The Australian Energy Market Commission (AEMC) has asked us to review how demand response (DR) participates in wholesale electricity markets in a range of jurisdictions, in order to inform its own market design developments regarding demand response participation in Australia’s National Electricity Market (NEM).
We have studied wholesale DR participation in six wholesale markets that differ in terms of their geographies and regulatory arrangements, offering a broad cross-section of approaches to DR. Half of these markets have an “energy-only” generation investment model (Singapore, Alberta and ERCOT), while the other half have capacity obligations (PJM, ISO-NE and Ontario) complementing their energy markets. Markets with capacity obligations may not be directly comparable to the NEM, but they have attracted the largest amounts of DR resources, which also participate in wholesale energy and ancillary services markets and may thus provide insights applicable to NEM.
Below we describe our observations about DR participation in wholesale energy markets, followed by ancillary services markets, then capacity markets. Note that in the sections that follow, we describe DR performing three functions: energy, ancillary services, and capacity. In contrast, our report is organized so as to distinguish between two different types of jurisdictions, which we refer to as “Energy-Only Markets” and “Markets with Capacity Obligations”. DR could potentially provide all three functions in any jurisdiction.