The report illustrates a number of significant points pertinent to the development of demand side response mechanisms. We have highlighted three key observations:
1. The report concludes that when the needs of demand response purchasers coincide the value of demand response provided to the energy market outweighs the value capable of being provided to distribution network operators. Should the energy and network needs also coincide then this is constructive, however should they have opposing needs, for example excess wind availability versus feeder loading, then the dominance of the energy signal is likely to prevail. This risk may therefore increase the likelihood of the network operators having to invest in asset capacity.
2. The current structure of the energy and balancing markets means that an energy price signal for a demand/generation side response is concentrated into a relatively small period of time, which results in a high spot price value for its provision. In contrast the price signal provided by a network operator for a demand/generation side response will generally cover a much longer timescale and therefore its value in an equivalent time period is much lower. This aggravates the risk identified in point 1.
3. Distribution networks experience outages for a variety of reasons such as maintenance work or faults. To ensure security of supply to customers in outage conditions networks are designed with various levels of redundancy. Generally as the network voltage level increases the redundancy built into the network increases. The table below shows the design levels of redundancy across the voltage levels.
|Voltage level |
Extra high voltage
Single or double event redundancy
Single event redundancy
The value of the network price signal for a demand/generation side response will be concentrated into a smaller time period when a section of network is temporarily operating with reduced redundancy. Under these conditions the value of the network signal can become comparable to or surpass the energy signal for demand/generation side response. For example, when a planned outage on the high voltage network means the network will be operating abnormally, ie with temporarily lower redundancy the network operator should be able to procure a demand response to reduce the risk of a power cut.
The report has identified that a market structure potentially exists that would enable network operators to send appropriate and material signals to customers, but only under abnormal operating conditions. Such signal parity would provide network operators with a means by which they could viably schedule load or call on generation locally, to ensure security of supply on their networks. This important learning will form a fundamental foundation upon which the future participation of network operators in the demand side response market is likely to be designed.
Read the full report here.