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.

9,728 Subscribers

Article 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

No discussions yet. Start a discussion below.