Growing Demand for Demand Response Programs
Posted on March 25, 2013
In a world of hurricanes and super storms people are increasingly becoming
aware of the need for a collective action towards a sustainable and clean
future. Electricity generation (and consumption) is one of the major causes of
greenhouse gas emissions and provides immense opportunities for innovation and
improvements. One might wonder of the options that an electricity customer can
have in order to contribute towards reduction of carbon footprint. It is here
that 'Demand Response' comes into play.
How effective is demand response?
Demand Response basically means alteration in the usage of electricity which is
caused either voluntarily or in order to gain certain agreed benefits. The
Federal Electricity Regulatory Commission (FERC) 2012 Survey on Demand Response
in the United States, defines DR as - "Changes in electric use by demand-side
resources from their normal consumption patterns in response to changes in the
price of electricity, or to incentive payments designed to induce lower
electricity use at times of high wholesale market prices or when system
reliability is jeopardized."
Demand Response has gained serious attention in the US over the last few years,
and according to the latest release staff report of the FERC (Demand Response
and Advance Metering, Dec 2012) it holds a potential to meet at least 9.2% of
the US peak demand. This means that the total demand that can be met through all
demand response programs adds up to about 72,000 MW. Moreover this potential has
seen a 22% increase over the FERC's last such survey, which was done in the year
2010 and which had seen a total country potential of about 59,000 MW.
The regions which have shown the largest potential are the Midwest-to-Mid
Atlantic region, the Southeast and the Upper Midwest. Out of the total potential
the wholesale markets and the commercial & industrial consumers are most
promising, while the residential consumers are still way behind in realizing the
benefits and accepting the demand response programs offered by their utilities
and suppliers. The commercial & industrial consumers have especially shown
renewed interest showcasing an increase of 31% in their ability to reduce the
Has smart grid contributed to the increase of DR acceptance?
There is no doubt that a greater emphasis on climate change issues has kindled
everybody's interests in contributing towards demand reduction. Nevertheless the
role of smart grids cannot be ignored in contributing to the success and
increased acceptance of demand response programs. It is true that earlier even
in the absence of smart grid there were traditional demand response service
providers who used to provide manual grid management services through phone
calls - who are also referred to as pre-smart grid players. However that has
changed post large scale utility investments in smart grids, especially
installation of smart meters. These advanced meters provide greater opportunity
to automate the entire process of creating and managing load curtailment options
and sending signals to the right set of customers at the right time.
As of June 2012 about $2.8 bn out of the $3.4 bn awarded for grid modernization
under the American Recovery and Reinvestment Act (ARRA) have been spent on
procuring and installing advanced meters. Under the ARRA program about 15.5 mn
advanced meters are to be installed; out of which over two-thirds have been
installed as of Sept 30, 2012. As a result the advanced meter penetration (i.e.
the number of advanced meters installed as a percentage of total electric
meters) increased from 8.7% in 2010 to about 23% in 2012, amounting to a total
of 38 million advanced meters. In the same time period the potential for peak
demand reduction through demand response programs has increased by 13,000 MW.
Within the eight North American Electric Reliability Council (NERC) regions, the
one that leads in advanced meter penetration rate as per the survey is the
Western Electricity Coordinating Council (WECC) with 42.4% in 2012 while the one
that trails is the ReliabilityFirst Corporation (RFC) with a penetration rate of
just over 10.4%. Moreover with the consumer classes, the residential consumer
category has shown the highest increase in advanced meter penetration within the
WECC region and stands at 43.5%.
However even with one of the lowest advanced meter penetration rates of RFC, the
region presents the largest opportunities for potential peak reduction - close
to 25,000 MW which is very high as compared to the peak reduction potential of
WECC which is just close to 5,000 MW. This difference is largely on account of
the response to wholesale demand response programs as shown by the by the PJM
Interconnection, LLC (PJM), which was remarkably not the case for system
operators in the WECC.
Further if we compare top 5 states on the basis of penetration rates and the
potential of demand response, they do not necessarily match. The top 5 states in
terms of advanced metering penetration are California (70.5%), Idaho (66.1%),
Georgia (65.5%), Arizona (55.3%) and Nevada (55.2%) while none of these states
feature in the top 5 states by potential for peak demand reduction through
demand response. In fact Arizona and Nevada rank fairly low in terms of demand
reduction capacity and offer only 361 and 162 MW of reduction respectively.
Of course the potential for reduction largely also depends upon the higher base
on which reduction is possible and that is the absolute energy consumption. So
while smart grid is an enabling factor in the growth of demand response
potential; it is not the only limiting factor.
There are some utilities though which have demonstrated a clear correlation
between their plan of advanced meter installation and sourcing of additional
capacity through demand response programs. For e.g. between 2010 and 2012 the
Oklahoma Gas and Electric (OG&E) added about 450,000 advanced meters and in the
same time it reported an additional 900 MW of demand response capability. This
has resulted from the response the utility has been able to garner for its
time-of-use program targeted towards commercial and industrial consumers.
Similarly the state of Michigan, which has reported the highest peak reduction,
has been able to do so through the time-of-use program offered by the utility,
Detroit Edison, and which has resulted in a saving potential of about 3000 MW.
In addition to smartgrids, regulatory levers by the FERC as well as state
regulators have been responsible for further pushing demand response as a
mandatory sourcing strategy. Particularly of importance is the FERC Order No.
745 which requires the Independent System Operators to pay locational marginal
price to the demand response resources, provided the resources are capable of
balancing demand and supply and even paying them results in a net benefit. It is
often referred to as a policy of equating the `negawatts' of energy saved to the
`gigawatts' which otherwise would have been generated.
More demand likely to emerge in the future
In the near future it is expected that the commercial sector, especially the
buildings will provide enormous opportunities for demand reduction. According to
a latest report by Pike Research (Demand Response for Commercial Buildings) the
number of commercial buildings globally adhering to some demand response program
shall see a steep increase - from 600,000 in 2012 to about 1400,000 by 2018.
Not just for cleaner and sustainable growth, today demand response is also
essential for maintaining system reliability in the wake of potentially
substantial energy generated by renewable. And last but not the least, it is the
lure of saving green bucks `money' through demand response programs, which is
causing huge excitement in the market.
Rasika is a Research Manager at the Center of Energy, Economic & Environmental Policy (CEEEP) at the Rutgers University. Previously as a consultant, she has worked on feasibility studies, entry and growth strategy and bid process advisory. As a Founder of MindCrunch she has assisted clients in developing thought leadership content. She writes for various business magazines on global energy industry issues and can be followed on Twitter (@GoRasika).
Other Posts by: Rasika Athawale
March, 25 2013
Davis Swan says
Demand Response is definitely one of the most potent weapons we have when trying to transition to a sustainable energy future.
I think the 10% peak demand reduction is about right. Japan managed 15% the first year after Fukushima through a very intensive public awareness program, 83 degree Fahrenheit temperature settings, and major efforts to stay under target peak loads in major commercial and industrial buildings. In 2012 they managed 10% which is probably closer to what can be achieved over the long term.
Public awareness and engagement is certainly key as I have discussed in a rcent blog posting (http://debarel.com/blog1/?p=123).
We have heard a lot about the installation of Smart Meters and they are obviously essential if we are going to raise public awareness, implment Time-Of-Use billing or true Demand Response where a utility can actually raise or lower the thermostat in a residence. I am curious to know if the majority of Smart Meters being installed provide for residential customer access to real-time data through the Internet or true responsive demand through remote control. Do you have any information on the capabilities of these Smart Meters?
March, 26 2013
Bob Amorosi says
Most Smart Meter designs do have the capabilities you talk about. They can be manufactured to have all the communications links that enable real-time data access and/or remote control of loads in the customer's home. However these capabilities are usually added options when utility companies go shopping to buy Smart Meters. If utilities choose not to pay for these added options, a basic Smart Meter is only good for Time-Of-Use billing (interval metering) and not much else.
March, 26 2013
Len Gould says
I realize space is limited in these articles, but even so I find this article overly simplified. For example, it would have been good to see some actual numbers regarding peak demand v.s. demand response actual and potential by region. A graphic presentation?
March, 27 2013
Malcolm Rawlingson says
Nuclear energy looks quite sustainable to me. No carbon emissions and all the power you want at the flick of a switch day or night. Why bother with anything else. Malcolm
March, 29 2013
David Katz says
. The article is a good summary of Demand Response programs that are one of the new territories for both utility and customer understanding in the Smart Grid. Demand Response programs are very different across the various grid operators as noted in the article. The value of demand response and the incentives that must be paid are different than dispatching gas fired peaking generators that have a known capacity and fuel cost and that are readily available with high reliability if maintained and tested properly. The generators don't know or care about the electrical devices that receive their electricity at any time as long as the capacity payments and market price they receive is sufficient for them to profit. Demand Response that requires the reduction of a variety of loads from a variety of aggregated customers at the peak time needed is a great concern to the customers. Many have been caught with DR regrets when they are called and realize the disruption cost such as time lost and reduced comfort to their normal electrical activities may be greater than anticipated and not fully recovered by the DR payments they eventually receive. Each facility should evaluate the full scope of their individual loads and the demand response opportunities with an assessment of their energy management system. These can be upgraded for better real time control as well as provide the additional points and programs that can be added for Demand Response that is planned and profitable by using the full life cycle costs approach. The systems can be made ready for the open automated demand response programs of the future smart grid. Where there is a choice of DR aggregators, customers should look closely at the payment claims offered. Different aggregators may offer different payment schemes and features that could be competitively bid to a well-defined request for proposals just like buying competitive energy. For those that want to learn more about the potential, visit the www.demand-resposne-shop.com and request a FREE consultation on the Building Intelligence Quotient and RFQ Strategies programs offered.
April, 02 2013
Dean Thomas says
I enjoyed the Rasika's article. It is not often that such specific numbers are presented. These help paint a much better understanding of the state of Demand-Response. Hopefully as the use of the technology grows there will be lessons learned and positives shared across the different ultilities to help propel and strengthen acceptance.
April, 02 2013
Bill Melendez says
I thought the article was well written --and yes the article was not a "study" of the DR world. While I do agree that statistics would have been nice, maybe one should look at the Park Associates studies for that kind of information. I did a spreadsheet on this a while back showing not only the amount of possible savings but also the carbon footprint reduction that each savings produced. There is substantial savings in DR --but to get there, we all need to view the problem differently then the way utilities are now going about doing it.
April, 03 2013
Subhash Chandra Mathur says
I agree that demand side management is very essential to control peak demand requirements. Since i live in India I have fair knowledge of load management in India.We are still in a primitive stage and we have installed TOD meters in Industries but yet to install in domestic areas where the demand is almost 30 to 40 percent. Awareness is being created it is yet to percolate in psychology of human beings here.I will be happy to share any specific query in this regard.