An assessment of market and policy barriers for demand response providing ancillary services in U.S. electricity markets

An impact of increased variable renewable generation is the need for balancing authorities to procure more ancillary services. While demand response resources are technically capable of providing these services, current experience across the U.S. illustrates they are relatively minor players in most regions. Accessing demand response resources for ancillary services may require a number of changes to policies and common practices at multiple levels. Regional reliability councils must first define ancillary services such that demand response resources may provide them. Once the opportunity exists, balancing authorities define and promulgate rules that set the infrastructure investments and performance attributes of a resource wishing to provide such services. These rules also dictate expected revenue streams which reveal the cost effectiveness of these resources. The regulatory compact between utility and state regulators, along with other statutes and decisions by state policymakers, may impact the interest of demand response program providers to pursue these resources as ancillary service providers. This paper identifies within these broad categories specific market and policy barriers to demand response providing ancillary services in different wholesale and retail environments, with emphasis on smaller customers who must be aggregated through a program provider to meet minimum size requirements for wholesale transactions.