Auction Markets and Other Procurement Mechanisms for Demand Response Services

The scope of this WG includes:

1. Examine the role of transmission system operators (TSOs) and distribution system operators (DSOs) in managing DR services, such as the operational time frames, the existing DR-service procurement mechanisms, the payment methods, and activation of such services.
2. Examine the development of DR auction in various markets around the world: auction process, time frame, bid structure, development of the ISO’s DR curve, and the pricing mechanism.
3. Examine the performance of DR procurement mechanisms, currently in place.
4. Study feasibility and viability of standard DR procurement models for different market structures.

These tasks are achieved using a survey on DR procurement mechanisms, contract frameworks, market design, and their pricing mechanisms. This survey, with participation from Australia, Ontario (Canada), India, South Africa, Japan, Sweden, Texas (USA), and Brazil includes the best practices for DR activation in markets and allows the development of performance indicators. As a final point, recommendations for standard procurement models for DR services suited to different market structures are proposed.

Demand response (DR) is an important tool for ISOs to reduce the peak demand and electricity price spikes, balance the intermittency of RES, and increase power system resiliency, efficiency and reliability. Of late, there has been considerable interest from the load-side participants to offer their services for DR provisions in electricity markets. The modalities of DR participation in an ISO are typically classified based on:

• Their mode of procurement, i.e., through fixed period contracts or auctions based offers.
• Their participation time-frame (day-ahead or real-time) and operational domain (energy, ancillary services, or capacity).
• Type of DR program, i.e., economic DR program, or emergency / reliability DR program. The economic DR program involves submission of an offer whereas the emergency DR is only called upon during times of system stress, such as extreme weather events or transmission outages.

The other details considered are the type of customer participation (individual or aggregated), minimum reduction requirement, minimum duration, type of trigger signal (price based, loss of resource, frequency changes etc.), payment rates/terms (market price, fixed price, etc.

This Technical Brochure is a collaborative work of contributors from 13 countries spread across 6 continents to identify the operational aspects and complexities in procurement mechanisms for DR services. This Working Group has collected information on DR services offered across jurisdictions and their procurement mechanisms, in particular, from Australia, Ontario (Canada), India, Brazil, South Africa, Japan, Sweden, and Texas (USA). Therefore, the analysis through the entire report has been based on these jurisdictions.

The Technical Brochure presents a comprehensive review of the current frameworks and programs for DR to participate in various electricity markets, based on a survey carried out across the jurisdictions. The modalities of DR participation in each ISO were classified based on mode of procurement, participation time-frame (day-ahead or real-time) and operational domain (energy, ancillary services, or capacity), and the type of DR programs. Depending of the jurisdiction and entity in charge of DR programs in the countries of analysis, different factors that influence DR development were identified. Since DR allows peak demand reduction, there is direct relation between the need and/or development of DR programs or services and peak demand growth. Additionally, considering the existent and potential benefits of DR, in the case of countries with DR programs, the level of spending is not unexpected and would likely to continue in the coming years.

The three most important drivers for DR programs were identified to be- peak demand reduction requirement, security of supply, and reduction of market price volatility. The last identified driver applies to those countries and jurisdictions which have an existing DR market.

Furthermore, some metrics were considered when planning DR programs such as- technical resilience, system safety margin, enhanced in socio-economic welfare, reduction of peak load, cost savings, reduction of congestion cost,...