Enel Foundation has provided research guidance and scientific contributions for a comparative study conducted by Skolkovo Moscow School of Management on demand response mechanisms. Three international best practices of demand response – the PJM Interconnection in the USA, the UK National Grid and the IESO in Ontario (Canada) – have been selected and carefully analyzed to identify the opportunities for implementing a similar market mechanism and improve the current rules in Russia.
The research activity was carried out in collaboration with Enel X, which provided useful insights and expertise on real management of demand response across different markets, along with explanations of the peculiarities of each analyzed case study.
The analysis reveals how demand response resources can also play an important role in the Russian energy system and how the program can be successfully integrated into the wholesale market for electricity and for ancillary services. The first level of integration would be to introduce demand-side resources in the capacity market, as they can supply capacity volumes to cover peak demand. As a second step, consumers can be progressively involved in peak-shaving activities through demand-side mechanisms, for example when they can substitute for a more expensive generation.
The research highlights the importance of a flexible approach to this process, as the various types of demand-side resources can take into account differences in the ability and willingness of consumers to curtail their demand under different frequency and volume requirements. Most consumers are not fully aware of the benefits brought by the participation in Demand Response programs, which is generally perceived as a minor source of extra income, thus translating in customers’ slim willingness to modify their consumption patterns.
In addition, it is important to emphasize the role that aggregators play in the implementation of demand response programs: aggregators can take on obligations to reduce certain volumes of load, even before they have entered into contractual arrangements with specific final consumers, since some of these consumers might not be known in advance. Moreover, the aggregation of multiple final consumers allows the aggregator to create a diversified portfolio of resources which can fulfill demand curtailment obligations reliably and at lower cost than standalone resources.
Auctions represent a transparent and cost-effective way to select the most competitive providers of demand response. Regarding the auction process design, the rules must be very clear, and known far in advance. Auctions can cover the mid-term horizon (3-4 years before the delivery date) and nearer-term corrections (1 year before starting). In parallel, specific program conditions (period, duration and volume of curtailment, etc.) can be revised as experience is gained, the pool of participants expands, and the needs of the energy system evolve.
Finally, it is worthwhile to note that in the international best practices analyzed from the USA, UK and Canada, demand response resources most often play a role of “insurance”, rather than being frequently used. This is because requiring too many dispatches strongly discourages participation in these programs, reducing their scale and raising their costs.