Navigant Research Blog

Can Demand Response Help States Comply with the EPA’s Clean Power Plan?

— April 24, 2015

When the U.S. Environmental Protection Agency (EPA) released its draft Clean Power Plan (Section 111d) proposal last year, demand response (DR) was not specifically called out in any of the potential building blocks used to calculate state emissions targets. While it may reasonably be included in the End-Use Energy Efficiency block, some players in the DR space feel that a more explicit role is required to ensure that it gets the proper attention by states when they are developing their compliance plans.

Not Straightforward

To date, there has been no definitive analysis showing that DR can actually reduce carbon emissions. The case is not necessarily as clear as it is for energy efficiency, where more efficient equipment simply replaces less efficient equipment, leading to a straightforward engineering analysis of energy savings:

  • DR is not a permanent replacement, but rather, a temporary reduction in load in response to reliability or economic signals.
  • The reduction must be measured against some kind of baseline, for which there is no industry standard.
  • Some of the loads may be shifted to other times, so there may not be full kilowatt-hour (kWh) savings.
  • Some DR participants use behind-the-meter generation to respond, so depending on the fuel source, emissions could even increase instead of decrease.

Clearly, more analysis will be required to make states and the EPA comfortable with including DR in their plans.

Sniff Test

In order to take a first pass at the issue and get some initial thoughts into the comment record for the Clean Power Plan, the Advanced Energy Management Alliance contracted with Navigant in November 2014 to perform some high-level modeling and analysis to see if DR even passed the sniff test and is worth maintaining in the conversation. Navigant employs detailed market models that could perform such analysis on an hourly basis if a specific case should arise, but for this exercise, a simplified version was utilized to get an annualized view of the results.

Navigant looked at the PJM Interconnection, Electric Reliability Council of Texas (ERCOT), and Midcontinent Independent System Operator (MISO) markets, focusing on two different types of emissions savings: direct and indirect. Direct emissions reductions include peak load reductions through capacity and emergency DR programs and ancillary services markets like spinning reserves and frequency regulation where DR can participate. Indirect emissions consist of DR contributing to coal plant retirement decisions and allowing for increased levels of renewables penetration.

The analysis found that DR could directly reduce carbon emissions by more than 1% and that its indirect role in the economics of fuel mix and plant operations could result in reducing carbon emissions by an additional 1%.

Direct Emissions Reduction from DR Peak Load Reduction

(Source: Navigant Research)

Valuable Input

This emissions reduction potential is significant when compared to the EPA’s targets, which propose to reduce carbon emissions from fossil fuel power plants by 20% from 2012 levels by 2030. Perhaps the EPA will have heeded this input and will include DR more explicitly in its final rule expected in June. I am presenting these results at the Peak Load Management Alliance (PLMA) Spring Conference in Tucson on April 28, so we will continue to spread the message.


Seeking Reliable Power, Hospitals Go Local

— April 21, 2015

A few weeks ago, Hitachi in India announced that it is working on a pilot at the All India Institute of Medical Sciences (AIIMS) hospital in New Delhi that focuses on energy efficiency. The project has three major goals: to upgrade the facilities of AIIMS, install a highly efficiency data center, and incorporate the data from the energy management system (EMS) to optimize the facility’s overall performance. This is the latest example of energy management coming to the fore in healthcare facilities. The drivers and barriers for advanced energy management in healthcare are detailed in Navigant Research’s recent report, Energy Management for Healthcare Markets.

The energy management for healthcare market expected is to grow from $949 million in 2015 to over $2 billion in 2024, driven by government regulation on one hand and corporate strategy on the other, both working to keep costs low for hospitals. According to the U.S. Energy Information Administration, energy conservation measures have been employed by hospitals at high rates, yet our research shows that the integration of these system with digital EMSs is less universal.

Surviving Disaster

Improving the energy posture of hospitals can also help them become more resilient. After events like Hurricane Katrina (when the failure of hospital power systems was citywide and catastrophic, as revealed in Sheri Fink’s devastating account, Five Days at Memorial) and Hurricane Sandy, hospitals are incorporating plans to function without utility-based power in the face of a disaster. At the simplest level, a highly energy efficient hospital running with efficient HVAC and lighting systems would need less power than an inefficient one. But the hospital’s ability to leverage onsite backup power can make the difference, literally, between life and death in a disaster.

One Wisconsin healthcare system has taken the concept of resilience to its logical extreme. Gunderson Health System has endeavored to generate its own power from a myriad of sources. This includes burning biomass from waste wood, employing dairy waste digesters, using methane captured from local landfills, and gathering power from wind turbines on farms in the area. Gunderson claims to be the first energy-independent healthcare system in the world. More significantly, the system presents itself as an example of a locally powered healthcare facility, proving that it’s integrated into the local community.

Going Micro

Unlike Gunderson, most hospitals use diesel generators for power backup. These generators are seldom-used but ready to deliver backup power when needed. And if you’ve ever been near the hospital when they’re running, you know how unpleasant they are to be around. While the price of crude oil has dropped in global markets, electricity prices have not universally fallen. The use of fossil fuel-based generators as backups poses an interesting question: If the price of gas stays low, as forecasted, will hospital facilities shift their use of petroleum generators to essentially become microgrids, to save costs?

Although most facilities are not prepared to do so at present, it’s highly likely that all new healthcare facilities will introduce more flexible backup power, to avoid more Katrinas in the future.


Connecting Mobile Utility Field Crews

— April 21, 2015

pdvWireless, formerly known as Pacific DataVision, acquired $100 million worth of 900 MHz spectrum from Sprint in January. It is now preparing to roll out a two-way radio service and cloud-based mobile workforce management solution geared toward utilities and other dispatch-centric verticals. Motorola Solutions, Inc., the leading provider of two-way radio technology to utilities in North America, has invested in the company.

Ironically, pdvWireless is headed by Nextel founders Morgan O’Brien and Brian McAuley. Most of the licenses purchased by pdvWireless were acquired by Sprint in conjunction with its $30-plus billion purchase of Nextel in 2005. That move proved disastrous for Sprint, which has more recently been dismantling much of the former Nextel network and repurposing—or selling—the associated spectrum.


pdvWireless has raised more than $225 million over the past year and trades on NASDAQ under the symbol PDVW (as of February 3). Shares closed at $50 on March 31, up from $20–$25 per share paid by private investors in mid-2014. Once again, O’Brien is proving adept at creating value for investors with spectrum and push-to-talk (PTT) technology.

The company’s new two-way radio solution, dubbed DispatchPlus, will be deployed to 20 major U.S. cities, beginning in the northeastern and southern United States and later extending to markets further west. DispatchPlus is a next-generation PTT solution utilizing digital two-way radio technology integrated with pdvWireless’ proprietary cloud-based mobile resource management solutions, including worker tracking, status mapping, and intelligent call prioritization. The solution enables communications to be sent simultaneously to one or many recipients, whether the recipient is on pdvWireless’ two-way service, a cellphone, or at an Internet address.

Medium or Large

Motorola Solutions invested $10 million in pdvWireless in mid-2014 and has also paid $7.5 million in prepaid spectrum leasing fees. Historically, pdvWireless has made its solutions available through wireless carriers; the company has not yet generated revenue under its new service offering. Revenue for the nine months ended December 31, 2014 was $2.1 million, down from $2.6 million the prior year. The company’s new strategy is to become the nation’s leading private wireless carrier, dedicated solely to serving businesses and critical infrastructure entities.

Utilities appreciate PTT technology for their mobile work crews, and access to private—as opposed to unlicensed—spectrum is always preferred. But most large market utilities already have two-way radio systems, which can cost millions of dollars. With near nationwide spectrum coverage, I wonder if it wouldn’t make more sense for pdvWireless to focus on midsize markets—at least from a utility point of view.


U.S. Energy Mix Shifts toward Renewables, Natural Gas

— April 20, 2015

The U.S. Energy Information Administration (EIA) has released figures for scheduled additions and retirements of generation resources in the United States during 2015. According to the EIA, the United States is expected to add 9.8 GW of wind, 6.3 GW of natural gas power plants, and 2.2 GW of solar—all of which make up 91% of the total 20 GW that is expected to come online this year. No coal plants are scheduled to come online this year, and 12.9 GW of coal and 1.98 GW of natural gas will be retired. Not only does this signal a shift in the U.S. energy mix, but it also indicates that there is a great deal of investment in wind, gas, solar, and even nuclear in the U.S. market. That said, 12 GW of this capacity is variable and will require some type of firming or integration. Often, this balancing is executed by gas power plants, which are more flexible than nuclear plants, for example.

Sources: U.S. Energy Information Administration, Electric Power Monthly
Note: Other renewables include hydroelectric, biomass/wood, and geothermal.

Overall, a healthy amount of capacity is slated to come online in the United States, thanks to market signals such as the Production and Investment Tax Credits. That said, what can we expect to happen in response to the difference between generation and load if the market is not encouraging investment in generation assets?

Shrinking in Texas

I learned at the ERCOT Market Summit that Texas is in a tenuous position with a current reserve margin of 15.7% in 2015 that is expected to shrink to 7.3% by 2024. The reserve margin is a reflection of a grid’s ability to cope with unpredictable but foreseeable events—such as a generator tripping offline or a sudden spike in load. These are not uncommon occurrences, but forecasting them is impossible; hence, the margin.

In Texas, the shrinking reserve margin is a function of power plant retirements and an increase in overall load. In addition, Texas is one of the most deregulated energy markets in the world. This means that it is very unlikely that the state would employ any type of market intervention, such as a mandate or a subsidy, to encourage investment. Instead, it is up the market to adapt in order to embolden the right participant behavior. So far, as evidenced by the shrinking margin, the market is not sending the right signals to encourage investment in power plants.

Markets designers in deregulated markets already looking ahead. Texas has decided against a capacity market and is instead developing reserve products for short-, medium-, and long-term reserves. These products are unlikely to offer the lucrative and consistent returns natural gas power plant developers are looking for, but they should open the door for alternative technologies, including storage.


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