Navigant Research Blog

Opower Tries to Change the DR Game

— October 4, 2013

Opower, best known for its customer engagement solutions for the utility industry, announced on September 11 its new behavioral demand response (BDR) solution.  According to the company, this solution is a game-changer in the utility industry.

BDR is an online software-as-a-service (SaaS) solution that is based upon Opower’s behavioral design and big data software capabilities.  It helps utilities communicate with their residential customers to motivate them to participate in demand response (DR) programs in order to reduce their energy use during periods of peak demand for power.  Leveraging data from smart meters, Opower is able to gain insights into a utility’s customers to craft targeted and personalized messages to encourage them to become active DR participants.  By communicating with customers before (e.g., to recommend ways to reduce energy use) as well as after a DR event (e.g., to inform customers about their cost savings and how to do better at the next DR event), and by using the customers’ preferred communications channels, Opower believes it will increase their level of interest and engagement.

For years, utilities have grappled with how to achieve better DR participation rates.  According to Navigant Research’s report, Market Data: Demand Response,  about 5.5% of all households in North America are involved in a DR initiative.  To improve the participation rate, utilities must adopt new and better communications techniques.  Near real-time communications, tailored to specific customer segments, will be helpful, especially when utilities want to engage customers in their more advanced dynamic pricing programs.

Major Benefits

BDR is currently being deployed by Baltimore Gas and Electric (BGE) as part of its Smart Energy Rewards program, which consists of a peak-time rebate dynamic pricing scheme that rewards customers by giving rebates for using less energy at peak times during the summer season.  About 300,000 customers are enrolled in this DR program today (including some also enrolled in BGE’s traditional direct load control [DLC] program, PeakRewards).  The utility expects to sign up all of its 1.2 million customers by 2015.  Opower will support the utility throughout the various phases of implementation as it rolls out smart meters to every household in its customer base.

Opower expects to land similar BDR contracts with other utilities in the near future.  The ability to introduce DR without having to purchase and install any hardware devices to directly curtail customers’ loads, such as a programmable communicating thermostat or a control switch on a central AC unit or pool pump, is a major cost benefit.  Opower claims that BDR cuts 40% of the cost per kilowatt per year compared to the cost of a DR program that requires a device.

Although such a significant cost savings is a good reason for a utility to adopt BDR, Opower must still demonstrate that BDR’s load curtailment performance is equal to or better than a conventional automated DLC program, requiring no personal involvement by the DR participant and no special communications techniques.  After all, utilities have relied on automation for decades to generate load reduction.  BDR could become a disruptive technology to usher in a new era of operating more cost-effective residential DR programs with a higher participation rate.  At the very least, it will be another tool in utilities’ kits to promote energy management and conservation.


Europe Is Next Frontier for Demand Response

— September 26, 2013

Europe is showing signs that it has the potential to become a major demand response (DR) market.  The regulatory environment, which has so far represented a serious obstacle to the implementation of DR programs that have remained illegal in the majority of European Union (EU) member states and in most of the wholesale and retail markets, is becoming supportive of the participation of demand-side resources.  A handful of the 28 member states have already created new regulations, along with payment and contractual structures, that support DR.  Other countries, such as Austria, Belgium, Finland, and Switzerland, have begun to review their national regulations.

Although it will take time before all regulatory barriers are removed, there are a number of driving factors that will facilitate DR deployment across Europe. The key drivers are:

  • The Energy Efficiency Directive, established by the EU Commission in 2012, which stipulates that national regulatory authorities should encourage demand-side resources
  • The EU’s Climate and Energy Package, which targets three key objectives:
    • To reduce carbon emissions by 20% from 1990 levels
    • To raise the share of energy consumption produced from renewable resources to 20%
    • To improve the EU’s energy efficiency by 20%
  • The adoption of intermittent renewables, such as wind and solar power, which are putting pressure on utilities to rely on DR capacity to balance the fluctuating supply and demand of electricity on a continuous basis
  • Smart meters, which are a critical element of the EU’s energy goals, as well as a cornerstone to DR deployment (Navigant Research projects that smart meters will have penetrated almost 90% of the electricity metering market in Western Europe by the end of the decade)
  • The growing use of electric vehicles (EVs), which, like intermittent renewables, will put a strain on the grid, requiring DR to address the unpredictable demand for power from EV charging

Navigant Research estimates that the total load curtailment from DR programs in Europe will reach 8,655 MW in 2013.  More than 56% of this will be generated by the industrial sector, and more than 28% will be generated by the commercial sector.  About 15% of total load reduction will come from households, primarily from those participating in time-of-use (TOU) programs.  Today, the largest load curtailment is contributed by Italy, mainly because of a large interruptible load program for the commercial and industrial (C&I) sector.  But as the load opportunity improves in both France and the United Kingdom, especially in the C&I sector, France will take the lead in 2017 with Europe’s largest DR load reduction, followed later by the United Kingdom.  Because of its slow start, Germany will trail the other nations, but will gradually catch up in 2020.

DR Load Curtailment by Major Country or Region, Europe: 2013-2020

DR blog chart(Source: Navigant Research)


Why Utilities and EV Owners Need Demand Response

— September 9, 2013

As the electric vehicle (EV) market grows, so will the demands on the power grid.  According to the Navigant Research report, Electric Vehicle Market Forecasts, plug-in electric vehicles (PEVs), including plug-in hybrid electric vehicles (PHEVs) and battery electric vehicles (BEVs) – both of which use energy stored in the grid – will grow rapidly in many regions.  By 2020, 3 million PEVs are anticipated to be sold worldwide, resulting in a cumulative number of 13 million of such vehicles globally.

This robust growth is fueling concern among utilities about the additional demand for power when PEV owners plug in one or two cars at the end of the day, for overnight charging.  The extra need for electricity could be a huge strain on the grid when a large number of people charge their cars at the same time.  Therefore, utilities have begun to look into leveraging their demand response (DR) capability to manage the demand for power among these customers.

In or Out?

Austin Energy, for example, is testing an automated DR program for about 60 residential customers with PEVs to find out if it can effectively execute load curtailment in a fast, efficient, and reliable way.  The utility sends a message to the PEV owners to notify them of upcoming trials, so that they can decide whether to participate or to opt out. Relying on AutoGrid’s Demand Response Optimization and Management System (DROMS), with charging stations from ChargePoint, Austin Energy conducted multiple DR tests in July.  So far, the tests have been considered successful.  On July 12, for example, 90% of the utility’s DR customers with an ecobee thermostat and 100% of those with ChargePoint stations participated in the DR trial.

The Austin Energy trials highlight the power of DR in combination with electric vehicles.  All residential PEV charging will take place at rates from 1 kilowatt (kW) to 6.6 kW, as limited by both the PEV owner’s garage outlet and the PEV’s onboard charger.  Therefore, if 1,000 people in a given network decide to charge their PEV at the same time, rescheduling these charges can shed from 1 megawatt (MW) to 6.6 MW of power at a critical peak time.  Because of the concern about power disruptions, utilities will be more than willing to pay for the ability to monitor and manage electricity demand from PEVs on their grid.  They will reward customers for charging their PEVs on their own at off-peak hours as well.  Besides reducing peak loads, utilities will also be able to leverage PEVs in order to balance the grid when there is an excess supply of power from intermittent renewables like wind and solar power.  When a large number of PEV owners plug in their cars, they can dampen any major swings of electricity on the grid.

With the increasing adoption of PEVs, the deployment of DR to this market will become an essential strategy by utilities.


As Markets Soften, EnerNOC Diversifies

— August 28, 2013

In early August, EnerNOC announced second-quarter revenue of about $36.2 million, up 8.7% from the same period last year.  The provider of demand response (DR) expects to generate between $360 million and $400 million in revenue for the full year of 2013, reaffirming its earlier guidance.  However, the company reported a net loss of $34.4 million, higher than the $29.3 million net loss in the same quarter in 2012.

Even though EnerNOC ended the quarter with $102 million in cash and anticipates that this will be its fourth consecutive year of positive cash flow, the expanding losses do not bode well for this major provider of curtailment services.  Are these losses a sign that EnerNOC is facing weakening business prospects?  Because of the company’s significant involvement as an aggregator in PJM’s capacity market, its revenues have been seriously affected by the sharp drop in prices in PJM’s capacity auction, held in May for the 2016/2017 delivery year.  Flat demand growth for electricity, new generation from natural gas, and substantially increased imports of power, primarily from MISO, resulted in lower capacity prices across most of PJM’s territory.  For example, in one region, the price decreased from $357 per megawatt-day (MW-day) in the 2015/2016 delivery year to $114.23/MW-day in the 2016/2017 delivery year.  According to EnerNOC, the company’s revenue opportunity from PJM declined as much as 55% this year compared to revenues cleared in PJM’s 2015/2016 auction in 2012.

On the Beach

Realizing the potential for continued profitability losses and sluggish revenue growth opportunities, EnerNOC has made a wise move to adopt a strategy to further diversify its business.   While the company is actively pursuing new DR opportunities in the United States and Canada, it has also been actively expanding its business internationally, more specifically in the United Kingdom, Australia, and New Zealand, to capitalize on these emerging and fast-growing DR markets.  To this end, EnerNOC has developed several new product features, such as the internationalization of its technology platform for non-English-speaking countries.  Navigant Research’s report, Market Data: Demand Response, estimates, for example, that Asia Pacific will have nearly 294,000 sites (residential and commercial and industrial) participating in DR in 2013 and will enjoy the fastest growth rate of any region with a 2013-2020 CAGR of 21%. Undoubtedly, EnerNOC will use its presence in Australia and New Zealand as a beachhead to penetrate other major countries in this region, such as China and Japan, which are actively pushing deployment of DR in their commercial and industrial sectors.


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