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Knowing Demand Response Capability Improves Procurement Strategy

October 15, 2014 By Linda Hardesty

coned2During last winter’s polar vortex in the northeast, the price spike in the real time electricity market had an interesting impact on peoples’ decisions whether to buy energy in the day ahead or the real time market, said Steve Wemple, VP of Regulatory Affairs with Con Edison Solutions on a recent Energy Manager Today webinar, which is now available on demand.

Wemple said, “While day ahead prices did spike up after the first cold snap, they actually stayed at a much higher premium relative to real time prices during the second cold snap, reflecting a willingness to buy some insurance and pay up to $1,000 per MWh to avoid being exposed to basically an unbounded price spike that in real time had priced at 1,800 per MWh.”

Rather than being spooked into hedging against high prices from cold weather, Wemple recommends that companies understand their own demand response capabilities. “Someone who can articulate their demand response capability should only improve their procurement strategies since virtual generation can reduce costs or offset weather sensitive load. It’s a real arsenal in the portfolio.”

In addition to helping with procurement strategies, participating in demand response programs can provide some lucrative incentives for companies as illustrated in the above chart.

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