February 03, 2020

Residential Demand Response in Wholesale Markets

Rujeko Muza

I. Introduction

In 2016, the Supreme Court of the United States issued a landmark decision in FERC v. Electric Power Supply Ass’n. The Supreme Court upheld the Federal Energy Regulatory Commission’s (FERC) policy regarding the participation of “demand response” programs in wholesale capacity markets. The decision to compensate demand response at the same rate as electricity generation was a monumental step toward decarbonizing the U.S. electricity grid. However, further policy making regarding demand response (DR) is paramount to achieving deep decarbonization. While the residential demand response (RDR) market is smaller than its commercial and industrial counterpart, aggregated RDR can provide a substantial amount of load reduction and environmental benefits. Accordingly, the following is a brief discussion regarding the regulatory opportunities and challenges associated with allowing RDR to play in wholesale markets. The first section of this paper will overview and explain the importance of DR programs and their existing participation in energy and capacity markets. The second section will overview the regulatory challenges associated with allowing RDR programs to participate in markets. The final section will suggest ways of better integrating RDR programs into wholesale markets.

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