DEMAND RESPONSE IS EVOLVING, AND JUST in time.
With increased pressure on integrated systems operators and utilities themselves, thanks to new environmental regulations that go into effect in 2015 and aggressive renewable portfolio standards in many states, utilities are turning to demand response (DR) programs in greater numbers to augment the changing generation mix.
Total expected coal plant closures within the next three years are ranging from a 40 GW to 60 GW potential loss in generation capacity, depending upon who you talk to. That being the case, all eyes are turning to both demand-response resources and energy efficiency to help maintain grid reliability.
It's a transformative change for the electric utility industry, allowing consumers-in coordination with their utilities-to use demand-side resources as alternatives to traditional electricity generation.
And this change is being reflected across the board.
Higher DR & EE in PJM's capacity market
In May, PJM Interconnection announced the results of its capacity market, the annual Reliability Pricing Model, had secured record amounts of new generation, demand resources and energy efficiency to meet power supply needs between June 1, 2015, and May 31, 2016. New generation amounts to 4,900 MW, most of it natural gas-fired. In addition, new generation included 56 MW of solar and 796 MW of wind, a 22 percent increase and 15 percent increase, respectively.
But the interesting numbers come a little farther down in the announcement: "In addition to new generation, most of it natural gas-fired, the capacity auction also procured 14,833 MW of demand response, a 5 percent increase over last year, and energy efficiency, a 12 percent increase. The amount of demand response was also a record for PJM."
2.0 or 3.0?
Demand response is shifting in nature, as well, aiming for more sophisticated load shaping rather than just the simple load curtailment of the past. Taking demand response to the next level requires a number of things: two-way communication to confirm demand response signals have been received and usage has been curtailed (meaning real-time confirmation can be documented and proven), and analytics that can be used to design specific demand-response programs to fit individual customers' needs.
Add to that the challenges of synchronizing more disruptive generation-like wind and solar, which occur when they occur-and both active automation and active analytics become imperative to best manage load and immediate changes, if need be.
Regulatory smooth sailing unlikely
Federal Energy Regulatory Commission (FERC) Order 745, issued in March of last year, requires that retail customers receive payments for reducing their retail purchases of electricity (or electricity usage).
This compensation scheme was supposed to pave the way for demand response and energy efficiency to be able to participate in the market in a balanced way, right alongside generation. Adoption of FERC standards was intended to improve the methods and procedures used to accurately measure demand response and energy efficiency performance, and help organized wholesale power markets to properly credit demand response and energy efficiency resources for their services.
However, the Order has received some serious pushback, including a petition filed in early June 2012 with the U.S. Court of Appeals for the District of Columbia Circuit by the Electric Power Supply Association, the American Public Power Association (APPA), and Edison Electric Institute, along with NRECA and Old Dominion Electric Cooperative.
"We think the aggregator or other demand response provider should be paid the full LMP [locational market price]-minus the retail rate they didn't pay," Susan Kelly, the APPA's senior vice president for policy and general counsel, told the association's magazine in June. "If demand response resources are subsidized at a rate that's not efficient or rational, it will encourage too much activity by ARCs [aggregators of retail customers]."
Bumpy road ahead for FERC
Petitioners note in their brief that there are defects in the Order, including the fact that FERC has no authority to regulate retail sales of electricity, which it would be doing by treating retail demand response and energy efficiency reductions as "the functional equivalent of producing energy for sale at wholesale." As well, the petitioners argue, there are other problems, including a compensation scheme that overcompensates demand-response providers while "unfairly subsidizing them," and the unlawful imposition by FERC of a new rate mechanism without first demonstrating that existing rates were "unjust and unreasonable." Without agreed-upon compensatory regulations for demand response and energy efficiency, their break into the generation market will be somewhat hindered. In the meantime, however, work continues in the areas of automated demand response and in states like California in which aggressive renewables integration goals have been set.
California surging forward
California's aggressive goal of a 33 percent renewables portfolio standard by 2020 has put it in a position of needing approximately 4,500 MW of new ancillary services to assure grid stability and reliability are maintained given the variable nature of the renewables generation being added to the state's generation mix.
Researchers at Lawrence Berkeley National Laboratory's Demand Response Center have noted that, while traditional gas-fired generators would be one approacch to adding new ancillary services resources, energy storage technologies such as grid-scale batteries, flywheels, and pumped hydro could overocome many of the environmental downsides of the gas-fired generators. Unfortunately-and herein lies the rub-the cost of energy storage technologies such as these is still very high, and the energy available for discharge is limited.
Berkeley Lab is now working on an advanced form of demand response, "Demand Response Optimization and Management System-Real Time" (DROMS-RT). This system is expected to reduce the cost of operating demand response and dynamic pricing programs in the U.S. by 90 percent, while also allowing more integration of renewable energy into the grid (important in California and other states with extremely aggressive renewables portfolios).
According to Berkeley Lab's Julie Chao, who wrote about the project in May, Berkeley Lab researchers first automated the process with OpenADR, an open communications standard which has become one of the first 16 national standards for the smart grid.
One of the advantages of DROMS-RT, she said, is that it is dispatchable, rather than having to be scheduled in advance, and customers will receive price signals in near-real time. The automated system will also use computer-based machine learning algorithms to make forecasts of future loads based on past behaviors, she noted.
"Traditional demand response doesn't have much-if any-forecasting or predictability built into it," Berkeley Lab researcher David Watson told Chao. "Our algorithms figure out, based on historic behavior, what is the likelihood of any individual site to participate and predict the likelihood they'll participate in the future."
Technology continues to advance
In the meantime, Automated DR, or ADR, has seen a terrific amount of research and development over the course of the past year, with new companies and products arriving on the industry scene in unprecedented numbers.
By mid-May 2012, the OpenADR Alliance had reached a total membership of 71 different groups, including utilities, independent system operators, regulators and controls suppliers, a 44 percent growth in membership since December.
"Industry momentum is clearly growing globally for standards-based demand response," said Barry Haaser, the OpenADR Alliance's managing director. "The addition of our new members and our rapidly growing membership base reinforces the importance policy makers, utilities and equipment manufacturers place on interoperable management systems."