Providing Reliability Services through Demand Response: A Preliminary Evaluation of the Demand Response Capabilities of Alcoa Inc.

Demand response is the largest underutilized reliability resource in North America. Historic demand response programs have focused on reducing overall electricity consumption (increasing efficiency) and shaving peaks but have not typically been used for immediate reliability response. Many of these programs have been successful but demand response remains a limited resource. The Federal Energy Regulatory Commission (FERC) report, 'Assessment of Demand Response and Advanced Metering' (FERC 2006) found that only five percent of customers are on some form of demand response program. Collectively they represent an estimated 37,000 MW of response potential. These programs reduce overall energy consumption, lower green house gas emissions by allowing fossil fuel generators to operate at increased efficiency and reduce stress on the power system during periods of peak loading. As the country continues to restructure energy markets with sophisticated marginal cost models that attempt to minimize total energy costs, the ability of demand response to create meaningful shifts in the supply and demand equations is critical to creating a sustainable and balanced economic response to energy issues. Restructured energy market prices are set by the cost of the next incremental unit of energy, so that as additional generation is brought into the market, the cost for the entire market increases. The benefit of demand response is that it reduces overall demand and shifts the entire market to a lower pricing level. This can be very effective in mitigating price volatility or scarcity pricing as the power system responds to changing demand schedules, loss of large generators, or loss of transmission. As a global producer of alumina, primary aluminum, and fabricated aluminum products, Alcoa Inc., has the capability to provide demand response services through its manufacturing facilities and uniquely through its aluminum smelting facilities. For a typical aluminum smelter, electric power accounts for 30% to 40% of the factory cost of producing primary aluminum. In the continental United States, Alcoa Inc. currently owns and/or operates ten aluminum smelters and many associated fabricating facilities with a combined average load of over 2,600 MW. This presents Alcoa Inc. with a significant opportunity to respond in areas where economic opportunities exist to help mitigate rising energy costs by supplying demand response services into the energy system. This report is organized into seven chapters. The first chapter is the introduction and discusses the intention of this report. The second chapter contains the background. In this chapter, topics include: the motivation for Alcoa to provide demand response; ancillary service definitions; the basics behind aluminum smelting; and a discussion of suggested ancillary services that would be particularly useful for Alcoa to supply. Chapter 3 is concerned with the independent system operator, the Midwest ISO. Here the discussion examines the evolving Midwest ISO market structure including specific definitions, requirements, and necessary components to provide ancillary services. This section is followed by information concerning the Midwest ISO's classifications of demand response parties. Chapter 4 investigates the available opportunities at Alcoa's Warrick facility. Chapter 5 involves an in-depth discussion of the regulation service that Alcoa's Warrick facility can provide and the current interactions with Midwest ISO. Chapter 6 reviews future plans and expectations for Alcoa providing ancillary services into the market. Last, chapter 7, details the conclusion and recommendations of this paper.