Navigant Research Blog

Recapping the PLMA Spring Conference

— May 2, 2016

Home Thermostat DialThe Peak Load Management Alliance’s Spring Conference was recently held in San Francisco from April 18 to 20. It felt great to be back in the Bay Area after having worked out there on the first generation of demand response (DR) programs to help avert rolling blackouts following the Enron mess. That saga is well in the past now, but DR continues to evolve and adapt to the changing market conditions due to technology, policy, and economic forces. Leading practitioners and visionaries in the industry were at the conference, trading opinions on several themes that coalesced as the event progressed.

The concept of integrated demand-side management was discussed from a couple of different angles. First off, there’s the combination of energy efficiency and DR program offerings based on enabling technologies like smart thermostats and targeting specific geographic territories. Utilities like NV Energy and Commonwealth Edison reviewed their thermostat experiences, while Consolidated Edison, Central Hudson, Pacific Gas & Electric, and National Grid explained how to drill down to the distribution level to address location-specific constraints. Successful implementation will require breaking through the traditional utility and regulatory silos that separate energy efficiency and DR operations and budgets.

Second, there was the concept of integrating DR with other distributed energy resources like energy storage and solar PV as a full-service offering for customers that addresses their concerns outside of technology silos. Hawaii and California were highlighted as areas that are dealing with this market shift in real time, leading to new operational system needs and program design structures.

Some of the early utility and vendor adopters of the BYOT, or Bring Your Own Thermostat, design concept—including Xcel Energy, SCE, Great River Energy, Nest, and EnergyHub—provided their best practices and lessons learned, while the audience pondered how quickly this model could go mainstream. There was a lot of discussion about the technical and operational barriers to bringing BYOT to scale and maximizing customer engagement without turning them off through excessive hoops to jump through. It was mentioned that the seemingly simple step of requiring a customer to provide a utility account number in order to sign up for a program dramatically reduces the likelihood of enrollment.

The next opportunity for DR thought leaders to convene will be the National Town Meeting on DR in Washington, D.C., running from July 11 to 13. It might not be as exciting as it was to be in D.C. last fall for the Supreme Court hearing on DR, but there should be plenty to talk about as the presidential election heats up.

 

It’s a Small World (for Dynamic Pricing) After All

— April 4, 2016

multimeterDisney recently unveiled surge pricing for its theme parks, meaning that tickets will cost more during holidays and on some weekends—up to 20% more—than during slower periods as the near-capacity parks seek to spread out demand. When Mickey Mouse announces this strategy, it’s hailed as a brilliant business move. So why is it that when utilities try to roll out dynamic pricing options, it is assumed it will lead the elderly and orphans to swelter in the heat and sit in the dark?

Dynamic pricing exists in many aspects of society, such as with airline tickets, theater and sporting event tickets, subway fares, and road tolls. The basic concept is that the value of a product varies based on time, demand, and other factors, so being able to charge prices that better reflect that value is more economically efficient than simply charging an average flat price across all hours and variables. Makes sense, right?

In the electricity industry, the concept of dynamic pricing for mass-market customers is fairly recent (aside from time-of-use rates). With the proliferation of advanced meters that can record usage at small intervals, more types of dynamic pricing can be applied down to the residential level.

The key drivers for advancing dynamic pricing include technical, policy, and economic factors such as:

  • Advanced metering infrastructure (AMI): Without the 15-minute interval data provided by smart meters, or AMI, dynamic pricing programs cannot accurately be implemented. Smart meters are now seeing more widespread deployment, which further enables the market for dynamic pricing.
  • Utility and customer costs: Offering a dynamic pricing program to reduce peak demand may be cheaper for a utility than building a peaker plant to meet increased demand. On the customer side, electric bills can be reduced by modifying consumption behavior. In the long run, all ratepayers should see lower rates than they otherwise would due to the increased capacity factor and avoided infrastructure costs.
  • Enabling technologies: Devices such as smart thermostats, smart appliances, and associated home energy management applications are becoming more commonplace, allowing consumers to more easily manage their energy demand.
  • Distributed energy resources (DER): As DER capacity from resources like energy storage and electric vehicles grows, so does the ability to shift load and enjoy the cost savings from dynamic pricing programs.

However, the slow rate of dynamic pricing program development points to the depths of the barriers to such growth:

  • Reliable service concerns: Utilities understand how important reliability is—especially for at-risk residential customers, including low-income customers, the elderly, families with young children, and the disabled—and seek to provide a resilient grid that operates disruption-free. Without proper education about the program, dynamic pricing rates could potentially send a harmful signal to these at-risk groups.
  • AMI integration: Systems integration plays a huge role in the success of AMI techniques and poses a significant cost to utilities. Ensuring AMI provides flexible and extensible solutions is paramount.
  • Lack of customer education and demand: Customer understanding of dynamic pricing is low. Unlike other energy management strategies that focus on different aspects of energy consumption, dynamic pricing depends on modulating customer habits, which may be hard to change.

There are several examples of utilities implementing successful dynamic pricing programs, such as Baltimore Gas and Electric, Oklahoma Gas and Electric, and Sacramento Municipal Utility District. These topics and more are covered in Navigant Research’s new report, Dynamic Pricing. Perhaps learning about dynamic pricing from Disney will lead more people to embrace it in other parts of their lives.

 

Integrated Demand Side Management Gathers Steam Through Targeted Approaches

— March 17, 2016

Network switch and UTP ethernet cablesIntegrated demand-side management (IDSM) has been a topic among DSM professionals and utilities in the United States for a decade. However, efforts to integrate energy efficiency and demand response (DR) in utility programs thus far has been challenging, and little progress has been made. Traditionally, energy efficiency and DR have been siloed within utilities, with misaligned goals and barriers to transferring funds between programs. Yet, the integration of DSM programs has become increasingly popular, especially in places such as California, where the combination of these programs has been used as a fundamental part of the state’s energy planning and strategy.

There is no standard definition of IDSM at this point in time, but the most common definition combines energy efficiency and DR technologies. There is also an aspect of integrating electric and gas DSM programs. More recently, integration has evolved to include other resources such as energy storage, solar, and fossil fuel-based distributed generation. The key drivers for advancing IDSM include technical, policy, and economic factors, such as increasing DSM goals and regulatory pressures, program cost reduction potential, targeted DSM, grid modernization, and smart thermostats.

Barriers to Overcome

However, the slow rate of IDSM program development points to a number of barriers to be overcome. These include utility organizational structures and budgets that are siloed and hard to cross-promote; energy audits that don’t consider both types of measures; cost-effectiveness and measurement and verification challenges with accounting for both types of benefits and potential double-counting; vendor conflicts of interest; and niche, early-adopter customer markets that may not accurately reflect the mass market potential for these offerings.

The move toward targeting DSM to specific distribution-level areas with high load growth or infrastructure constraints appears to be a growing trend. Historically, DSM programs were administered state- or utility-territorywide as a means to reduce overall system energy usage. As the electric grid has aged and general load growth has slowed due to economic conditions and the success of large-scale DSM programs, a more discreet form of DSM may be more effective and efficient. Even if systemwide load growth slows, many utilities will still have areas on their network with higher growth rates due to residential or commercial development.

An all-of-the-above DSM approach is valuable in such cases, since it may be unrealistic to have separate energy efficiency and DR vendors and marketing efforts to a small geographic territory. A combined effort makes sense so as to not overload customers with multiple messages. The concept of a non-wires alternative (NWA) has entered the lexicon, where a utility will look at other means of meeting its reliability requirements at a lower cost than a traditional distribution capital expenditure upgrade. Utilities such as Con Edison, National Grid, and Central Hudson have recently initiated such targeted DSM programs to address acute system needs.

Navigant Research’s new report, Integrated Demand Side Management, covers these topics and case studies in addition to forecasting of future growth of IDSM. As utility models, policies, and technologies evolve, the integration of various resources will only increase in practice and importance.

 

U.S. Supreme Court Brings Closure to FERC Order 745 Saga

— January 26, 2016

Control panelThis is a bittersweet moment. The Federal Energy Regulatory Commission’s (FERC) Order 745 legal case has provided me with consistent blog fodder for the past year and a half, ever since the U.S. Court of Appeals overturned the order in May 2014. Every few months, I could count on a new development and twist in the plot to pontificate upon. Now, the end has come.

On January 25, the U.S. Supreme Court reversed the lower court’s decision on both parts of the case, meaning that demand response (DR) does fall under the FERC’s jurisdiction, and that the payment of the full locational marginal price (LMP) in the wholesale energy markets is just and reasonable. The DR community could not have asked for more, while the generators must acquiesce and learn to live with the competition.

After the Supreme Court hearing in October 2015, many pundits felt that the court was close to being split 4-4 (Justice Samuel Alito recused himself), which would have meant that the lower court’s ruling would stand. The final tally was 6-2 in favor of the FERC, with the swing vote of Justice Anthony Kennedy and the somewhat surprise vote of Chief Justice John Roberts going to the majority side. Chief Justice Roberts had some harsh questions for the FERC in the hearing, but perhaps he was just trying to make sure there weren’t any holes in his mind.

Status Quo

So what does all this mean? In reality, this decision just ensures the continuation of the status quo, since all the regional transmission organizations (RTO) under the FERC’s jurisdiction have been operating under the existing rules all along. There was much more downside risk to the alternative outcome than upside to this conclusion. DR has had little participation in the day-ahead and real-time energy markets lately, mostly due to historically low natural gas and electricity prices. In the capacity markets, resource performance requirements have become more stringent in many regions, so DR will likely struggle to see significant growth. This was really just a defensive battle for DR rather than an effort to gain more ground in the markets. However, the California Independent System Operator (CAISO) is in the midst of major enhancements to DR participation, so that is one area with growth potential.

Industry Reactions

How did the industry players react? PJM, which runs the largest DR market in the world, stated that “Although PJM will have to study the court’s decision, the ruling supports the continued participation of demand response in competitive wholesale markets. We’re pleased with that outcome. Certainty and continuity are important in markets. Demand response brings value to competitive wholesale markets and is a component of electric system reliability.”

In an interview, David Brewster, president of EnerNOC, said that there were no wild celebrations in the office after the decision was made, just a lot of high fives and sighs of relief that a major distraction of the past 2 years was over. The company had playbooks ready for whatever scenario prevailed, but this was definitely Plan A, rather than having to go state-by-state to develop new DR programs. Brewster wouldn’t say how much EnerNOC spent to fight this legal battle, but it hired one of the top lawyers in the field to represent it and had a monumental internal team effort to support the case every step of the way. The stock market liked the outcome as well, as EnerNOC’s stock jumped almost 70% on the day of the ruling (although it has come back down somewhat from that high).

In a statement to me, CPower’s Chief Sales and Marketing Officer Chris Cantone said “We are very happy to see the Supreme Court decision to uphold FERC 745. It is a clear reflection that demand response is a valuable and cost-effective resource keeping the energy market competitive and fair. We were privileged to participate in the arguments in this case and to help our customers continue their participation in DR and allow their communities to see the benefits of their efforts.”

“We are pleased the Supreme Court ruled in favor to allow FERC Order 745 to remain in place, thus securing the true value of demand response within wholesale energy markets,” said Terrill Laughton, Vice President and General Manager of Integrated Demand Resources for Johnson Controls. “This outcome ensures that demand-side assets can contribute to both the competitiveness of energy markets and enhance the reliability of the nation’s electrical grid.”

Now that the extraordinary saga that brought DR to the legal forefront is over, it can now return to obscurity, buried deep in the RTO’s market rules. I guess I’ll have to turn my attention to something more mundane this year—perhaps how the presidential election will affect the energy industry.

 

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