In April 2015, following the Power Reform Policy No. 9, NDRC released Notice on Improving Demand Side Management Pilots through Emergency Power Mechanisms, continuing to strengthen emphasis on demand side management and demand response. This article will analyze the status of demand response and its prospects in China.
Demand Response (DR) Overview
In 2012, FERC (Federal Energy Regulatory Commission) defined demand response as follows: Changes in electric usage by demand-side resources from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.
Demand response must be distinguished from demand side management (DSM). DSM refers to when the government, through policy measures, pricing mechanisms, and other measures to guide the users and change electricity usage behavior, thus lowering peak usage, improving the efficiency of the power supply, and optimizing other electricity usage aspects. DSM includes energy efficiency, permanent load reduction, and incentives for temporary load reduction. DR is a type of DSM, as shown in the figure below.
DSM Implementation Methods
The US has some of the best developed DR, and will thus be taken as an example in introducing DSM implementation methods. In the US market, DR is mainly divided into price-based DR and incentive-based DR.
Price-based DR resources are generally from residential users whose participation is completely voluntarily and thus cannot be dispatched. As it cannot be dispatched, it is difficult for the grid to accurately determine DR capacity. But as smart metering has popularized, this type of DR resource has shown new developments. With dispersed users aggregated as one, and with the allocation of ES devices, this creates an aggregate dispatchable resource which can via contracted electricity prices or other logical price signals giving direction and paying returns.
Incentive-based DR resources are generally commercial and industrial users, and can be publically transacted on electricity markets. Grid dispatchers can arrange electricity usage plans with participants in advance, and can be thusly dispatched. This type of DR resource will generally have an ES device such as a battery, thermal storage, or ice storage air conditioning.
In the above basic DR implementation measures, each power company in the US has its own particulars, equipment, and provide a great many DR projects for users to choose from to participate in. PG&E has programs for small business DR: smart air conditioning, and business and residential interconnection projects; and programs for large to medium businesses: business incentive programs, aggregate party programs, and subsidy programs.
DR in China’s electricity market
In November 2010, China's NDRC released the <Demand Side Management Methods>, formally beginning China's DSM efforts. Following, the government released related policies, such as 2011's Guidelines on Industrial Zone Demand Side Management, 2012's Interim Methods For Demand Side Management City Pilot Project Central Financial Incentive Fund Management, and 2015's Notice on Improving Demand Side Management Pilots through Emergency Power Mechanisms, promoting the development of DSM efforts.
The above documents differentiate between DSM-type permanent load reductions and temporary DR and differentiate set incentive mechanisms, but up to now, DSM has mainly been carried out via administrative means, load control devices, and energy efficiency, with non-ideal results. Meanwhile, pricing and other market mechanisms for directing users in voluntary participation DR have had quite limited development due to greatly limited peak pricing and subsidy incentive mechanisms.
(Note: Price compensation mechanisms for DSM facilities: Energy efficient power plants and peak shifting/peak shaving technology and other permanent load reductions: 440 CNY/kWh in east China, 550 CNY/kWh in central and west China. Demand Response temporary peak load reductions: 100 CNY/kWh.)
Background of China’s DR electricity market
Although DR is very limited in China's electricity market, its importance is already taking shape in China's energy strategy and the new round of electricity reforms. Beijing, Shanghai, and other DSM pilot cities have been testing DR projects since 2014. The data shows that DR will gain great development space in China.
• More reasonable, improved peak pricing mechanisms will incentivize DR development
The newest policy published this April, makes a call "to incentivize active user participation in peak [super peak] load usage reduction and voluntary participation in DR, improved peak pricing and seasonal pricing can be set... to be set and implemented before the end of June 2015." The coverage scope and regional use of peak pricing will expand, and price-type DR will gain more incentives.
• Electric service company participation, strengthening an active market
Allowing more types of retail entities to enter the end user retail market is one of the new reforms. For DR, last April's Notice also states that it will "incentivize and support the development of electric service companies, attracting the participation of top national and even global electric service companies in pilot projects." As the market opens, participating entities and competition will increase. This could result in the emergence of more innovative projects and products, driving DR development.
However, China's present DR market still has many barriers. Participation by grid companies is very low, grid operation data is still held closely by grid companies, and there is a lack of public channels. For non-grid companies, providing DR lacks the data for economic operation analysis. For users, as they lack real-time electricity usage data analysis, it is very difficult to build enthusiasm for DR participation.
CNESA acts as a primary integrated unit of the Beijing NDRC, actively participating in Beijing's DR pilot efforts, and is currently managing the establishment of a DR management platform, which will organize under certain conditions the participation of user groups in DR in the NDRC's pilot projects. CNESA hopes to advance the continued improvement of related policies through the efforts and coordination of many parties, creating even more space for energy storage to develop.