How Demand Response Resources Are Compensated Across Different Electricity Markets

What are demand response resources?

Demand response resources are mechanisms that allow electricity consumers to reduce or shift their power usage during peak demand periods in response to price signals or incentives. These resources help balance supply and demand, enhance grid reliability, and reduce the need for additional generation capacity. Compensation for demand response resources varies by market and can include capacity payments, energy payments, and incentives for participation in emergency response programs.

MISO demand response resources

In the Midcontinent Independent System Operator (MISO) market, demand response resources are compensated through several mechanisms:

• Capacity payments: Market participants with demand response resources can participate in MISO’s Planning Resource Auctions, where they receive capacity payments for their ability to reduce load during peak periods. Learn more in our blog post, “What Is a Capacity Market?”
• Energy payments: Demand response resources can offer load reductions in the Energy and Operating Reserve Markets. They are compensated based on the market price for energy during the periods they reduce consumption.
• Emergency response programs: During emergency conditions, demand response resources are required to reduce load as per MISO’s emergency operating procedures. They receive compensation for their participation in these programs, ensuring grid stability during critical times.

MISO’s approach ensures that demand response resources are adequately compensated for their flexibility and contribution to grid reliability.

PJM demand response resources

The PJM Interconnection market offers several compensation mechanisms for demand response resources:

• Capacity payments: Demand resources in PJM can participate in the Capacity Market, receiving payments for their ability to reduce load during peak demand periods. This includes the Full Emergency or Pre-Emergency Load Response options, which provide both energy and capacity payments.
• Energy payments: Demand resources can also participate in the Economic Load Response program, where they are compensated based on the market price for energy during the periods they reduce consumption.
• Emergency response programs: PJM’s Emergency Load Response program enables demand resources to receive payments for load reductions during emergency or pre-emergency conditions. This ensures that the grid remains stable during critical periods.

PJM’s comprehensive approach to compensating demand response resources highlights the importance of these resources in maintaining grid reliability and efficiency 3.

ISO New England demand response resources

ISO New England (ISO-NE) compensates demand response resources through various programs:

• Capacity payments: Demand response resources can participate in the Forward Capacity Market, receiving payments for their ability to reduce load during peak periods.
• Energy payments: ISO-NE offers energy payments to demand response resources that reduce consumption in response to real-time price signals.
• Emergency response programs: During grid emergencies, demand response resources are called upon to reduce load, receiving compensation for their participation and contribution to grid stability.

ISO-NE’s approach ensures that demand response resources are incentivized to participate in both capacity and energy markets, enhancing overall grid reliability.

CAISO demand response resources

The California Independent System Operator (CAISO) market compensates demand response resources through several mechanisms:

• Capacity payments: Demand response resources can participate in CAISO’s Resource Adequacy program, receiving capacity payments for their ability to reduce load during peak periods.
• Energy payments: CAISO offers energy payments to demand response resources that reduce consumption in response to market price signals.
• Emergency response programs: During grid emergencies, demand response resources are required to reduce load, receiving compensation for their participation and contribution to grid stability.

CAISO’s comprehensive approach ensures that demand response resources are adequately compensated for their flexibility and contribution to grid reliability.

NYISO demand response resources

The New York Independent System Operator (NYISO) market offers several compensation mechanisms for demand response resources:

• Capacity payments: Demand response resources can participate in the Special Case Resource (SCR) program within the Installed Capacity (ICAP) market, receiving payments for their ability to reduce load during peak periods.
• Energy payments: NYISO offers energy payments to demand response resources that reduce consumption during times of emergency through the Emergency Demand Response Program (EDRP).
• Emergency response programs: During grid emergencies, demand response resources are called upon to reduce load, receiving compensation for their participation and contribution to grid stability.

NYISO’s approach ensures that demand response resources are incentivized to participate in both capacity and energy markets, enhancing overall grid reliability.

Demand response resources are vital for maintaining grid stability and efficiency across various electricity markets. Each market—MISO, PJM, ISO New England, CAISO, and NYISO—has developed unique compensation mechanisms to incentivize participation. By understanding how these resources are compensated, market participants can better navigate the complexities of each market and contribute to a more reliable and efficient grid.