Demand response and energy efficiency in the capacity resource procurement: Case studies of forward capacity markets in ISO New England, PJM and Great Britain

• Published in: Energy policy 2017-01, Vol.100, p.271-282
• Main Author: Liu, Yingqi
• Format: Article
• Language: English
• Subjects: Adequacy; Auctions; Capacity market; Case studies; Demand response; Demand side management; Design factors; Direct reduction; Economic conditions; Energy; Energy efficiency; Energy management; ISO New England Inc; Markets; Obligations; PJM Interconnection LLC; Planning; Power efficiency; Processes; Procurement; Purchasing; Reliability; Studies; System reliability; Trends; United Kingdom
• ISSN: 0301-4215; 1873-6777
• DOI: 10.1016/j.enpol.2016.10.029

Demand-side resources like demand response (DR) and energy efficiency (EE) can contribute to the capacity adequacy underpinning power system reliability. Forward capacity markets are established in many liberalised markets to procure capacity, with a strong interest in procuring DR and EE. With case studies of ISO New England, PJM and Great Britain, this paper examines the process and trends of procuring DR and EE in forward capacity markets, and the design for integration mechanisms. It finds that the contribution of DR and EE varies wildly across these three capacity markets, due to a set of factors regarding mechanism design, market conditions and regulatory provisions, and the offering of EE is more heavily influenced by regulatory utility EE obligation. DR and EE are complementary in targeting end-uses and customers for capacity resources, thus highlighting the value of procuring them both. System needs and resources’ market potential need to be considered in defining capacity products. Over the long-term, it is important to ensure the removal of barriers for these demand-side resources and the capability of providers in addressing risks of unstable funding and forward planning. For the EDR Pilot in the UK, better coordination with forward capacity auction needs to be achieved. •Trends of demand response and energy efficiency in capacity markets are analysed.•Integration mechanisms, market conditions and regulatory provisions are key factors.•Participation of energy efficiency is influenced by regulatory utility obligations.•Procuring both demand response and energy efficiency in capacity market is valuable.•Critical analysis of the design of capacity products and integration mechanisms.