Implications for NY REV and Energy Storage Project Economics
By James Robinson
The BQDM DR Program
Last month, we wrote about the Con Edison’s Brooklyn Queens Demand Management (BQDM) program, which is intended to find “non-wire alternatives” (NWAs) to reduce electricity load by 69 MW in a specific section of Brooklyn and Queens. The load reductions will allow Con Edison to defer the construction of a $1 billion+ substation. The BQDM program is intended to demonstrate that NWAs can be more cost-effective than conventional grid infrastructure, and to set up a model that would allow cost savings realized through NWAs to benefit both the utility (Con Edison in this case) and the rate payers.
One of the mechanisms by which Con Edison can incentivize demand reduction is through demand response (DR). DR is a program that pays end-users of electricity to reduce their energy usage during certain high-load events. In New York City, these events usually occur during the hottest days in the summer. While DR is not a new concept, the typical offerings set a pre-decided price that is constant across broad swaths of a utility’s territory. In contrast, the BQDM DR auction allowed Con Edison to determine how much extra DR capacity they needed to meet BQDM program goals and initiate a “reverse auction” so that the value of this DR is set by market forces specific to the BQDM geographic area.
The auction took place on July 27th and 28th 2016. When all was said and done, the DR price was set at $985/kW-year. This compares to a total of roughly $195/kW-year combined for the 2 conventional Con Edison DR programs offered to the entire utility territory.
Implications for REV
The BQDM program as a whole, as well as the BQDM DR auction in particular, are in keeping with the spirit of the New York Reforming the Energy Vision (NY-REV) vision of enabling the development of new energy products and services in New York State. Specifically, the BQDM DR auction accomplishes two important tasks; it allows for more granular energy pricing both on a temporal and geographic level and it allows the market to set a price for energy services.
First, the BQDM DR auction only is only applicable to specific areas of Brooklyn and Queens corresponding with the new substation that is being deferred. If programs like this were expanded, you can envision a situation where many auctions are conducted each year, each for various locations in the city. Second, the reverse auction format ensures that the prices that Con Edison pays are actually the market price in the given area. The prices for different areas may end up being very different at each location, whether because certain locations may contain customers who can more easily lower their energy demand, or because Con Edison needs more or less DR in each location. Together, these two features of the program combine to remove to allow Con Edison to procure DR where they need it and at the lowest possible price.
Overall, the BQDM DR auction serves to removes inefficiencies from the system that otherwise would tend to decrease the value of the program and make it difficult for utilities to efficiently scale and target DR programs to where they need it the most. Along with the other REV initiatives, such as the Virtual Power Plant demonstration project currently under way, the BQDM DR program are helping to illustrate how innovative thinking can lead to a more efficient and resilient energy system.
The BQDM DR program results also have interesting implications for behind-the-meter energy storage project economics, which will be discussed separately in Part 2 of this blog series.