“Treating Demand Equivalent to Supply in Wholesale Markets: An Opportunity for Customer, Market, and Social Benefits” is one of eight white papers from ESIG’s Aligning Retail Pricing with Grid Needs Task Force. The task force examined ways that retail pricing may be used more widely and more efficiently to allow flexible demand to respond to grid needs as the role of demand becomes increasingly important for the reliability of the grid. It brings together experts in rate design and electricity markets, transmission and distribution planning and operations, consumer advocates, and others to explore current issues, potential solutions, and practical implementation challenges involved in utilizing the flexibility in price-sensitive loads.
All of the white papers can be found here.
A Summary of “Treating Demand Equivalent to Supply in Wholesale Markets: An Opportunity for Customer, Market, and Social Benefits” by Richard O’Neill, Debra Lew and Erik Ela
An elegant approach to aligning demand with grid needs is demand participation in wholesale markets equivalent to supply participation today. This will become more important with the increase in variable renewables, electrification, and new large loads. The transformation of today’s one-sided markets into two-sided markets presents an opportunity to benefit customers, electricity markets, and the overall grid.
In full, active demand participation (bid-in demand), customers have the same rights, requirements, penalties, and privileges as generators. For example, large industrial customers or load-serving entities bid in prices they are willing to pay for quantities of electricity along with their load resources’ operating constraints, participate in the day-ahead and real-time electricity markets, are able to set the price, and are exposed to and hedged by wholesale market prices. These customers can operate according to their day-ahead schedule or can participate in the real-time market and be dispatched based on real- time prices. Not only are these customers incentivized to reduce demand when prices are high and increase demand when prices are low—naturally supporting the grid—but they are precisely dispatched, giving the grid operator more control to balance the system. Large customers already seeking to align demand with certain grid conditions may be the best place to start.