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Why PJM Demand Response is as Strong as Ever

February 11, 2020

Anyone who tells you that “Demand Response is dead in PJM” is clearly misinformed. Energy markets are complicated, which is why we work closely with PJM to ensure demand response remains a viable program. While it’s true that there are other options in PJM, the Emergency Load Response Program (ELRP) continues to be the most attractive program for most of our customers.


ELRP Demand Response remains the most financially attractive program in PJM

ELRP is the largest demand response program in PJM both in terms of MW and revenue earned by participants (see chart below.) Over the past two seasons, Enel X has distributed nearly $175 million in ELRP payments to customers. What’s more, we have seen higher capacity payments under the new Capacity Performance program than the previous Base Capacity program by 22% on average.


Source: 2019 Demand Response Operations Market Activity Report (January 2020, PJM)


Capacity Performance supports year-round grid stability

Starting this year, Capacity Performance is the only ELRP demand response program available. The biggest difference with Capacity Performance is that it’s a year-round program, but many of the program rules remain the same. In other words, not much will change in terms of your participation in the program. Because we have twice as many customers as any other company in the market, we can tailor your commitment to how much energy you use and when you use it, as well as your appetite for participation by season. 


And with extreme weather events becoming more frequent, demand response is vital to maintaining grid stability in the Mid-Atlantic States, made clear during the voluntary October 2019 dispatch during an extreme heat wave in the region.


Other PJM demand response programs require more dispatches with lower reward

Synchronized Reserve Market, or SRM, offers additional revenue opportunity and can be combined (also known as “stacked”) with ELRP. Response time is only 10 minutes, and participants can expect to curtail 5-15 times each year. What’s more, your DR provider needs deep expertise to develop a bidding strategy to ensure you see a return from your participation. ELRP is easier and more lucrative, but stacking SRM can increase your total earnings potential. Enel X currently manages approximately 200 MW in SRM. 


Economic Demand Response allows participants to get paid for reducing load in response to high prices. Participation is completely voluntary, and you determine how much your facility is willing to curtail and at what price in the day-ahead energy market. Energy prices in PJM have been relatively low and stable for the past several years, so earnings are significantly lower than what you could expect to make by participating in ELRP. 


Peak Shaving, while not a demand response program, is another way some organizations manage energy charges and create value through savings. Peak shaving refers to reducing (or “shaving”) your load during peak demand hours. Some facilities are able to significantly reduce charges, but it requires being able to curtail for 3-4 hours per day on 8-12 “high alert” days in the summer, some of which will not actually be the system peak. As a result, most companies find that participating in ELRP is the right balance between curtailment and payments. 


In order to reduce your facility’s peak demand charges in PJM, you have to accurately predict the 5 “coincident peak” summer hours. Coincident peak hours are when total system demand is highest – not when your own facility’s demand is highest. Unfortunately, peak shaving directly erodes your demand response earnings potential because it reduces your energy baseline, which is used to calculate your earnings for DR the following year.