Post: Realising the potential of active demand management in wholesale markets

Realising the potential of active demand management in wholesale markets

Treating electricity supply as equivalent to demand in wholesale markets — meaning large customers would have the same rights and requirements as generators — could help lower costs, boost reliability and reduce the risk of overbuilding energy resources, the Energy Systems Integration Group (ESIG) has said.

In a white paper released earlier this month the ESIG said the way most markets function now, demand is assumed to be price-inelastic, but a market where supply and demand are active participants allows for more efficient market operation, maximising benefits to market participants who do participate and reducing overall system costs. Under this model large customers and load-serving entities would submit price-sensitive bid curves into the day-ahead market and respond to real-time prices. This bid-in demand would create a two-sided market that solves many problems faced today in extracting flexibility from demand. Participation of demand in wholesale markets will help manage a future with high levels of wind, solar, and limited-duration storage resources, because the market naturally shifts demand from high- to low-priced periods, reducing demand when prices are high and increasing demand when prices are low or negative.

There is an opportunity for demand to participate in an analogous way and be on an equivalent footing to supply-side resources. This opportunity exists today in that most wholesale markets have options for wholesale demand to bid into the day-ahead market (this may be used more in some ISOs than others), although it is not clear to what extent demand bids into the real-time market. There is a need to assess how this works across different ISOs, to what extent this capability is used, and whether the participation leads to a physical response. Because this concept addresses wholesale market participation by sophisticated customers that understand how energy markets work and likely have automation. By bidding in a quantity and a price, customers have more control over their consumption and their bills. For example, in a time of grid emergency, a consumer might bid in a very high price for a small amount of electricity for  essential needs, a lower price for a moderate amount of electricity for most needs, and a very low price for optional needs or charging of any storage.

As an example of active market participation of demand, the paper looked at a chemical refinery customer with a 20MW demand for electricity and 200MW of thermal energy for every hour of the day. It is willing to pay a very high price for the 20MW of electricity that is needed hourly because electricity reliability is essential to its chemical processes. However, this customer also has 500MW of thermal storage that is recharged with electric heaters. The customer is sited in a region with high levels of solar, and prices are typically low or negative midday, especially in the shoulder months. This customer might bid into the day-ahead market for each hour of the day: the market cap price for 20MW for its electricity needs, $30/MWh for 200MW to ensure that its storage is recharged, and $0/MWh for the remaining 500MW to take advantage of zero or negative prices. The market clears and the customer receives a schedule for the next day. It can dispatch its electric heating load to charge the thermal storage according to this schedule, or it can choose to participate in the real-time market, just as generators can. If it is scheduled to use 220MW at 2pm and its thermal storage is relatively full, it might bid into the real-time market a willingness to back down by 200MW if real-time prices hit $100/MWh. It would realize financial savings from the 200MW reduction that is settled at the higher real-time price. Similarly, it might bid into the real-time market a willingness to increase consumption by 500MW if real-time prices went negative. If that bid cleared the real-time market, the customer would make money by charging its storage during that interval.

At GridBeyond we work with businesses across the globe to facilitate active power market participation of demand side assets. By understanding your assets, combined with in-depth knowledge of the intricacies of the system, GridBeyond’s AI-powered platform is a powerful combination of high-end energy management technology and data analytics that transforms your energy strategy from passive risk and price management to active participation that utilizes smart technology to enable co-optimization across the entire energy markets including real-time trading on wholesale markets.

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