2020 State of Demand-Side Energy Management in North America
Last year, nearly 2000 organizations nationwide downloaded the State of Demand-Side Energy Management in North America book by CPower’s energy experts.
This year, we pick up where we left off with a market-by-market analysis of the issues, trends, and regulations organizations like yours should understand in 2020 to make better decisions about your energy use and spend.
Resource Adequacy in PJM: too much a good thing?
PJM has been criticized of late (along with several other grid operators in the US) of over-procuring resources in its capacity market. At 29% in 2019, PJM had the second-highest anticipated reserve margin among deregulated energy markets in the US.
Over the past ten years, PJMs system peaks have been flat or declining, highlighting the region’s over-forecasting woes.
In PJM’s defense, there are two significant reasons why the RTO has consistently taken a long position on resource procurement. Both have the rate-paying customer in mind.
For one, if PJM has the option to buy cheap capacity due to there being an abundance of it, they buy it. Consider the alternative, if less capacity were available it would cost more and eventually ratepayers would end up seeing higher prices on their electricity bills.
Next, PJM has historically over forecast its requirements, resulting in the RTO purchasing a good deal more capacity than it needs in the Base Residual Auction (BRA) and selling it back in the Incremental Auctions (IAs), which are held so PJM can make exactly those kinds of adjustments.
Over procurement of resources isn’t necessarily a bad thing, but PJM is nonetheless seeking to improve its load forecasting methods.
Exactly what that will entail is yet unknown, but any adjustment will likely affect capacity prices in future forward capacity auctions, potentially driving them down since PJM will be seeking less capacity once its forecasting is honed.
That’s in the future. Let’s spend the next few minutes looking at what’s affecting PJM’s present and subsequent push to tomorrow.
PJM’s drive to the future
Every deregulated energy market in the US is working to evolve its grid’s fuel mix from fossil-based sources to those that are cleaner and more renewable. To borrow an archetype from a fable we all know, some markets–California, New York, and New England, for example–have chosen to sprint ahead like rabbits and lead the march toward energy’s future.
PJM prefers to play the role of the tortoise, opting for a much slower evolution of its grid. Their logic is sound. Let the other markets take an early-adopter position and learn from their wins and mistakes. All the while, work to keep the grid at home reliable and the rates reasonable for consumers.
That steady-as-we-go attitude helps explain that while PJM is working to integrate distributed energy resources onto its grid, there currently aren’t ample opportunities to monetize these resources in the marketplace.
Monetizing DERs in PJM
Currently, there are no opportunities to monetize front-of-the-meter distributed generation in PJM. Few opportunities exist behind the meter, either. That will likely change in the near future. Before we get into the reasons why, let’s define DERs and explain how they interact with the grid.
Distributed Energy Resources (DERs) are, technically-speaking, resources that are connected to the grid at the distribution level rather than at the transmission level. The distinction is important to energy wonks because the rules in PJM for connecting to distribution lines differ from the rules for connecting at the transmission level.
Resources that are in front of the meter (meaning they do not serve a retail load directly) are treated the same in the market place as any other resource, once they’re connected to the grid. Many DERs, however, are behind the retail meter and help offset customer loads purchased from the grid.
As long as the DER does not inject into the grid (i.e. generate more kW than there is load) the DER can be treated as demand response. However, if the DER is able to inject and offset the owner’s load, things get really complicated, especially if the owner can curtail load (shut down processes, reduce lighting, etc) in addition to operating energy sources.
Commercial and industrial organizations especially desire DERs and have been implementing them behind their meters for the last several years. They’re doing this for their own reasons, namely to reduce demand, transmission, and energy costs while upping their organization’s resilience. If the economics are right, there is no reason to think behind-the-meter DER implementation won’t grow in the future.
If PJM doesn’t soon devise ways to allow these popular resources to be monetized, the grid operator may find itself in the unenviable position of not having enough demand-side resources to call on during times of grid stress or unusually high prices. That’s because the more organizations incorporate behind-the-meter distributed resources to generate their own electricity the less load they’re drawing from the grid. The consumers’ meters are essentially dropping, meaning they are consuming less electricity from the grid. This inevitably leads to less load that the grid can call on via demand response when the grid is stressed or electricity prices are high. PJM’s forecasting takes this loss of load into account and therefore needs less load to procure.
PJM is working on these issues, but progress has been slow.
This post was excerpted from the 2020 State of Demand-Side Energy Management in North America, a market-by-market analysis of the issues and trends the experts at CPower feel organizations like yours need to know to make better decisions about your energy use and spend.
CPower has taken the pain out of painstaking detail, leaving a comprehensive but easy-to-understand bed of insights and ideas to help you make sense of demand-side energy’s quickly-evolving landscape.
Seasonal Readiness 2020
Are you ready for the 2020 demand response season? Our program information and On Demand Webinar resources will help make you successful in your programs in 2020. Here, you'll find program information, key dates (like communication drills), your CPower contacts, market information, dispatch information and more.
Webinar: State of the PJM Energy Market (SOTM Series)
How to Monetize Electricity from Waste Stream Recovery
According to the U.S. Department of Energy, an estimated 20-50% of industrial energy input is lost as waste heat.
Many industrial organizations in the U.S. have learned how to recover waste heat, yet few understand how to monetize it.
Industrial waste heat is the energy generated in an industrial process that is not put to practical use. Waste heat sources include hot combustion gases discharged to the atmosphere, heated products exiting industrial processes, and heat transfer from hot equipment surfaces.
Waste stream recovery involves capturing and reusing waste heat for the purpose of heating or for generating mechanical or electrical work.
Example uses for recovered waste heat include:
- Generating electricity
- Preheating combustion air
- Preheating furnace loads
- Absorption cooling
- Space heating
Types of industrial manufacturers that are good candidates for waste heat recovery include:
Glass Manufacturing–Regenerators and recuperators are the most frequently used systems for waste heat recovery in the glass industry, which collectively consumes approximately 300 TBtu/year.
Cement Manufacturing–The cement industry consumes about 550 TBtu/year with its most energy-intense processes including those which mine and prepare raw materials for the kiln, clinker, production, and cement milling. Options for heat recovery include preheating meal and power generation (cogeneration).
Iron and Steel Manufacturing–Consuming approximately 1,900 TBtu of energy per year, the U.S. iron and steel industries are prime candidates yet face a challenge for executing economically sound heat recovery. While recovery from clean gaseous streams in these industries is common, heat recovery techniques from dirty gaseous streams (from coke ovens, blast furnaces, basic oxygen furnaces, and electric arc furnaces) often incur high capital investment costs.
In several deregulated markets in the U.S.–PJM, for example–recovered waste heat can be monetized by offering the recovered resource into the region’s forward capacity market.
Forward capacity markets like PJM’s Reliable Pricing Model (RPM) allow the grid operator to procure the grid’s required capacity in advance of its delivery day.
Implemented in 2007, PJM’s Reliability Pricing Model uses a market approach to obtain the capacity needed to ensure its grid’s reliability.
The RPM’s market approach includes incentives that stimulate investment in existing generation from traditional sources like power plants while encouraging the development of other resources such as demand response and energy efficiency.
In many cases, organizations that are already participating in waste stream recovery can realize easy earnings akin to found money that requires little work to obtain other than offering the recovered resource into the market.
To learn more about monetizing waste stream recovery and how to offset the rising U.S. energy expenditure share, read CPower’s “Demand-Side Energy Management in the U.S. Manufacturing Industrial Sector: an analysis of revenue-generating strategies.”
PJM Capacity Performance
Capacity Performance is here in PJM. Winter or Summer, CPower can help you participate…
SOTM 2019 Webinar Series
60 minutes with CPower Experts. Energy Insights to Plan Your Year. At CPower, we know that running your organization’s…
PJM: A Look Ahead to Summer ’19 and Beyond
Summer 2019 is right around the corner, which means another season of PJM’s Emergency Capacity demand response (DR) program is set to kick off. This 2019/2020 marks an important pivot point for DR in PJM. With DR enrollment underway, let’s take a look at some things to expect this summer.
2019 Summer Outlook
Weather-wise, early indications point to the PJM region experiencing normal to mild summer temperatures. That’s good news for DR customers in Emergency Capacity but may be challenging for peak shavers to accurately predict PJM’s 5 CP (Coincident Peak) hours. The weak El Nino climate is not expected to have much of an impact, although there’s a good chance that the historically wet 2018 season will carry over to 2019. So don’t put away those rain slickers just yet!
Capacity-wise, PJM forecasts summer peak load of 151,358 MWs. Unlike in Texas, where the grid operator ERCOT (Electric Reliability Council of Texas) is forecasting a reserves situation that make summer emergency events likely, the PJM region at this point seems to have adequate reserves. As we learned during the 2014 Polar Vortex, though, nothing is completely certain when it comes to expected supply and demand. Here’s hoping the summer weather forecast proves to be right.
Goodbye Base and Summer Capacity, Hello Capacity Performance— and Seasonal Aggregations
June 2019 will mark the final season of PJM’s summer-only DR programs. PJM retired the Limited and Summer Extended DR programs after the 2017/18 delivery year, and now will retire the Base Capacity program at the conclusion of the 2019/20 delivery year.
This will usher in the long-talked-about Capacity Performance (CP) DR program as the lone DR program available, starting next year for the 2020/21 delivery year. As you probably know (and as we discussed in last year’s white paper on the myths around CP), the CP program required DR participation and compliance year-round, not just during the summer. As originally designed, CP DR customers would have to participate with one load reduction value for the entire year. To many, this has caused far more problems than it solved, as many DR customers feared having their participation levels drastically reduced — or even dropped from the program entirely — due to concerns over their inability to participate and comply in the winter.
Fortunately, PJM and the FERC (with a little help from CPower Market Development and others, advocating on our customers’ behalf) may have found a way to put those concerns to rest.
The FERC (Federal Energy Regulatory Commission) recently approved a PJM filing that will now allow DR customers to participate in CP with two different summer and winter seasonal load reduction values. Of course, there’s a catch. Participating with separate summer and winter values is contingent upon the customer’s curtailment service provider (CSP, i.e., CPower) being able to offset its seasonal load to create “CP Aggregations.”
How does that work? Let’s take two customers, Alpha Amalgamated Alloys and Beta Better Ball Bearings. Each has participated in summer-only DR for years. Now, however, they have to make year-round commitments, and they’re stuck.
Enter the new rule and their CSP, CPower. CPower works with each to determine what each can contribute for summer and, separately, for winter. Alpha determines that they can reduce 5 MW in the summer but only 2 MWs in the winter. Beta determines that they can reduce 1 MW in the summer but 4 MWs in the winter. And they’re both in the same utility zone within PJM.
Under the rule as originally created, Alpha would be faced with having to curtail only 2 MWs in the summer, when they used to be able to curtail—and monetize—5 MWs. Meanwhile, Beta would be unable to monetize their additional 3 MWs of now-required load in the winter. That could change the desire to participate in Emergency Capacity DR for these two long-time customers.
The new rule, however, allows their CSP to aggregate (or combine) their reductions to create a CP zonal aggregation of 6 MWs year-round. Their combined summer reductions and winter reductions balance each other out and comply with the new CP requirements. Each continues to benefit from DR participation in PJM.
This program rule change, thankfully, allows more flexibility and opportunity for PJM’s DR customers to participate as Emergency Capacity resources (which PJM always needs). This assumes, however, that their CSP has the market position and a diverse portfolio to successfully manage these DR CP programs.
Shameless plug: CPower, of course, has the capability to generate zonal CP aggregations across all PJM zones and all customer types. We’ve worked hard to not only build ourselves into the top curtailment aggregator in PJM; we’ve also advocated tirelessly before PJM to create this opportunity for our customers to ensure that CP doesn’t negatively impact PJM’s vital electric reserves. In this way, barriers become opportunities, and everyone wins.
What to Look Out For
PJM has pushed back their next Base Residual Auction (BRA) for the 2022/23 delivery year from May, 2019, to August, 2019 and the possibility still remains that it could get pushed back again until early Spring 2020. This will allow for some RPM rule changes to be implemented. If you’re interested in future capacity prices and DR availability, stay tuned, as the results for that auction won’t be known for a few more months.
PJM stakeholders are discussing potential changes to the mandatory DR test even that occurs each summer if there is no actual emergency event called. Some topics of discussion are: increasing the test event to longer than one hour; compensating test event compliance with emergency energy payments; PJM scheduling the test event instead of the CSPs; and possibly a mandatory winter testing provision. Nothing’s set in concrete yet, and CPower will keep you up-to-date as the discussions move forward.
Just Released: 2019 State of the Market
Finally, CPower has released, “2019 State of Demand-Side Energy Management in North America.” This is an invaluable resource filled with analysis and commentary from CPower’s market experts (including yours truly). It covers all regions served and supported by CPower in the U.S. and Canada and will be an important source of information for DR customers and partners regionally and nationally. Download your guide here.
If you have any questions about goings-on in PJM now and in the future. don’t hesitate to reach out to the PJM team. As always, we’re here to help.
What has PJM learned from the Polar Vortex?
On January 2, 2014, a sudden stratospheric warming caused a breakdown of the polar vortex, a semi-permanent low-pressure system of cold polar air that helps the jet stream maintain a roughly circular path as it travels around the globe.
A healthy polar vortex keeps the jet stream in line, which in turn keeps the cold air up north and the warm air down south.
An unhealthy polar vortex allows the jet stream to break apart, allowing the Arctic’s frigid air to escape southward as it did in 2014. The 2014 Polar Vortex (officially the 2014 North American Cold Wave) led to record low temperatures in the US and caused PJM’s grid to face dire reliability concerns.
In the wake of the 2014 Polar Vortex, PJM established a new market design to better procure resources when the grid is stressed due to extreme weather.
Five years later, the PJM grid would again be challenged when a weak polar vortex led to temperatures in the US plummeting to record lows, including -23 degrees in Chicago in late January 2019.
That the PJM grid maintained its reliability in the winter of 2018/19 is a sign that recent market changes are working as designed.
Let’s examine those changes with an eye on how commercial and industrial organizations in the region can leverage their existing energy assets and achieve demand-side energy management success.
What did Winter 2014 Teach PJM?
On January 14, the coldest day of winter in 2014, 22% of PJM’s generation was unavailable to meet consumer demand. PJM knew they had to take action to ensure the grid had enough capacity in the future to meet the most daunting and coldest circumstances.
“To ensure reliability, we’re doing everything humanly possible. If the lights aren’t on, nothing else matters.”
–Terry Boston, PJM President and CEO
2014 PJM Annual Report
To guard against future outages like the ones experienced in 2014, PJM proposed to the Federal Energy Regulatory Commission (FERC) a redesign of the region’s Reliability Pricing Model (RPM), the capacity market that ensures long-term grid reliability by securing the appropriate amount of power supply resources needed to meet predicted energy demand three years in the future.
PJM’s Transition to Year-Round Demand Response (DR)
One of the more significant changes PJM implemented involves a transition to demand response programs that require year-round participation.
PJM’s two emergency capacity demand response programs available in 2019, Base Capacity and Capacity Performance, each reward year-round participation from its participants.
Base Capacity, however, differs from Capacity Performance in that it requires performance in the summer months of June through September, but can also reward for responding to dispatch throughout the year. 2019 will be the final year PJM offers Base Capacity.
These new programs replaced the legacy DR programs PJM previously offered until the end of the 2017/2018 program–Limited DR, Summer Extended DR, and Annual DR.
How has Capacity Performance affected grid reliability?
The short answer is PJM’s grid is doing just fine having shifted to Capacity Performance.
In an analysis on its system performance during the “bomb cyclone” cold snap from Dec. 28, 2017, through January 7, 2018 (the region’s coldest stretch since 2014), PJM confirmed its grid performed well, with excess resources available on days when temperatures were the most frigid.
But that doesn’t mean PJM doesn’t see room for improvement in 2019.
This post was excerpted from the 2019 State of Demand-Side Energy Management in North America, a market-by-market analysis of the issues and trends the experts at CPower feel organizations like yours need to know to make better decisions about your energy use and spend.
CPower has taken the pain out of painstaking detail, leaving a comprehensive but easy-to-understand bed of insights and ideas to help you make sense of demand-side energy’s quickly-evolving landscape.
Is Peak Shaving more Lucrative than Demand Response in PJM?
Peak-shaving, essentially the practice of an organization reducing its demand during times of peak grid stress to lower its capacity charges, is part of what the Federal Energy Regulatory Commission is considering as the agency examines PJM’s annual capacity construct.
In a June 2018 proposal, PJM stated it hoped to reduce its capacity market demand curve by including peak shaving among the variables it considers when developing its load forecast.
To do this, PJM would have to adjust its current forecasting model, which involves identifying gross load for a delivery year and establishing a forecast that includes economic, weather, and end-user changes, but excludes peak shaving as a variable.
PJM believes their proposed model will provide a more holistic view of the grid and its potential need for resources to maintain the balance between supply and demand.
Opponents are concerned whether PJM’s proposed methods for integrating peak shaving as a variable in forecasting its load are underdeveloped and will ultimately provide an accurate forecast.
They may have a point.
PJM’s proposal states among its outstanding issues that accounting for existing peak shaving activity relies on entities providing PJM with historical peak shaving activity and that currently there is no established best practice for obtaining this crucial data.
Is Peak Shaving Right for Your Organization?
Given all this uncertainty around peak-shaving in PJM, it’s a fair question to ask if the practice is right for your organization.
Since no two organizations are alike, the answer to that question will naturally vary from one organization to the next.
Consider that an organization involved in peak shaving will likely curtail for about 30 hours in a single summer in an attempt to time their curtailment with the hours PJM’s grid is at peak system load.
Is the organization better off curtailing for that long and realizing the savings in subsequent peak charges? Or would the organization be better off participating in demand response, which, if not called for an emergency event, only involves just one test hour during the summer?
It’s best for a given organization to consult a licensed curtailment service provider that has the ability to evaluate all of an organization’s energy assets and explain how they may best be leveraged in PJM’s existing markets to optimize savings and earnings through demand-side energy management.
This post was excerpted from the 2019 State of Demand-Side Energy Management in North America, a market-by-market analysis of the issues and trends the experts at CPower feel organizations like yours need to know to make better decisions about your energy use and spend.
CPower has taken the pain out of painstaking detail, leaving a comprehensive but easy-to-understand bed of insights and ideas to help you make sense of demand-side energy’s quickly-evolving landscape.