Demand Response: An Underutilized Asset in the Midwest

Author(s):

***This post originally appeared on the Sustainable FERC Project blog.***

Imagine yourself lying on a warm beach, maybe in Hawaii, a Mai Tai in one hand and a good book in the other. Once you’ve caught enough rays you take a stroll back to your comfortable air-conditioned hotel where you relax some more.

This is a typical fantasy that many of us in the upper-Midwest daydream about to get through tough winters. Others cope by simplying moving south for a few months (like my boss).

If the weather outside the window is muggy, sweat-causing heat, or bone-chilling, vortex-induced cold, having a reliable supply of energy to moderate temperatures in our homes and places of work is essential.

Enter demand response

Going back to our air-conditioned resort in Hawaii, it is easy to imagine how quickly we would become miserable if the hotel lost power because during a hot spell everyone turned on their ACs at the same time. Cold weather also can challenge the electricity system.  Whether during the record-breaking heat wave of July 2012, or the deep-freeze of January 2014, such temperature extremes can put tremendous strain on our energy systems.

Demand response (DR) is one of the solutions to reducing stress on the grid when the weather takes an unexpected turn. Demand response involves paying electricity users to reduce their power consumption during high-demand periods. These controlled, incremental reductions are often a cheaper alternative than firing up the utility’s inefficient, higher-emission power plants of last resort. They also help avoid uncontrolled blackouts, which are a grid-operator’s worst nightmare.

Utilities in the Midwest have long recognized the benefits of having demand response in their resource portfolios, and many have programs that were developed decades ago. Plus, supporters of clean energy appreciate demand response’s ability to help manage the variability of wind and solar power and offset the need to run costly fossil-fueled power plants.

An underutilized resource

There are roughly 7,000 megawatts (MW) of demand response registered with the Midcontinent Independent System Operator (MISO), which is the power grid operator across the Midwest and Middle South. That’s equivalent to the size of 14 typical gas or coal-fired power plants.

While 7,000 MW may seem impressive at first glance, scratch the surface and you’ll find that number is a little misleading. Here’s why. Most demand response in the MISO footprint falls under control of rate-regulated utilities and their state commissions. This local utility-by-utility approach to dispatching DR makes it hard for MISO to take advantage of the benefits DR can offer the grid. MISO hasn’t called on DR since 2006 (!), in part because of operational rules which limit MISO’s ability to use it until the grid has reached near-critical emergency state. Even the utilities controlling most of the DR rarely use it; MISO estimates that utilities called on only 7% of their DR resources last summer. PJM (MISO’s larger grid neighbor to the east) in contrast, deployed thousands of megawatts of DR during multiple events last summer, fall, and winter, including 6,300 MW (63% of available DR) during an event last September. PJM also called on more than 2,000 MW of DR during the January Polar Vortex.

In addition, few utilities in the Midwest plan to expand their DR in the near future. Compare this apparent lack of interest to recent nationwide industry survey data reporting that 81% of utilities plan to expand DR over the next five years, and one can’t help but wonder if the Midwest is starting to fall behind.

DR will start looking more attractive to both states and MISO given the tightening power supply situation in a couple of years due to retiring power plants. Right now, about 90% of DR in the Midwest cannot participate in MISO’s energy markets; it’s only available in the event of a grid emergency. While it is comforting to know we have up to 7,000 MW of DR available for an emergency, it would be even better to be able to tap into some of the DR to avoid the emergency altogether.

Where do we go from here?

While electric resource planning in the Midwest still largely falls under legal authority of individual states, greater coordination between states and MISO would help access more DR without overstepping state jurisdiction. To MISO’s credit, it held a stakeholder Advisory Committee meeting on the topic of demand response in February. This meeting generated valuable conversation among state commissioners, MISO leadership, and other stakeholders. Stakeholders identified the following issues that need to be resolved to fully tap our DR potential:

  • How can grid planners and developers of new DR resources navigate between complicated state and regional planning processes to identify targeted DR resources that could help reduce grid dependence on old, costly power plants?

  • What is the role of third-party DR service providers, given that most Midwestern states currently ban them from independently aggregating customers into a pool of resources?

  • If consumers in an existing utility-funded DR program are allowed to participate in MISO markets, who should receive the income – consumers, utilities, both?

  • How should MISO and utilities measure and verify the availability of DR resources to ensure that they accurately respond to dispatch signals?

The Great Plains Institute is working with the Sustainable FERC Project and other partners to tackle these issues. Taking advantage of the economic and environmental benefits of demand response will require continued coordination between states, utilities, and MISO. If we are successful in coming together to work out these issues, rest assured I will be taking a long, well-deserved vacation in Hawaii next winter.