Navigant Research Blog

For Utilities, New Value from DR

Brett Feldman — May 8, 2014

After an active 2013-2014 season for demand response (DR), including a summer full of activations that spilled into September and the most winter dispatches ever, the industry has been wondering how DR customers will respond and how they can hedge against weather and price risk. At the Peak Load Management Alliance (PLMA) Spring Conference in Denver, multiple sessions addressed these concerns.

A panel of speakers from investor-owned utilities, including Duke Energy, Baltimore Gas and Electric (BGE), Pacific Gas and Electric (PG&E), Tucson Electric, and Xcel Energy, discussed DR program trends and customer experiences.  The most eye-opening comment came from Andrew Hoffman at PG&E, who noted that the company’s studies have shown that DR customers who participate in actual DR events exhibit higher customer satisfaction than customers who do not.  This somewhat surprising finding may be attributed to those customers feeling a sense of achievement in being part of the solution to an energy problem.  There is certainly a tipping point, beyond which customers may feel they are participating in too many events, but it is helpful to consider that DR is not an immediate turnoff.

The DR Effect

The most out-of-the-box session considered how DR could be used as a hedge against extreme weather impacts on electricity and natural gas markets.  The polar vortex this winter led to tremendous spikes in prices, which hit both energy suppliers and end users.  Utilities and suppliers typically purchase financial hedging instruments, like swaps and options, to cover themselves in unusual temperature circumstances.  Brian Beebe from Swiss RE posed the question of whether these entities could also employ DR as a physical hedge in those situations.  This theory holds new sources of potential value for DR in the financial and insurance industries.

Breaking away from the utility mindset, a panel of competitive energy suppliers explained their DR offerings and how they combine them with commodity products to increase customer loyalty and satisfaction.  Constellation has a suite of solutions for commercial and industrial customers to reduce supply bills through DR and energy efficiency.  Reliant offers Nest thermostats to residential customers and has plans that include free nights and weekends, akin to cell phone plans.  TriEagle Energy partners with ecobee and Weatherbug to provide energy management services.  Innovations in business models will flow more from these types of companies than from the utilities directly because they have the freedom to experiment and the profit motive to take the risk.

Spring is a good time to reflect on the winter’s activity and ponder the summer’s impending action.  Then, we can do it all over again in the fall and see how our predictions played out.

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