The Energy Collective Group

This group brings together the best thinkers on energy and climate. Join us for smart, insightful posts and conversations about where the energy industry is and where it is going.

9,753 Subscribers

Post

The Sorry State of Demand Response in the U.S.

PJM market: peak demand grows, demand response declines.

While peak demand grew, the use of demand response declined by 10% last year in the U.S., writes Fereidoon Sioshansi, publisher of newsletter EEnergy Informer and editor of Innovation & Disruption at the Grid’s Edge. The decline is no incident, notes Sioshansi: regulators are failing to take an active role. Millions of advanced meters are performing dumb tasks.

The Energy Policy Act of 2005 requires the Federal Energy Regulatory Commission (FERC) to conduct an annual survey of the demand response (DR) and advance metering in the US. The 12th edition of the report was released in December 2017 and anyone looking for major revelations is likely to be disappointed.

The report makes it abundantly clear that just as the industry needs more DR to balance the grid due to the rapid rise of variable renewable generation, DR resources are playing a diminished role in the wholesale markets

Not much happens from year to year in the slow moving utility sector – and worse – sometimes things move in the wrong direction. FERC says DR in wholesale power markets actually fell 10% in 2016 – mostly attributed to changes in market rules in PJM, the biggest wholesale US market and the one with the largest DR program.

Ever so slowly

The report – citing data from the Energy Information Administration (EIA) – says there were 64.7 million electronic meters in operation in the US in 2015, roughly 42.9% of a total of 150.8 million currently in use. The numbers are rising, ever so slowly with a few states or regions far in advance of others. Nearly 82% of customers in Texas, for example, have electronic meters in contrast to 6% in Hawaii.

Ironically, however, few are used to deliver time-of-use (TOU) or real-time prices (RTP). Moreover, FERC’s latest survey concludes that in the US organized wholesale markets, DR was called on to meet 5.7% of peak demand in 2016 — roughly a 10% decline from the 6.6% achieved in 2015.

According to the report, “Since 2009, demand resource participation in wholesale markets has increased by approximately 6%, but has been outpaced by an approximately 16% increase in peak demand”. It does not sound like commendable progress to this editor.

State-level regulators, ever so conservative and lethargic, are concerned about customer reaction as their bills change when time-of-use rates are introduced

The latest report found that DR market participation fell across all ISO/RTO regions to 28,673 MW, a 10% decrease from 2015: a level roughly equal to the one experienced in 2013 and 2014. But peak demand, which DR is expected to meet, move or mitigate, actually grewby 3% from 2015 to 2016. One step forward, two steps back?

“This decrease in demand resource participation across the RTO/ISO regions was primarily due to an approximately 24% (3,030 MW) drop in demand resource enrollment in PJM Interconnection,” according to FERC’s latest report.

Diminished role

The report makes it abundantly clear that just as the industry needs more DR to balance the grid due to the rapid rise of variable renewable generation, DR resources are playing a diminished role in the wholesale markets.

In the case of California ISO (CAISO), with its famous “Duck Curve,” DR participation fell by 8% due to decreased enrollment in price-responsive demand programs. “Participation in utility-sponsored programs has been gradually declining over the last several years”, notes the report, “while participation in CAISO’s wholesale demand response products has been growing,” adding, “In 2016, demand resource enrollment in CAISO’s two wholesale products totaled 1,480 MW.”

DR resources in the ISO New England and New York ISO markets also decreased by approximately 4%, while it reportedly rose in the Midcontinent ISO due to an increase in capacity registered as emergency DR. Not a rosy picture overall.

Time-varying rates

There is even less progress when it comes to time-varying rates – which were expected to follow the installation of advanced metering infrastructure or AMI.

While some progress is expected – for example California’s 3 large investor-owned utilities (IOUs) will transition to residential default time-of-use rates (TOU) by 2019 – FERC notes that “barriers remain to the wide-spread uptake of time-based rates.”

State-level regulators, ever so conservative and lethargic, are concerned about customer reaction as their bills change when TOU rates are introduced. “In addition, a gradual transition to the new tariffs—with an opt-out for certain populations—and appropriately designed pilots to test customer response, may ease the transition,” the FERC report says. Not reassuring.

Billions of dollars have been spent – squandered may be a more accurate term – on millions of advanced meters, which by-and-large are doing more or less exactly as much as the dumb spinning disk meters they replaced

In 2015, the number of customers enrolled in incentive-based DR programs nationwide decreased by 2% to approximately 9.1 million customers.” On the other hand, “enrollment in time-based programs rose by 10% in 2015” – mostly due to progress in a few selected regions.

FERC’s report ends with a chapter titled “regulatory barriers to improved customer participation in DR, peak reduction and critical period pricing programs.” It is a sad ending to a disappointing report.

Squandered

Clearly, the Energy Policy Act of 2005, which was to usher in a new era of pricing electricity by time of use and other schemes to better manage peak demand, has not achieved even a fraction of what was expected.

Moreover, the need to manage peak demand, has become far more pressing and urgent – mostly because so much new variable renewable generation is being added to the network, which requires more price responsive demand.

In the meantime, billions of dollars have been spent – squandered may be a more accurate term – on millions of advanced meters, which by-and-large are doing more or less exactly as much as the dumb spinning disk meters they replaced: They measure kWhs consumed and produce a bill virtually indistinguishable from the ones Thomas Edison would have delivered to customers a century ago.

Editor’s Note

Fereidoon Sioshansi is president of Menlo Energy Economics, a consultancy based in San Francisco, CA and editor/publisher of EEnergy Informer, a monthly newsletter with international circulation. This article was first published in the February 2018 edition of EEnergy Informer and is republished here with permission. 

His latest book project is Innovation and Disruption at the Grid’s Edge, published in June 2017. It contains articles by two dozen experts on “how distributed energy resources are disrupting the traditional utility business model”, including contributions from:

  • Audrey Zibelman, CEO of AEMO and former Chair, New York Public Service Commission
  • Michael Picker, President, California Public Utilities Commission
  • Paula Conboy, Chair, Australian Energy Regulator, Melbourne, Australia
  • Analysts from Pöyry, CSIRO, TU Delft, University of Freiburg and many others

Original Post

Content Discussion

Bob Meinetz's picture
Bob Meinetz on January 23, 2018

Clearly, the Energy Policy Act of 2005, which was to usher in a new era of pricing electricity by time of use and other schemes to better manage peak demand, has not achieved even a fraction of what was expected.

Fereidoon, if your expectations weren’t met, the Energy Policy Act of 2005 is achieving exactly what was expected by Joe Barton and the other fossil fuel proponents in Congress who wrote it. In its 559 pages, hidden by a few inconsequential tokens for solar, wind, demand-response, and storage entrepreneurs, are generous deregulation handouts to energy holding companies permitting them to sell unlimited natural gas to their electricity customers.

It “was to usher in a new era”, was it? If so, it was a new era of oil company hype successfully manipulating a gullible public – of disruptors, who apparently never read the bill, being disrupted.

Nathan Wilson's picture
Nathan Wilson on January 24, 2018

The only good reason to do a Time Of Use (TOU) pricing pilot program is to test the software and meter infrastructure. The next logical step is mandatory adoption of TOU rates for everyone.

This TEC article reports that in California last summer, wholesale prices spike from an average of 5.5 ¢/kWh to extreme values in the range of 20 to 77 ¢/kWh, but only for a few hours.

People’s electric bills are based on a whole month’s usage, not just an hour, so the price shock will be tiny. It is bad policy to charge customers to pay for new power plants (whose sole purpose is to prevent price spikes) without giving them a chance to see the spikes that they are presumed to dislike.

Price spikes (and dips) are not symptoms of grid or market problems, but are instead a reflection of economic reality: buying a power plant (or storage system) that only gets used a few hours per year is very inefficient. Similarly, when demand is so low that clean energy production is being discarded (“curtailed”), there is no reason to charge consumers high prices to use it. With time of use pricing, I suspect that many consumers and businesses will continue using electricity without regard to price, but some will change their usage pattern. Instead of making the choice for them, let’s give them the option.

This becomes even more important as we increasingly adopt electric cars, which are most convenient when charged during the evening demand peak, but which are only slightly less convenient when used with night-time charging.

Bob Meinetz's picture
Bob Meinetz on January 25, 2018

duesty, portraying demand-response as a way to “meet grid needs” is a bit like portraying hunger as a tool to address insufficient food.

It used to be everyone paid the same price for electricity at all times of the day. Your company is now, in effect, selling available electricity when it’s most useful to the highest bidder – or inversely, assigning the cost of insufficient generation to poorer ratepayers as a cost in inconvenience. That you’re able to profit from this scheme is, in theory, justified by use of less energy and associated carbon pollution, by the people who can least afford it.

Why should a utility’s poorest ratepayers be forced to bear not only the responsibility for emitting less carbon, but the cost of the markup you add on top?