Energy Efficiency Participation in Electricity Capacity Markets: The US Experience
Motivating power producers to plan for and develop enough capacity to meet the needs of customers during times of peak demand has been a challenge for power planners. A substantial portion of system capacity is needed for a relatively small number of hours each year. One example from New England showed that the 50 hours of the year with the greatest demand (i.e., the top 0.6 percent of the hours of the year) have been responsible for seven to ten percent of system capacity needs. Some have expressed concern that high wholesale electricity prices in those peak hours may not be enough to ensure that sufficient capacity will be made available to meet reliability requirements. To address that concern, several U.S. Regional Transmission Organizations—sometimes called Independent System Operators (ISOs)—have created what are commonly called “capacity markets,” in which payments are made for commitments to provide electric capacity during the time of future system peaks and capacity shortage situations. This paper summarizes the rules governing how efficiency resources participate in the ISO New England and PJM capacity markets, the results of that participation, and lessons learned to date.