The Reliability Demand Response Model

The Pennsylvania-Jersey-Maryland (PJM) Interconnection is supposed to be the best Regional Transmission Operator (RTO) of the USA. FERC has used them as the model for other RTOs. PJMs model is thermar oriented and no hydrothermal oriented. In that respcct, the model is closer to what the Dominican Model should be, than what the South American models are. PJM has filed a new Reliability Pricing Model (RPM) to FERC on August 31st, 2005 and in doing so have posponed a Reliability Demand Response Model (RDRM).

 The options they had were:

 

1. Eliminate the resource adequacy construct entirely

The need for a guarantee of reliable supply and the current lack of demand-side response makes this solution infeasible at this time. This may be a good end-state solution that will develop over time as the market continues to mature and significant demand response develops. Therefore, this solution will need to be coupled with an interim solution, and it will receive consideration at a future date.

2. Administrative solution

Under this solution, an administrative fee would be set, which would be called a surcharge for reliability. This fee, which is similar to a capacity deficiency rate, would be paid by all load which had not self-supplied or bilaterally contracted with generation by a certain forward date. The administrative fee would be set periodically based on analytical analysis that includes locational components. When setting the surcharge, the setting entity would consider the need to incent demand response, certain generation types and certain generation fuel sources to maintain acceptable generation reliability standards. The advantage of this solution would be that it could be constructed to deal with the issues that were highlighted above. The disadvantage of this solution is that it requires an entity to set the rates. This solution suggests a return to a regulated regime and would deprive consumers of the advantages of market-based competition .

3. Reliability Pricing solution

This solution is based on developing an algorithm that determines a reliability-based price. The key advantage of using an algorithmic based approach is that it sets prices based on key reliability-based metrics that are developed based on technical analysis. These metrics drive the calculation of a Reliability Pricing result through an optimization algorithm. Another advantage of this approach is that it provides a mechanism under which the pricing incentives will drive conformance with reliability requirements on system-wide and locational basis. This approach is best described as an optimization-based market clearing algorithm which minimizes the costs to meet capacity requirements as constrained by the reliability-based metrics. This allows the issues identified above to be resolved through an incentive-based approach, and it also provides a mechanism to create viable demand-response alternatives to resolve some issues related to locational constraints.

 

The most important reason why PJM proposes the RPM and delays action on the RDRM is an excess of capacity in the PJM system. Lets examine the  elements of the first option sentence by sentence on a Dominican perspective:

 

1.       The need for a guarantee of reliable supply and the current lack of demand-side response makes this solution infeasible at this time.

 

PJM has today a very reliable supply, while we have a very unreliable one. PJM lacks demand-side response, we have an excess of demand-response capacity lacking on the coordinating Demand Response system to make the solution feasible.

 

2.       This may be a good end-state solution that will develop over time as the market continues to mature and significant demand response develops.

 

We are much closer to the end-state solution than many other countries in the world. The free market of individual reliability solution is here to stay. It will be a crime to cripple such opportunity in the name of dictatorial solutions. The Pending Task should be organized and executed with great care to make it successful.

 

3.       Therefore, this solution will need to be coupled with an interim solution, and it will receive consideration at a future date.

 

There is no need to couple end-state solution with interim one. We can start to act as soon as possible, to reap the opportunities we have at our hand.

 

Let the customers enjoy all the advantages of market-based competition under the RDRM. Let local and foreign inverstors come to the Dominican Repúblic to make it the place where the new end-state of the electricity business be develop first. Add this project to the IMF intention letter, to help the IMF, the WB and the IADB collect the repayments of their loans with greater certainty.