The Changing Supply Mix and DERMS

Author: Tom O’Meara

As the volatility of wholesale power markets grows, so does the demand for DERMS

Figure 1: Five-year outlook for new generation sources and retirements in three US power markets (Source: ABB Velocity Data Service)

Analysis of the future resource mix of the three prominent US energy markets (California ISO, Midwest ISO, and PJM) demonstrates some dramatic shifts in the power supply mix (see Figure 1 above). We are seeing an increased reliance on renewable generation for both future load growth and replacement of retiring coal and nuclear generation. Recent trends driving down the cost of solar have heavily impacted new resources in California. In the Midwest ISO, we see a significant trend toward renewable wind resources. Across all markets, the future “traditional” resource of choice is natural gas-fired generation. We expect these trends to continue, especially considering compliance options under the Clean Power Plan.

The impact of these renewable generation trends on the wholesale markets creates a new paradigm for wholesale market price volatility. In particular, the challenges of the intraday impact of renewables is demonstrated in the net load curves, or the “Duck Chart” phenomena (see Figure 2 below). Increased reliance on renewables results in ramping issues, over/under generation risk, and decreased frequency response. Reliably balancing supply and demand in these challenging market dynamics creates strong economic incentives to invest in distributed energy resource management solutions (DERMs). DERMs can play a key role in flattening the load curve by shaving peak demand, using cheaper distributed generation and demand response programs.

Figure 2: A recent net load chart from CAISO, demonstrating how demand response can help manage the real-time load volatility in the CAISO footprint.

So, how can DERMs impact the increasingly volatile wholesale power markets? DERMs manage the hardware and devices on the grid and the commercial relationship with the counter-parties (i.e., supply or demand resources) on the markets. As a result, DERMS provide the platform for these parties to better integrate distributed power generation sources and/or demand behind the substation on the distribution feeders, enabling market solutions, such as ??, to allow typical consumers of energy to produce energy or to take a demand action when needed. By enabling the communication of day-ahead and intraday wholesale price signals, DERMs allow these “prosumers” (and perhaps aggregators) to bid their demand or supply to minimize their cost or maximize their revenue – even in today’s highly volatile markets.

Furthermore, DERMs facilitate the use of technology such as solar panels or storage units to provide new sources of supply and, when coupled with smart inverters, enable customers to someday provide both supply and reliability services to the local grid. This is especially true when the DERMs are integrated with power applications that are monitoring, optimizing and improving the reliability of the distribution network. DERMs further enable the addition of microgrids, which allow us to isolate a portion of the distribution grid from the central grid allowing a submarket of power suppliers to serve the islanded power needs.

So, for better distribution investment decisions in volatile markets, I advocate knocking down the silos between distributed engineering/operations departments and the wholesale portfolio supply departments. DERMs allow the distribution network to stabilize wholesale power prices, creating more opportunity for industrial business growth and happier residential consumers. The need will only grow as unprofitable central power stations delivering excess capability begin to retire, causing higher and more volatile wholesale prices.

Please visit us at Distributech (Booth #2100) in Orlando next month where you can give me comments and we can continue the dialog.