For independent system operators and regional transmission organizations (ISO/RTOs), the need to rely on distributed energy resources as a system resource is growing.

Power systems governed by wholesale markets are evolving as traditional fuel-based generation retires. As a result, ISOs and RTOs are appealing to FERC to change the way demand response resources play in the market.

The Midcontinent ISO illustrates incremental improvements to demand response mechanisms that are underway, as noted in a new report from Wood Mackenzie Power & Renewables.

MISO’s generation units are aging and retiring, resulting in shrinking reserve margins. At the same time, their resource mix and that of interconnected neighbors is gaining more bulk and distributed renewable generation. Lastly, outage rates are increasing, occurring more frequently outside of traditional summer months.

The RTO is in the midst of a transformation in system operational characteristics, and as a consequence MISO faces a growing reliance on demand-side resources as a system resource year-round.

Resources Cleared for Delivery Year 2013/2014 to 2019/2020

Source: MISO, Wood Mackenzie Power & Renewables

MISO — and other ISOs and RTOs facing the same predicament — needs demand response resources to be available outside of summer months and in a shorter timeframe. PJM’s solution after the 2014 polar vortex was to redesign capacity products to only bring in resources available year-round under the Capacity Performance construct. MISO is inching closer to this model, although in a more modular fashion.

As more grid-scale and distributed renewables come online, MISO (like CAISO, PJM and, increasingly, ERCOT as well) will adapt by enhancing flexibility and making demand response a focal point.

When demand response resources underperform in MISO — whether they are not available on time or don’t drop the load they said they had available — it can spell trouble.

On one cold day during the January 2019 cold snap, wind turbines experienced technical difficulties due to frigid temperatures, people didn’t go to factories to work, and homes used more energy than usual. For several hours, demand response market participants fell hundreds of megawatts short of the capacity relief they were scheduled to provide, despite peak demand pressure being naturally alleviated from business and school closures.

As a result of incidents like this, MISO is now enforcing stricter requirements on demand response availability. This speaks to the value of the flexibility resources for the RTO.

Tariff revisions approved before MISO’s 2019/2020 capacity auction extend visibility and access to registered behind-the-meter DERs during all months of the year, not just the summer, and require more rapid deployment, among other enhancements.

The revisions appear to be having the desired effect. For MISO’s 2018/2019 capacity auction only 39 percent of emergency resources were available within two hours. In contrast, after the 2019/2020 auction, availability rose to 63 percent. MISO will continue to make incremental enhancements to access flexibility that align with the RTO’s ability to reliably serve load.

The aggregation of DERs as dispatchable grid resources is changing the face of demand response, making it more nimble and adaptable. Looking ahead, flexibility promises to expand the range of potential services beyond peak-shaving and into load-shifting that follows supply.

In the next few years, guidance from FERC on DER aggregation models for access to market value streams will dictate opportunities and business models for participants.

For now, however, peak-shaving remains the norm. Existing markets were designed for bulk power generation, and in this context, fragmented incremental market design enhancements across various ISO/RTO territories are a means to improve the way demand response is deployed as a system resource.

In short, the power system is changing modularly, and so will the guiding market principles.

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Elta Kolo is a grid edge research manager at Wood Mackenzie. For in-depth analysis and data on demand response and DER aggregation, explore her recent report.