A new CAISO paper lays out a series of challenges around how to improve participation of demand response and distributed energy resources in the ISO’s day-ahead and real-time markets.
The paper, published Nov. 26, compiled information from CAISO Demand and Distributed Energy Market Integration (DDEMI) Working Group meetings held in 2025.
CAISO is committed to enabling “the reliable, efficient and seamless utilization of demand response into ISO operations and markets,” the ISO said in the paper.
Under the ISO’s current rules, distributed energy resource (DER) aggregations and resources that can reduce their load are able to participate in the day-ahead and real-time markets for energy and ancillary services.
The DDEMI Working Group developed “problem statements” for the ISO to consider as it begins work in early 2026 to expand DER and DR access to its markets. The group identified six topics for the ISO to address:
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- expanding performance evaluation methodologies,
- enhancing demand flexibility market options,
- expanding or developing reliability-based DR participation options,
- expanding or developing economic-based DR participation models,
- optimizing market options for direct or indirect participation of DERs and
- expanding demand-side bidding options
However, in Nov. 6 comments on the DDEMI initiative, CAISO’s Department of Market Monitoring (DMM) said the ISO has not clarified the costs and benefits of the working group’s priority areas and should provide an assessment.
“Without any such assessment, it appears to DMM these enhancements should have a lower priority than numerous other policy efforts currently underway, such as the Extended Day-Ahead Market (EDAM) congestion rent allocation refinements, congestion revenue rights reforms, storage bid cost recovery and default energy bids and uncertainty products,” DMM said.
DMM also asked CAISO to develop a new resource model that would allow DR resources to show as demand-side resources, rather than supply-side resources.
“Treating demand response as a real-time demand-side resource improves market efficiency by adding slope to the demand curve, which enhances reliability and reduces system costs by avoiding uneconomic load scheduling,” DMM said.
However, if demand response is modeled as load, coordination with CAISO’s capacity planning framework will be required, DMM said. Demand modeled as load would affect long-term load forecasts and the qualifying capacity of resources.
In the paper, CAISO staff said there currently is no pathway for DER aggregations to qualify for resource adequacy. This issue involves the California Public Utilities Commission, which would need to develop a qualifying capacity approach for DER aggregation RA, the paper says.
For the Reliability Demand Response Resources (RDRR) area, the working group found that reliability demand response programs do not include a resource’s startup costs during economic dispatch. The group also found that the RDRR dispatch limit is 100 MW, even if the resource’s capacity is more than 100 MW.
DMM asked CAISO to accurately represent RDRR characteristics, such as startup costs, in the market to help preserve access to these reliability resources.
As for next steps in the initiative, CAISO is collecting stakeholder feedback about how the ISO should prioritize future DDEMI policy development in the short term (between 2026 and 2027), mid term (2028-2030) and long term (beyond 2030).
