Navigant Research Blog

Natural Gas Demand Response – Not Just for Electricity Any More: Part 1

Brett Feldman — March 31, 2017

Coauthored by Jay Paidipati

Demand response (DR) in the electricity sector has been a common practice for decades for utilities and grid operators. When there are emergency situations or high prices, some residential customers and commercial and industrial (C&I) businesses are willing to reduce their electrical load or turn on distributed generation in return for financial compensation or the knowledge they are helping to maintain the grid. Historically, DR is less prevalent in the natural gas industry, but changing market factors have increased interest in the practice.

Similar to the electric side, some utilities offer large C&I natural gas users interruptible rates (IR). IR is an optional program between customers and the utility company that gives the utility company the right to shut off gas service to facilities in return for a reduced rate. It is a blunt instrument compared to customers shutting down parts of their operations to reduce gas usage. Some customers maintain backup gas storage onsite so they can switch to in case of interruption.

A more fine-tuned type of natural gas DR starts by putting communication devices at a customer’s site, then dispatching the device during critical times. The current implementation uses smart thermostats to control residential furnaces and slightly reduce temperature settings during peak heating times.

Why Natural Gas DR Now?

There is an indirect need for natural gas DR because of how it affects the electricity grid. In the past 5 years, natural gas has become the predominant fuel source for generation in many areas of the United States, often replacing coal and nuclear plants as they retire. However, the gas pipeline system was mainly designed to accommodate gas usage for end uses like cooking, heating, and cooling. The pipeline capacity did not anticipate large volumes flowing to power plants—especially in the winter when heating demand is highest.

The limited pipeline capacity was most evident during the polar vortex in January 2014, when pipelines were full but some gas generators could not get fuel, leading to electricity supply concerns and high energy prices. Since the polar vortex, other natural gas constraints and storage leaks have led to other fuel shortages. Some utilities and grid operators have instituted winter electric DR programs to address this concern, but curtailing natural gas usage is another.

The investigation into natural gas DR continues. Part 2 of this blog series will explore barriers to natural gas DR and which companies have successfully implemented it. Part 3 will explore what new concepts could develop in the future.

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