California’s big three utilities have asked regulators to approve more than 200 megawatts of contracts in the final round of a program that could set market rules for distributed energy in the state in the years to come.
The program is the Demand Response Auction Mechanism, or DRAM, which since 2015 has allowed distributed energy resource (DER) aggregators to offer their services to utilities and the state’s grid energy markets. The commodity being traded is measured in kilowatt-months of capacity, or the ability to reduce use or add energy for up to 4 hours at a time during the state’s late afternoon and evening peaks, over the course of a month.
Each round of the program has expanded in size, as well as in terms of the services it allows DERs to play in the market. In the past month, utilities Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric have asked the California Public Utilities Commission to approve their final DRAM procurements, with a total of 200 megawatts of contracts for delivery in 2018 and 2019 -- a more than fivefold increase from the first round’s 40 megawatts of contracts, and more than double the second round’s 82 megawatts.
The list of vendors has also changed from previous rounds. Several previous contract winners, such as eMotorWerks, EnergyHub and Advanced Microgrid Solutions, did not appear in the final round of procurements, while new entrants included Sunrun, Tesla and Ecofactor.
The big winner in this year’s round is OhmConnect, the San Francisco-based startup that has signed up lots of residential customers for its efficiency-rewards-through-market-participation program -- it hasn’t said exactly how many. OhmConnect won contracts with all three utilities for more than 30 percent of the total DRAM capacity for both years, GTM Research analyst Elta Kolo noted. That win far surpasses demand response incumbents, such as CPower and EnerNOC.
Southern California Edison’s DRAM winners for 2018 and 2019 are Tesla, Green Charge Networks, Ecofactor, Enerwise/CPower, and OhmConnect, for a total of 99 megawatts of capacity. Enerwise won a 35-megawatt contract, and Ecofactor and Green Charge each won a 500-kilowatt aggregation, the minimum size for participating in CAISO’s Reliability Demand Response Resource product. Tesla’s aggregation is 340 kilowatts, meaning it can only participate in CAISO’s Proxy Demand Resource program. The remainder went to OhmConnect, with more than 60 megawatts of projects set to come on-line by 2019.
SDG&E picked AutoGrid for two projects totaling 1.7 megawatts, Green Charge for two 500-kilowatt projects, NRG Curtailment Solutions for two 3-megawatt projects, and Stem for two projects adding up to 1.2 megawatts. The remainder of the total, about 4 megawatts, went to five OhmConnect projects.
PG&E’s filing names AutoGrid Systems, EnerNOC, OhmConnect, Sunrun and Tesla as winners, for a total capacity of about 80 megawatts in 2018 and 90 megawatts in 2019. Unlike the other two utilities, PG&E didn’t break out awards by vendor and contract in its filing. But it did report some useful information on the competition, noting that it selected winners from a total of 83 applications offering 270 megawatts of system and local capacity spread across nearly 80,000 separate service accounts. Of those, 70,000 haven’t participated in DRAM before, indicating that vendors are reaching outside the aggregations put together for their previous bids.
As for the burning question of how much each vendor is getting paid for their kilowatt-months of energy, these details are hidden in confidential appendixes to each utility’s filing. Each utility has a maximum amount it can spend each year, with $12 million each for PG&E and SCE and $3 million for SDG&E. But utilities have been criticized by DRAM participants for not hitting those spending allowances in previous contract rounds, indicating that it’s difficult to make calculations of value based on dividing these figures by the total number of megawatts awarded.
Making matters more complicated is the fact that DRAM is a pay-as-bid auction, with each vendor earning just what they asked for, not a single clearing price set by the most expensive bid, as is common in most capacity and energy markets, Kolo noted. Pay-as-bid auctions put pressure on vendors to avoid underpricing just to win a bid, and helps DRAM reveal the true costs of DERs, which is a critical piece of information for the CPUC and CAISO as they seek to turn the pilot into the basis of future California demand response programs.
At the same time, “This approach has created a lot of hesitation for bidders who are left with a minimal profit margin in their bidding strategy,” Kolo said.