4 min read

Is there a DR in the house?

April 29, 2021

Markets - PJM

In the PJM power market, June 1 officially marks the beginning of the 2021/2022 delivery year. This is an important date for clients that will participate in PJM’s various demand response (DR) programs and those who are actively managing capacity tags through peak shaving. DR participation and capacity tag management allow clients to realize an additional revenue stream for their business while reducing their electricity expenses at the same time.

DR programs enable clients to help maintain the stability of the electricity grid during periods of peak demand. These programs compensate businesses that can either run on-site generation or take steps to reduce their electricity usage when the balance of supply and demand is in jeopardy. DR events in PJM are called most often during the summer months when temperatures are high and increased cooling load increases electricity usage across the grid.

There are several DR programs in PJM, but the most popular (and lucrative) program is the Emergency Load Response Program (ELRP). In this program, businesses are given a 30-minute notice to reduce their electricity demand to a pre-determined level for what has, historically, been a three to four-hour period. Program participants can do this either by using on-site generation or curtailing their electricity usage. In this way, DR resources function like an additional power source, helping to maintain the stability and frequency on the grid when electricity supply struggles keep up with demand. Enrolling a facility as a DR resource is a commitment that can provide significant revenue for those who qualify. It is also important to note that the ELRP is a mandatory program and once a client enrolls, there are penalties for a failure to perform when called upon.

Figure 1 shows the number of MWs that were enrolled in the ELRP and the revenue that was paid to participants in that program in 2019 compared with other DR programs administered by PJM.

2019 PJM Enrollment and Revenue by Program

Figure 1: 2019 PJM Enrollment & Revenue by Program from enelx.com

5 helps clients obtain DR revenue by working through various Curtailment Service Providers (CSPs). In PJM, there are many CSPs to choose from whose capabilities and market experience vary widely. CSPs are responsible for executing the dispatch of ELRP events and also initiating semi-annual tests to ensure program participants can respond when called. Upon successful participation in the ELRP program, revenues are paid by PJM to the CSP quarterly, who then pays the DR participant a pre-negotiated share of the overall revenue.

5 also helps clients to save energy costs during the summer through the management and reduction of capacity tags. A capacity tag, or a client’s Peak Load Contribution (PLC), represents a customer’s electricity demand on days when the power grid is at its system peak. Like DR events, these system peaks usually occur on hot summer afternoons when additional generating assets are called upon to keep up with air conditioning demand. These capacity tags are important because electricity suppliers are required to purchase capacity through an annual auction for every electricity client in the amounts that were established on those peak demand days. Those electricity customers that require the most capacity from the grid on those highest peak demand days have higher capacity tags, which increase both electricity supply and delivery costs. Steps taken to reduce electricity usage on those hot summer days will reduce costs in that billing cycle and in the following year when the capacity tags are reset.

PJM uses metering data from the five highest demand days in a given year as the basis for an electricity customer’s PLC in the following year. Through 5’s services, clients are notified in advance when peak demand days are expected. Any steps a client can take to reduce their electricity usage on those days will help to lower their PLC and capacity charges. Unlike participating in the ELRP, working with 5 to reduce one’s capacity tags is completely voluntary and there are no penalties or consequences for businesses that are unable to reduce their electric load upon receiving our notifications and recommendations.

Whether its DR or capacity tag management, 5 assists with our client’s facilities and operations teams to evaluate the best plan to reduce capacity-related charges. This comprehensive approach includes an examination of any behind the meter assets, such as back-up generators and building management systems. Additionally, our team works with our client’s current electricity supplier to confirm that the product structure of the current commodity contract is designed to monetize these demand-side curtailment strategies. As the weather begins to warm, now is the time to plan on capitalizing through capacity tag management and participation in PJM’s DR programs. Both strategies will pay dividends this summer and into the future. Contact us or connect with your Energy Advisor at 5 to learn more.

Topics: Markets PJM

Written by 5

Founded in 2011, 5 comprises a team of energy innovators, commodity traders, analysts, engineers, and former energy supplier executives. Together, they serve a broad array of private and public sector clients throughout the United States and Mexico, providing strategic advice on energy-related matters including procurement, demand-side management, rate optimization, regulatory intervention, benchmarking, bill auditing, RFP management, sustainability planning services, renewable power, and distributed generation. With an eye on growth, 5 has initiated a number of strategic partnerships and acquisitions, including the 2019 acquisition of Luthin Associates. 5 has been named to the Inc. 5000 list of fastest-growing companies in the U.S. for five consecutive years. The firm has also received numerous accolades and national awards for its corporate culture, leadership and innovation, including 5 consecutive years as a top 10 Best Company to Work for in Texas according to Texas Monthly Magazine.