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2009 State of the Market Report

Executive Summary

G.

Demand Response

Demand participation in the market improves reliability in the short-term, contributes to resource adequacy in the long-term, reduces price volatility and other market costs, and mitigates supplier market power. Accordingly, the development of demand response in the Midwest ISO remains a high priority. When all forms of demand response (both passive and active) are included, the Midwest ISO has more than 12,000 MW. Most of this is interruptible load developed under regulated utility programs and is only curtailable for reliability purposes. This interruptible load is not price-responsive.

Only modest amounts of this demand response capability participates in the Midwest ISO’s markets:

  • Twenty-two units account for 2,353 MW of non-dispatchable “Type I” demand response which can provide energy and supplemental reserves to the Midwest ISO.6 These resources must typically be notified well in advance and are therefore not responsive to real-time prices. Peak participation in 2009 totaled just 340 MW due to low load conditions.

  • Four units provide 111 MW of dispatchable “Type II” demand response resources that participate in all Midwest ISO energy and ancillary services markets and are dispatchable on a five-minute basis comparable to generation.

  • Emergency Demand Response (“EDR”) capability (totaling 242 MW) is used to satisfy a

Load-Serving Entity’s (“LSE”) capacity requirements under Module E.

In order to comply with Order 719 and 719-A to create a platform for expanded demand response participation, the Midwest ISO established a stakeholder process to identify and address specific barriers related to market rules, settlement provisions, and operating requirements. It filed tariff revisions with the Commission on October 2, 2009, to allow Aggregators of Retail Customers (“ARC”) to participate in the Midwest ISO market. ARCs were scheduled to be eligible to participate in the Midwest ISO as of June 1, 2010, but the Commission has not yet approved the Tariff language. Since there is a retail component to this demand response capability, ARC-owed resources are paid the LMP minus the predetermined marginal foregone

6

Type I capacity for Planning Year 2010 is only 210 MW due to certain pumped storage resources no longer offering their capacity when pumping as Type I (effective September 1, 2009). As of February 2010, Type I resources can also offer spinning reserves, subject to a 10 percent participation cap.

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