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By Ross D. Malme, Trei Henri and Christine Mest |
New energy markets will not be successful unless participants have access to market information that helps them make good business decisions regarding their total portfolio of supply and demand commitments. Open access to this information is a benefit of market transparency—a term that keeps cropping up, partly due to the creation of the standard market design (SMD), the consequences of the Enron collapse, and increased questioning of trading practices throughout the industry. There is, as yet, no clear-cut definition, but much discussion is taking place in the marketplace of ideas. At a minimum, information related to price signals, reliability, transmission status, congestion constraints, capacity credits, and emission credits must be available so that customers can view their situation and respond to trusted market signals amid volatile pricing events.
One way to create market transparency is to bring demand response to the wholesale and retail energy marketplace. In a transparent market, the demand side gets to play. Customers can sell generation back into the market during periods of high demand and get paid as much as an energy company would for generating it. Demand response also has an important role in areas of transmission congestion. As transmission investments are on the decline, the need for demand response will increase in congested load pockets.
Behind the management of demand-response resources are the internet and online trading. Online energy trading is attractive to end-users because of its speed and efficiency. Moreover, the increased use of online trading systems allows for more liquidity and price transparency and provides energy companies with improved real-time risk management. The Internet allows end-use customers the ability to view real-time price signals and energy usage and to compare energy resources, services, and markets. This makes consumers more sensitive to the variables in an energy price and allows them to make more informed operational decisions. It also intensifies competition among energy suppliers. In a nontransparent market, energy suppliers are dominant and may jump at the chance to profit from customer ignorance, create artificial confinement, and stifle price competition.
Look at the financial services industry. As technology and the Internet matured, access to financial markets became increasingly easy, fast, and inexpensive. Before the Internet and financial news channels, investors needed a direct link to the market via a Quoteron machine or (perhaps more difficult) an open phone line to their broker. Now, throughout the day, the average person can log on to Yahoo, MSN, or a similar Internet portal to see how the market is moving. In a healthy energy market, similar transparency allows each participant to gather basic market information.
The concept of a regional "negawatt" hub (RNH) is directly related to this. Such a trading hub is a way to create market transparency through the management of demand response for energy capacity, reserves, and transmission congestion through price signals and regional demand response information. The RNH is a central data exchange with security and user privileges to make sure only authorized individuals view and access the information.
At ISO New England, for example, the RETX RNH provides an Internet-based vehicle that manages each market participant's access to usage and market information so that demand response resources can be activated, tracked, managed, and analyzed in specific market programs.
With the extensive implementation of Internet-based tools such as pricing exchanges and energy usage applications, it is not such a big step to envision the implementation of an RNH. A hub can manage how and when end-users participate in demand response events as resources alongside traditional generation and transmission assets. So, just as Internet-based tools have transformed the financial services industry and brought end-use customers to the front row of involvement, similar tools can bring a higher confidence level in the end-use customer's decisions on energy management. Equally true, by actively participating in the market by bringing demand-side strategies to bear, customers become an alternative solution to the generation and congestion problems prevalent in our energy system today.
Ross Malme is president, Trei Henri is senior vice president, and Christine Mest is marketing manager at RETX. |
