Tuesday, May 1, 2012

Brief History of Demand Response Aggregators AKA Curtailment Service Providers

Aggregators have grown in popularity in recent years because of the profitable opportunity to be the middlemen between customers and utilities. Wholesale market DR programs in almost all ISO/RTO's were comprised of "legacy" incentive based DR programs offered by utilities.  In restructured markets with retail competition, non-utility entities began to spring up.  In ISO-NE, NYISO and PJM, rules had to be developed for these load aggregators.  The aggregators began to rely increasingly on incentive based DR programs because they provide ongoing capacity payments, as opposed to price-based programs that were less certain in terms of revenue.  Capacity payments represent a monthly stream of income for those enrolled.  The amount depends on how much the business can reduce and often there are limits, for example the ability to curtail atleast 200 kW of load within a certain time period.  There may be additional amounts paid out for the actual reductions that happen, calculated using the baseline methodology outlined earlier.  If enrolled in a price-based program, then the customer would determine the market price at which they would be willing to curtail load.  Payments are based on the market price for the amount of load reduced for each hour.  



Arranging with an aggregator is often a more attractive option for end use customers because they do not force them to pay penalties for underperformance.  If an end-use customer fails to perform for the aggregator, some may instead withhold future payments.  Others, such as Enernoc, make the fact that they charge no penalties for non-performance into a big part of their sales pitch to potential customers .  Aggregators often provide infrastructure such as advanced metering and customer support that utilities cannot necessarily match.  Another advantage of allowing aggregators into a market is that they often can leverage previous marketing experience in recruiting new customers .




Smaller C&I customers may not meet size requirements to deal directly with the utility.  Additionally, it reduces administrative costs for the utility by allowing them to deal with a single large entity as opposed to many smaller ones 

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