2.2   What Are the Regulatory Issues from Financial and Market Pressures?

2.2.2 What are the Key Differences between the Bulk Power Market and the Possible Retail Power Markets?

Sometimes it has been suggested that the retail market could just be a scaled down version of the bulk power market, buying and selling kW rather MW. However, there are some major differences.  First of all, most agreements between utilities and DER owners (i.e. customers) are simply based on tariffs such as time-of-use (TOU) (see 3.10.1), net metering (see 3.10.4), or feed-in contracts (see 3.10.5). For these tariffs it is up to the customers to decide when to use energy to meet their loads, and whether they wish to modify their energy needs.

Retail energy markets can be established in some States. In addition to the policy-related differences of different States described in Retail Energy Market Concepts (see 3.10.6), there are a number of other types of differences between bulk and retail energy markets. These include:

• Unlike the owners of bulk power plants, most owners of DER systems have little interest or time to “bid” into a market. Their purpose is to run their businesses or live in their homes, not to buy and sell energy.
• Most DER systems can provide only a limited amount of generation in excess of what is used to support the local facility’s load.
• Renewable DER systems produce energy when the sun is shining, when the wind is blowing, or when the water is flowing, and therefore are not easily “managed” to produce energy according to a market schedule.
• Given the small amounts of available DER energy and the large number of sites, the cost of developing a market infrastructure that directly reaches all of these sites would be daunting.

Therefore the retail markets need to be developed with different expectations and structures than the bulk power market.  The most likely stakeholders would be:

• Customers selecting among different retail energy providers (REPs) which may be utilities or may be third parties. These REPs provide different programs for incentivizing customers to modify their use of energy. Some REPs can actively managing customer loads although most REPs do not yet manage DER systems.
• Aggregators could enter into contracts with DER owners to “manage” their DER systems for different purposes, such as “maximum revenue”, or “make sure my energy storage systems are charged by 5 pm”, or “allow reactive power to be provided only if the price is greater than any losses of energy revenues”.
• Commercial or industrial facilities could program their energy management systems with “rules” for maximizing their energy usage profile for their own business purposes, with only any extra energy or ancillary services provided to the utility.

Although there is no single market structure, some of the different structures could include:

• Demand response (DR) (see 3.10.3),which provides customers with energy pricing information for different times or incentive payments, thus permitting them to decide whether to reduce their loads, by how much and for how long.
• Transactive energy (see 3.10.7), which refers to the use of a combination of economic and control techniques to improve grid reliability and efficiency.