, an "elastic" variable is one which responds "a lot" to small changes in other parameters. Similarly, an "inelastic" variable describes one which does not change much in response to changes in other parameters.

15. Net Benefits Test – Supply Curve To create the curve: • Use a Supply Curve representative of the study month using the prior year’s curve • Adjust for resource availability • Adjust for fuel prices • Smooth the curve using numerical methods • PJM staff has developed a methodology that results in a curve fit that it believes correlates well to the general shape of the PJM supply curve. • 𝐿𝑀𝑃= 𝑎(𝑏∗𝑚𝑤−𝑐)+𝑑 The constants a, b, c, and d vary for each month’s solution.

16. Net Benefits Test

17. Net Benefits Test Results The Net Benefits Test results are calculated monthly and published by the 15th of the prior month, per FERC Order. The Net Benefits Test results can be found on the PJM website by selecting: markets & operations / Demand Response / Net Benefits Test Results