Elsevier

Energy Policy

Volume 48, September 2012, Pages 420-429
Energy Policy

An assessment of the role mass market demand response could play in contributing to the management of variable generation integration issues

https://doi.org/10.1016/j.enpol.2012.05.040Get rights and content

Abstract

The penetration of wind and solar generating resources is expected to dramatically increase in the United States over the coming years. It is widely understood that large scale deployment of these types of renewable energy sources (e.g., wind, solar) that have variable and less predictable production characteristics than traditional thermal resources poses integration challenges for bulk power system operators. At present, bulk power system operators primarily utilize strategies that rely on existing thermal generation resources and improved wind and solar energy production forecasts to manage this uncertainty; a host of additional options are also envisioned for the near future including demand response (DR). There are well-established bodies of research that examine variable generation integration issues as well as demand response potential; but, the existing literature that provides a comparative assessment of the two neither treats this topic comprehensively nor in a highly integrated fashion. Thus, this paper seeks to address these missing pieces by considering the full range of opportunities and challenges for mass market DR rates and programs to support integration of variable renewable generation.

Highlights

► Mass market demand response can help manage the integration of renewable resources. ► To be more effective, retail electricity rates must apply contemporaneous prices. ► Demand response programs will require shorter duration and more frequent events. ► Mass market customers will likely need to accept control technology. ► Market rules and regulatory policies must change to expand demand response's role.

Introduction

The penetration of wind and solar generating resources is expected to dramatically increase in the United States (U.S.)1 over the coming years. Twenty-nine states and the District of Columbia have established binding targets for the procurement of renewable energy in the power sector while another seven states have established voluntary goals through legislation (Wiser et al., 2010). Due in part to these policies, near term (2020) projections by the Energy Information Administration (EIA, 2011) and scenarios from U.S. Department of Energy (DOE, 2008) estimate 4–12% of annual electricity generation coming from the combination of wind and solar (based on 60–160 GW of nameplate capacity) in a future U.S. power system.

It is widely understood that large scale deployment of these types of renewable energy sources (e.g., wind, solar) that have variable and less predictable production characteristics than traditional thermal resources poses integration challenges for bulk power system operators (NERC, 2009).2 The generation output from these resources varies with seasonal, diurnal, and synoptic weather patterns that are neither regular nor fully predictable, which will impact bulk power system operations (see Fig. 1). The magnitude of this variability and uncertainty of output tends to be smaller over short-time scales (i.e., seconds to minutes) than over longer time scales (i.e., multiple hours and longer). For example, short-term forecast errors in wind production (i.e., less than 2 h forecasts) lead to higher or lower wind generation than expected. To manage these short-term forecast errors, the power system operator either procures more or less imbalance energy from existing thermal generators. Short-term forecast errors can also impact the deployment of reserves if conventional generators are set to the wrong set-point and the units that are providing reserves are the only units available to absorb this imbalance. Depending on operational practices used in different regions, additional units standing by as supplemental reserves may be deployed to manage larger forecast errors.

At present, bulk power system operators primarily utilize strategies that rely on existing thermal generation resources and improved wind and solar energy production forecasts to manage this uncertainty; a host of additional options are also envisioned for the near future including demand response (DR).3 In particular, proponents of smart grid (of which Advanced Metering Infrastructure or AMI is an integral component) assert that the technologies associated with this new investment can facilitate synergies and linkages between demand-side management and bulk power system needs by expanding opportunities for demand response. By 2020, the electric power sector is expected to add ∼65 million advanced meters4 (which would reach ∼47% of U.S. residential households) as part of smart grid and AMI5 deployments (IEE, 2010). This investment will create the largest opportunity to engage and enlist a relatively untapped demand response resource: mass market (i.e., small commercial and residential) customers.6 It is useful to develop an analytic framework that characterizes perceived risks, benefits and costs of various strategies (including demand response) which can be utilized to integrate larger volumes of wind and solar generation resources. As such, we believe the key question policymakers should be addressing is:

What role can the smart grid (and its associated enabling technology) play over the next 5–10 years in helping to integrate greater penetration of variable generation resources by providing mass market customers with greater access to demand response opportunities?

There are well-established bodies of research that examine variable generation integration issues as well as demand response potential; but, the existing literature that provides a comparative assessment of the two neither treats this topic comprehensively nor in a highly integrated fashion. In reviewing the literature, we found 12 studies that focus exclusively on how specific demand response opportunities can help manage specific variable generation integration issues that affect the bulk power system (see Table 1). These studies are informative but typically do not provide a comprehensive assessment of all types of DR opportunities, or do not consider barriers that limit the market potential of demand response resources, or incorporate the full range of variable generation integration issues.7 As such, the applicability of the results of these studies to our key research question posed above is limited.

This paper seeks to address these missing pieces by considering the full range of opportunities and challenges for mass market DR rates and programs to support integration of variable renewable generation. Thus, to complement this existing literature, we believe it is imperative to8:

  • Identify demand response opportunities for mass market customers enabled by the widespread deployment of AMI systems and their potential to affect the bulk power system; and

  • Assess the extent to which these mass market DR opportunities could manage VG integration issues in the near-term and what electricity market structures and regulatory practices could be changed to more readily achieve this potential for DR to manage VG integration issues over the longer term.

This paper is organized as follows. First, we examine which demand response opportunities could be feasibly relied on to integrate large amounts of wind and solar resources in the bulk power system. Next, we identify the entities and institutions that would need to be involved in linking end-use customers and variable generation resources. Then, we discuss various near-term activities that will substantially affect the level of penetration of these mass market DR opportunities thereby illustrating some of the barriers standing in the way of DR serving as a viable resource to manage VG integration issues.

Section snippets

Near-term mass-market DR opportunities for managing VG integration issues

This section develops a typology of the various rates and DR program opportunities for mass market customers and then discusses the roles each could play in managing specific VG integration issues. We focus exclusively on the capabilities and potential inherent in the offered rate or program.

Influential near-term activities affecting penetration of mass market DR opportunities

In this section, we identify several near-term activities and influential entities and institutions that will substantially affect the level of penetration of these mass market DR opportunities. We describe the role that existing market and regulatory institutions play in facilitating participation by demand response resources and then highlight the role of advanced metering infrastructure as an enabling technology for mass market customers. We also discuss the potential role of alternative

Conclusions

The penetration of renewable generation resources is expected to increase significantly over the next five to 10 years (and beyond) in the United States due to state and federal policies, incentives, and regulatory mandates as well as increased cost competitiveness with more traditional sources of energy production. The variable and uncertain nature of wind and solar power production results in a range of issues system operators must deal with that vary over time scales from seconds to days. A

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