Policy Brief / Electricity
Measuring the intangible: an overview of the methodologies for calculating customer baseline load in PJM
The introduction of explicit demand response (DR) in the electricity markets for energy, capacity and ancillary services requires a definition of the customer baseline load (CBL). Such counterfactual – that is, what the customer would consume in the absence of demand response – is necessary to measure the effective performance of a demand resource and to properly compensate the DR provider.
Methodologies for CBL estimation should strike an adequate balance between various desirable criteria, including accuracy, simplicity and integrity. The choice of the best methodology among the several available depends on factors such as the function the relevant DR product performs in the system, the broader regulatory framework for DR participation in wholesale markets, and the characteristics of the DR providers.
In the US, organised electricity markets have acquired significant experience with explicit DR and tested several CBL methodologies. The North American Energy Standards Board (NAESB) has defined five types of CBL methodologies to foster harmonisation and remove market barriers for new DR providers. The five types are maximum base load, meter before / meter after, baseline type-I, baseline type-II, and metering generation output.
PJM has adopted different CBL methodologies, also depending on the specific market in which the demand resources are offered. To measure and verify the contribution of DR in day-ahead or in real-time energy mar- kets, the default methodology belongs to the baseline type-I. Conversely, for frequency regulation and reserve, the adopted methodologies are of the meter before / meter after kind. Finally, to assess the contribution of DR in the capacity market, PJM resorts to maximum base load methodologies.
European legislators currently debating the proposals of the Clean Energy Package could benefit from the lessons learnt in the past two decades by the organised markets in the US.