Design and Valuation of Demand Response Mechanisms and Instruments for Integrating Renewable Generation Resources

(PSERC) is a multi-university Center conducting research on challenges facing the electric power industry and educating the next generation of power engineers. More information about PSERC can be found at the Center's website: Notice Concerning Copyright Material PSERC members are given permission to copy without fee all or part of this publication for internal use if appropriate attribution is given to this document as the source material. This report is available for downloading from the PSERC website. research project titled " Design and Valuation of Demand Response Mechanisms and Instruments for Integrating Renewable Generation Resources in a Smart Grid Environment " (project M-23). We express our appreciation for the support provided by PSERC's industry members and by the National Science Foundation under the Industry / University Cooperative Research Center program. We thank all PSERC members for their technical advice on the project, especially Jim Price (California ISO), Jianzhong Tong (PJM), Feng Zhao (ISO New England), Mark Westendorf (Midwest ISO), Mark Sanford (GE Energy), who are our industry advisors. ii Executive Summary As the penetration of renewable generation resources in the power grid deepens, the intermittent nature of renewable generation poses significant challenges to the reliable operation of power grids by system operators. In particular, imposing higher requirements on reserves can accommodate the increasing integration of renewable resources. The increased reserve requirement can be met using the so-called demand response resources (DRRs) that play an increasingly important role in maintaining the supply-demand balance. Appropriate DRRs create demand-side flexibility, such as shifting, reducing, increasing, or curtailing the electricity loads, instead of dealing with the increasing uncertainty in the supply-side. In this project, we investigate the design of appropriate demand response (DR) mechanisms, which create additional controllable resources to attain supply-demand equilibrium for systems with intermittent renewable generation supply. The project is separated into three parts. Part I addresses short-term wind speed/power forecasting and modeling by means of wavelet transform techniques. Based upon the forecasts, this part also analyzes the flexibility of thermostatically controlled loads (TCLs) as a source to create demand response for absorbing the high variability of renewable generation supply. Part II develops a simulation method that explicitly represents the various sources of uncertainty and the time-dependent nature of demand response resource utilization. Part III focuses on a contract that couples the operations of renewable energy resources with deferrable loads that can shift a fixed amount of energy demand over a …