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Initial Challenges to our PDR Proof of Concept

November 15th, 2010 by Spence Gerber

Note: this is one in a series of posts chronicling the Olivine Power of Us™ PDR Proof of Concept.

FERC ordered ISOs/RTOs to create rules to allow direct participation of DR in wholesale markets.  In response, the CAISO implemented Proxy Demand Response (PDR) to allow Demand Response Providers to bid DR directly into the market in August of 2010.  So why hasn’t anyone used this new product that allows DR to participate in the market just like a generator?

Issues, issues, issues.

  • While being a Demand Response Provider (DRP) allows you to register and “own” a PDR in the CAISO systems, DRPs cannot engage directly with the CAISO markets.  To engage in any market activities, a Scheduling Coordinator (SC) is required.  In fact, the DRP must sign an agreement with the CAISO saying they will use a Scheduling Coordinator to perform all market activities from bidding to financial settlement of any DR activity that is part of the market.  More to the point, a DRP gains no access to any of the CAISO systems that would enable such activities.  And becoming a DRP can be accomplished in a month or so while becoming an SC takes 6 months with many hurdles to jump.  Olivine has already begun the process of becoming a Scheduling Coordinator in order to maintain direct interaction with the market and support innovative entities and proof of concept projects.  This will simplify the DRP-SC coordination for this project.
  • Given the rules at this time (and the time of year) it is hard to get anyone interested in participating in a PDR.  First, the CPUC has not yet provided for Bundled Customers to be bid directly into the CAISO market as a PDR (direct participation).  Getting significant Direct Access (D/A) participation in California is going to be challenging!
  • Perhaps most importantly, there isn’t much money in this at this point either.  There is no centralized capacity market or other means to provide steady long-term revenue stream to supplement the currently meager money that can be earned in the CAISO AS capacity and energy markets.  Generators sign long term contracts with Load Serving Entities as a matter of course in the procurement process which provides a revenue stream in exchange for their capacity value.  This is clearly not the case for demand response in part due to the way the way California assigns resource adequacy credits to DR, while IOU based DR programs/contracts do provide additional monies.
  • After exploring the relationships between end use customers, ESPs, LSEs, Aggregators, DRPs, SCs, DRP SCs and LSE SCs that are in play in the California market, it became clear that in order to make PDR work a number of agreements are necessary.  This alone could be quite daunting.   IOU demand response programs that might utilize Proxy Demand Resources (PDRs) have an advantage since the DRP, LSE, DRP SC and LSE SC are all the same entity for a bundled customer.  For Direct Access customers in a PDR administered by a third party DRP, things can get messy since the number of agreements between parties expands quickly.

So let’s start chipping away at the issues and see if we can get this thing going.

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