The Hidden Gem of Wholesale Energy Markets: Energy Efficiency

A recent federal proposal puts a spotlight on an uncommonly popular topic:  wholesale energy markets.  Our new research shows that energy efficiency has provided steadily increasing value to grid operators and customers in two such markets.  Our report, Energy Efficiency in Capacity Auctions: A Historical Review of Value, finds that since they have been included, efficiency resources have almost tripled in the Mid-Atlantic auction and almost quadrupled in a similar auction in New England.

Capacity auctions: overview
Grid operators — known as independent system operators (ISOs) or regional transmission organizations — hold auctions to procure future energy resources at the wholesale level.  The grid operators for the Mid-Atlantic and New England, PJM and ISO-New England (ISO-NE), procure such resources through mandatory auctions where providers bid on selling capacity to the grid at the auction’s clearing price.  Across the country, these providers are mostly electricity generation sources like natural gas or coal plants, solar farms, and hydroelectricity facilities.  In the case of PJM and ISO-NE, they also include demand-side resources such as energy efficiency and demand response.  We explore how the inclusion of energy efficiency in these auctions reduces system-wide prices and retail customer rates.  We use an example from Baltimore Gas and Electric to look at how efficiency in capacity auctions translates directly to bill savings for residential customers.

As more energy efficiency clears these auctions, its providers gain revenue and incentive to invest in additional efficiency.  The figure right shows how much energy efficiency has cleared in each auction (this does not include any demand response resources).

Read more at The Hidden Gem of Wholesale Energy Markets:  Energy Efficiency