Navigant Research Blog

East Coast Heat Wave Triggers Demand Response

— July 25, 2013

During the week of July 15, the U.S. East Coast experienced a severe heat wave, breaking a record in New York on Friday, July 19 when average peak load reached 33,955 MW, topping the previous record of 33,939 MW set in August of 2006.  The National Weather Service issued heat advisories throughout the week in major cities, including New York City, Washington, D.C., Philadelphia, and Boston, and an “excessive heat warning” when the heat index climbed into the triple digits on Friday.

To help manage demand on the system, the New York Independent System Operator (NYISO) activated its demand response (DR) programs every day during the week to relieve congested areas around New York City, ensure reliable grid operation, and avoid any power outages.  On a statewide basis, DR was also called upon on Thursday and Friday as a growing number of households and businesses cranked up their air conditioning systems.  NYISO can call on approximately 1,250 MW of DR statewide from customers who receive payments when they reduce their electricity use.

More to Come

Thanks to these DR efforts plus an unprecedented amount of generation resources (including a large supply of available wind power) and interregional coordination, NYISO prevented any outages (with a few minor exceptions).  The RTO’s CEO remarked: “This is truly one of the great success stories of New York’s competitive energy markets.  With the correct market signals, we are seeing much greater levels of asset availability and performance.”  Competitive wholesale electricity markets provide strong incentives for generating plants to operate during periods of peak demand, and on Friday every generator in New York was online.

Although the heat wave also affected the New England area, ISO-NE did not break its all-time peak demand record of 28,130 MW in August 2006, reaching a high of 27,377 MW on Friday.

Given the high demand for power, day-ahead prices for certain peak hours hit above $200 per MWh in New England, above $300 per MWh in New York City, and $350 per MWh in Long Island – considerably higher than the typical prices for these areas of around $30 to $60 per MWh.

Climate scientists warn that these types of extreme heat waves are likely to become increasingly common in the United States.  This latest event may just be a warm-up, as it were, for what residents and businesses must prepare for in the coming years. If utilities and grid operators can continue to find ways to avoid power outages and large-scale blackouts through various demand-side resources, such as energy efficiency and DR initiatives, the human and financial impacts will be less severe.


ADR Pilot Could Lead to Broad Deployments in China

— July 8, 2013

In January 2011, Honeywell first announced that it would partner with State Grid Corp of China to deploy automated demand response (ADR) across China.  The following year the company launched its first U.S.-Chinese government smart grid project that included ADR – more specifically Honeywell’s Akuacom server technology, based on an OpenADR communication standard.  The goal of this demonstration project was to pilot ADR in five commercial and industrial sites in Tianjin, near Beijing  – a fast-growing metropolis of more than 11.5 million people with serious power constraints and a critical need to reduce energy usage during times of peak demand.

Completed in November 2012, the Tianjin program reduced peak demand by 15% in the two commercial facilities (a figure typical of ADR programs in the United States and other countries) and 7.7% in one of the industrial sites at full production – but as much as 50% when the plant was not in full production.

New Opportunities on the Mainland

This demo serves as an important validation of the use of ADR technology (along with the OpenADR standard), not only in China but in other developing countries.  It also provides a model for the Chinese government to use in developing a nationwide set of smart grid industry standards and regulations, while fueling the adoption of ADR in a nation that has struggled with peak power demands for decades.  Adding this type of intelligence to the grid will help the country’s commercial and industrial facilities reduce their energy use and better manage how and when they use energy based on its availability and price.  ADR will also help the nation to manage the increasing stress on the grid from its growing reliance on intermittent power resources, such as wind power.

Not surprisingly, Honeywell’s pilot success has led to new opportunities in China, such as supporting some of the energy efficiency initiatives that are part of China’s smart city projects, announced in the 12th Five-Year Plan in 2011.  What’s more, Honeywell will be able to draw upon its positive results in Tianjin to expand its DR business across the Asia Pacific region.


CO2 Emissions in the U.S. on the Rise Again

— June 26, 2013

In his landmark climate change speech on June 25, President Obama noted that “our economy is 60% bigger than it was 20 years ago, while our carbon emissions are roughly back to where they were 20 years ago.”  The United States is the second-largest emitter of CO2 in the world, after China; yet, with the exception of 2010, emissions have declined every year since 2007 – and in 2012, as Obama boasted, they were the lowest in the United States since 1994. The largest drop in emissions in 2012 was due in part to less coal generation and increased power generation from natural gas, which emits half as much COas coal when burned with the same efficiency.  The switch to natural gas by utilities was driven primarily by low natural gas prices, making coal power generators less competitive.


(Source: U.S. Energy Information Administration)

However, carbon emissions from coal-fired plants have increased by over 7% in the first 3 months of 2013 compared to the same period in 2012.  According to the U.S. Energy Information Administration (EIA) the levels are projected to continue to increase, as natural gas prices have begun to go up – to an average of $4.04 per MMBtu in May 2013 – encouraging the use of more coal.  EIA expects that coal-based generation will increase 8.7% over 2012, though it will not reach the peak levels of 5 to 10 years ago.  Even with volatile natural gas prices, many utilities are likely to expand their reliance on gas in the coming years.  For example, Dominion Power plans to significantly expand its use of gas at its Virginia utility – to as much as 40% of its total generation by 2017, from 25% in 2012.

CO2 emissions vary significantly from state to state.  From 2009 to 2010, only 14 states experienced a decrease in emissions as the U.S. economy rebounded, fueling increased energy use in most states.  With respect to energy-related emissions per person by state, Wyoming tallied the most emissions – primarily because of very cold winters – while the state of New York had the lowest per capita CO2 emissions in 2010, according to EIA.  One reason is that a large portion of the state’s population lives in New York City metropolitan area where mass transit is widely used and most residences are multi-family units, providing efficiencies of scale in terms of energy for heating and cooling.  In addition, the New York economy is mainly based on low-energy intensive activities, such as financial services.

U.S. utilities are mitigating the impact of coal-fired power through various energy efficiency measures, including demand response, and by shifting to renewables and natural gas.  Obama’s renewed emphasis on reducing greenhouse gas emissions will help accelerate that process.  Nevertheless, EIA projects that U.S. emissions will increase 2.6% in 2013 and 0.5% in 2014.


Demand Response Drops at PJM Capacity Auction

— June 10, 2013

In May, PJM Interconnection announced that it had attracted a record amount of new generation at its recent annual capacity auction, which ensures that electricity supply will meet demand for the period June 1, 2016 through May 31, 2017.  The auction procured 5,463 megawatts (MW) of new generation, thus breaking last year’s record amount of 5,346 MW.  In addition, the auction obtained a record amount of imported power from the Midcontinent ISO (the new name for MISO, reflecting the grid operator’s southward expansion), more than doubling last year’s total. All in all, the auction procured 169,160 MW, resulting in a reserve margin (a cushion for unforeseen events) of 21.1%, or 5.5% above the target.

PJM holds this capacity auction – also referred to as the Reliabity Pricing Model (RPM) – every May in order to obtain sufficient electricity, plus a reserve margin to meet expected demand for power 3 years in the future in PJM’s territory. PJM provides its estimate for peak power use to the bidders who then bid their existing and new power plants as well as energy efficiency and DR resources. Their bid prices are based on the costs to have those resources available for a particular delivery year. The price bid by the final resource that meets PJM’s target establishes the price paid – the clearing price – to all resources in that zone.

Most noteworthy, this time, was PJM’s announcement that the level of demand response (DR) procured in the auction had dropped by about 2,400 MW, after years of continued growth at every auction.  The auction cleared 12,408 MW of DR.  “Limited DR,” which can only be dispatched 10 times a summer for up to 6 hours each time, represented the overwhelming majority (9,800 MW) of the demand-side resource.

Shortfalls Possible

The main reason for the DR procurement decline was considerably lower capacity prices in most of PJM’s territory this year.  For example, the MAAC region, which covers 10 utilities along the Atlantic seaboard, cleared a price of $119.13 per MW-day, a drop from $167.46 per MW-day in 2012.  FirstEnergy, in northern Ohio, and western Pennsylvania’s PennPower cleared a price of just $59.37 per MW-day, compared to $136 per MW-day last year.

According to PJM’s Senior VP of Markets, Andrew Ott, prices dropped simply because supplies were up while demand was flat.  Competition from new natural gas supplies, increased imports from other regions, and less demand for electricity due to a sluggish economy have put pressure on capacity prices.  Another factor affecting the demand for DR has been the higher procurement costs for aggregators, as they look to recruit new potential and often hard-to-reach customers to participate in their capacity programs.

Although the supply of power and reserve margins are good enough to meet the demand for electricity in PJM’s territory and most other regions of the United States this summer, a few areas in the country could be facing severe shortages that will drive the need for DR.  ERCOT in Texas, for example, is dealing with tight reserves with a margin that is 0.85% below its target.  If the state experiences another extreme heat wave like the summer of 2011, ERCOT would most likely face a challenge to meet its peak demand.  Thus, the grid operator is planning to expand its DR programs to increase the current 1,700 MW of DR.  In Texas, DR is seen as the first line of defense to beat the heat.


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