Demand Response and PA Tier II AECs: What Building Owners Need to Know

Facilities that curtail load during grid stress events may be able to register that curtailment for Pennsylvania Tier II Alternative Energy Credits. The revenue is modest relative to what PJM already pays for the same curtailment — but for a facility already enrolled, the marginal effort is close to zero.

This guide covers what qualifies, what it is worth, how it is measured, and where battery storage does and does not fit.

What the credit is issued on

52 Pa. Code § 75.63 provides that an alternative energy credit may be certified for each MWh of electricity generated by a qualified alternative energy system, or each MWh of electricity conserved by a qualified alternative energy system or demand-side management measure.

Demand-side management is one of the Tier II resource categories PennAEPS lists. A curtailment event is a documented reduction in electricity consumption — conserved electricity, measured in MWh.

One AEC per 1,000 kWh of verified reduction.

See the Act 213 legal framework for the underlying statute.

What it is actually worth

Be clear-eyed about the scale. Two examples, using the same facility profiles throughout.

• A 2 MW curtailable load, 15 events per year at 4 hours each:
• 2 MW × 15 × 4 = 120 MWh of curtailment = 120 AECs
• At $26/MWh: $3,120/year
• At the $26 RY2025 weighted average: $3,230/year
• PJM performance payments for the same curtailment typically run $18,000–$30,000 depending on capacity pricing.

A 5 MW industrial facility with 1.5 MW curtailable, enrolled in Capacity Performance:

• Capacity payments at roughly $90/kW-year: 1,500 kW × $90 = $135,000/year, paid regardless of dispatch.
• In a year with 8 called events at 3 hours each: 1.5 MW × 8 × 3 = 36 MWh = 36 AECs → $828 at spot, $969 at the weighted average
• In a high-stress year with 25 events at 4 hours each: 1.5 MW × 25 × 4 = 150 MWh = 150 AECs → $3,450 at spot, $4,038 at the weighted average

AEC revenue here is between 0.6% and 3% of the capacity payment.

So why register

Because the marginal cost of doing so is nearly nothing.

A facility enrolled in PJM demand response already produces the documentation PennAEPS needs: interval meter data, event call logs from the curtailment service provider, and post-event verification reports. The measurement work has been done and paid for. Registering the same curtailment for AECs adds a revenue line without adding a measurement obligation.

The honest framing is that this is a small incremental layer on an existing program — not a reason to start a demand response program. If you are evaluating whether to enroll in PJM demand response, evaluate it on the capacity payments. The AECs are a rounding error on that decision.

Where AEC revenue does become material is in aggregation across a portfolio, and in facilities where curtailment volumes are high relative to capacity commitments.

Measurement and baseline

Curtailment savings are counterfactual — they depend on what the facility would have consumed absent the event. That makes baseline methodology the central measurement question.

PJM uses a Customer Baseline calculation for performance verification, typically derived from recent non-event business days with weather adjustment. Facilities enrolled in PJM demand response already have this data.

Whether and how that baseline transfers to PennAEPS certification depends on the facility and should be confirmed with the program administrator during application rather than assumed. Baseline methodology is one of the areas where certification outcomes vary most between facilities.

Where a standard baseline does not fit — facilities with highly irregular operating schedules, or the first event after a long inactive period — an engineering-based baseline may be substituted, subject to administrator acceptance.

What does not qualify

Curtailments met by running on-site backup generators do not represent a reduction in electricity consumption. Switching from grid supply to a diesel or natural gas generator moves the consumption; it does not remove it, and it adds combustion emissions.

§ 75.63 issues credits for electricity conserved. Generator-backed curtailment conserves nothing.

Only genuine load reduction — switching off equipment, reducing process rates, shifting work — represents conserved electricity.

Where battery storage fits, and where it doesn't

This is the most common question in this category, and the honest answer is that storage does not fit the § 75.63 framework cleanly.

A battery neither generates electricity nor conserves it. Charging off-peak and discharging on-peak shifts consumption in time. And because round-trip efficiency runs roughly 85–95%, a battery increases total kWh drawn from the grid by the amount of the loss.

§ 75.63 issues credits per MWh generated or conserved. Time-shifted consumption is neither.

Where storage does connect to Tier II is indirect: a battery that enables a facility to curtail during a called event contributes to a documented consumption reduction during that event. The curtailment generates the credit. The battery is the means, not the basis — and the credit attaches to the verified reduction, not to the battery's throughput.

If you are building a storage business case, we would not recommend including Tier II AEC revenue in the model without first confirming treatment with the program administrator for your specific configuration and dispatch pattern.

Other demand-side resources worth evaluating

Load reduction is not limited to shedding equipment:

• Thermal storage — ice or chilled-water systems that build capacity off-peak and discharge on-peak, common in hospitals, large office buildings, and data centers
• Curtailable process loads — extruders, furnaces, mills, and similar equipment that can shift hour to hour without disrupting output
• HVAC pre-cooling — using building thermal mass to move cooling load off peak

The same caution applies to all three that applies to batteries: where the measure shifts consumption rather than reducing it, the credit basis is not straightforward. Where the measure produces a verified net reduction, it is. The distinction is worth resolving before building revenue assumptions.

Aggregation

Small curtailments may not justify standalone registration overhead. Portfolio aggregation lets smaller facilities participate under a single GATS generator account alongside larger sites.

Aggregation also smooths baseline volatility. Across a portfolio, irregular event-day baselines average out and total verified curtailment becomes more predictable than at any single site.

Frequently asked questions

Can a facility participate in PJM demand response and register the same curtailment for Tier II AECs?

PJM market participation and PennAEPS certification are separate regulatory regimes with separate registration processes. Dual participation is not prohibited. Confirm the specifics for your enrollment with both PJM and the program administrator.

Does enrolling for AECs create any obligation under PJM market rules?

No. AEC sale proceeds are separate from PJM capacity and energy settlements.

Can a facility with solar plus storage stack Tier I and Tier II credits?

The underlying kWh cannot be counted twice. Solar generation generates Tier I credits on metered output. Any Tier II claim would have to rest on a separate, verified consumption reduction — not on the same kWh. The two are tracked separately in GATS by generation source and metering point.

How much curtailment is worth registering?

There is no bright line, but the arithmetic is simple: annual curtailment MWh × the current AEC price. A facility curtailing 50 MWh a year is looking at roughly $1,150–$1,350. Whether that clears your administrative threshold is a business judgment, and aggregation changes the answer.

Is battery storage eligible?

Not on its own. See the storage section above. A battery that enables verified curtailment during called events contributes to an eligible reduction; the battery's charge and discharge cycling does not itself generate credits.

Assess your curtailment

If your facility already curtails under a PJM program, the documentation for AEC registration is largely in hand. Submit your details for an evaluation.