Equal Pay for Negawatts and Megawatts Thanks to FERC

March 18th, 2011 by Susan Kraemer



Chair Jon Wellinghoff’s clever new Federal Energy Regulatory Commission (FERC) has just ruled that “negawatts” not generated (using demand response ) are to be paid as much money per megawatt reduced as generated electricity is, per megawatt, on the nation’s electricity markets, according to Jeff St John at Giga Om.

Demand response is a smart grid option used by utilities to manage on less power. Instead of building a new power station, just to cover a high peak a few days a year in a heat wave, utilities can arrange with some of their biggest electricity users to reduce consumption of electricity in response to supply conditions. This can make a big difference as these large commercial users hog almost half the grid: 17 million commercial customers use 40% of all electricity generated in the US.

So large resorts for example, can make a deal with their utility – and have big deductions in their electric bills in return – by agreeing to turn their electricity off for a few minutes, on demand, in order to shave peak demand on the grid, when it is neccessary.

Until now, negawatts received only part of the value of each megawatt of power reduced, which in a sense, was fair, because utilities currently are able to pocket the profits of not having to invest in more power generation, by using demand response. So FERC has made a controversial decision, but it is also a courageous one.

Like their recent ruling: FERC Wants Smaller, Faster, Distributed Storage to Speed Renewables this is a clever piece of policy to clean up our grid.

The equal pay plan is well thought out from a climate and clean energy point of view, because the bonus negawatt pay provides a real incentive for the dirtiest utilities to work with their big customers to reduce demand. (Currently those plants have the opposite incentive, to encourage more energy use).



Currently, already relatively clean energy electric utilities like PG&E tend to be the ones that utilize demand response, in response to progressive legislation at the state level.

But these are not the utilities that will clean up the most as the rule goes into effect. It is the black smoke-belching coal plants of Indiana, Kentucky and West Virginia that stand to “do best by doing good”.

Not building more (dirty) power stations than we absolutely must is in the public interest – but most especially in the dirty power states. FERC’s new Chair Wellinghoff believes that we may not need any new nuclear or coal plants ever.

Great policy like this can help us realize that goal.

Susan Kraemer@Twitter

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