Navigant Research Blog

Is Demand Response The Wrong Strategy?

— August 6, 2012

Warren Causey, who has earned his right to provocative punditry, postulated recently on Smart Grid News that perhaps demand response and dynamic pricing are wrongheaded ideas.  He’s not the first to make this argument; this question is at the heart of the industry’s hand-wringing over “consumer engagement” for the last several years.  In fact, you could say that the wisdom of driving consumer behavior change is perhaps the only rational consumer argument worth having.

A while back, I argued that opponents on both end of the political spectrum should have reasons to embrace dynamic pricing: Tea-Partiers should support free market-based energy pricing, and Occupy-movement types would surely embrace forcing wasteful power users to “pay their fair share.”  So I believe linking consumers with the real cost of electricity is good idea that, if done well, will benefit many across the value chain.

However, what if the fundamental premise is wrong? The concept of demand response is based on the assumption that electricity, which inconveniently requires generation and consumption to be time-synchronized, is a scarce and expensive resource.  Hence it needs careful optimization.  Will this always be true?

Earlier in my career, my job was defining product requirements for networking equipment and associated silicon.  I argued the finer points of media access protocols, quality-of-service mechanisms, and advanced queuing algorithms, all in the name of “bandwidth optimization,” because, as everyone knew, bandwidth was a scarce and highly valued resource.  That was less than 15 years ago.  Then came cheap, plentiful, high-capacity fiber, dense wave division multiplexing, and advanced digital signal processing for twisted-pair copper wires, and suddenly bandwidth wasn’t so scarce anymore.  And simple (and wasteful) Ethernet, alongside simple (and wasteful) IP, trounced the ATM, FDDI, Token-Ring, and myriad other “bandwidth efficient” protocols of the age.  Eventually this simple but wasteful technology became responsible for dismantling and rearranging the entire telephone industry.  Fortunately, I had the opportunity to ride the fun side of that wave, but many experienced the more destructive side.

One of the commenters on Causey’s SGN article mentions the “Enernet” pitch developed by Bob Metcalfe (Ethernet inventor, venture capitalist, and industry pundit), who claims that the same market dynamics behind the telecom revolution can apply to energy, if we get the incentives right.  Having witnessed Bob’s talk evolve during a stint at one of his companies, I agree with his major points, though the parallels he draws can be overdone.

So what technologies could end the scarcity of electric power?  Today’s fracking-enabled, cheap, and seemingly abundant natural gas is already upsetting the energy management apple cart, at least in North America.  Advances in energy storage and net-zero energy buildings and homes (whether via green construction, local renewable generation, small fuel cells, or a combination) are other potentially disruptive examples.  Even straightforward energy efficiency initiatives may have the side effect of reducing the percentage of load available for demand response.

Does this mean that we should ignore the near-term benefits of dynamic pricing, demand response, and other supplier-grid-consumer connections? I think not.  But Causey is right that our industry must be open to challenging fundamental assumptions, and be on the watch for inevitable waves of creative destruction.


Tortoise-Like, Ford Joins the Plug-In EV Race

— August 2, 2012

Toyota’s persistence with the Prius has paid off handily for the company.  The model line has dominated the hybrid market since hybrid light-duty vehicles were first commercialized, and has cemented Toyota’s title as the premier maker of fuel efficient automobiles.  Despite the best efforts of GM, Nissan, Mitsubishi, and Honda to capitalize on the next wave of fuel efficiency with plug-in vehicles, the Prius is having its best year, ever becoming the third best-selling car globally, thanks to four new models in the series including a plug in hybrid vehicle (PHEV) with an 11-mile all-electric range and a $32,000 MSRP.

Of the major auto OEMs, Ford has seemed somewhat apathetic to Toyota’s predominance, as it has never debuted an advanced hybrid or plug-in model with the marketing hype of its competitors.  Ford was the first Detroit automaker to offer a hybrid domestically and internationally, though, and its 2013 line-up of plug in vehicles for the U.S. market is arguably the most impressive of any major automaker’s.  Headlines are generally reserved for the automakers first to market with plug in vehicles, i.e., Chevrolet and Nissan.  Ford seems to be quite content with its slow but steady role, and the strategy may well pay off.

Ford’s 2013 lineup for passenger vehicles includes the all-electric Focus, the plug-in hybrid Fusion Energi and C-MAX Energi, and updated versions of both its hybrid models, the Fusion and the C-MAX.   None of these models are “new” – they’re simply updated versions of models that have been successful for the company.  The only thing new about this line-up is that the C-MAX, which has been available in Europe since 2003, will be available to the North American market.  And the C-MAX is the key.

While the all-electric Focus was the company’s first foray into plug-in market, the company has only sold 89 in the last two months.  Ford, however, seems to be more enthusiastic about the C-MAX Energi, which is entering a plug-in hybrid market that is meeting, if not exceeding, expectations for Chevrolet and Toyota.

The C-MAX Energi can hardly be described as flashy, but it should have an impact on the market.  The vehicle’s starting price ($32,950) is slightly higher than the Prius Plug-In ($32,000), but significantly lower than the Volt ($39,145).  Its all-electric range (20) is almost twice the Prius (11) and half the Volt (38), and it not only matches the Prius MPG equivalent rating of 95 miles, but also has the longest combined range at 550 miles.

Though Ford’s entry to the plug in market comes relatively late, the company’s hesitation has served it well, limiting its risk by avoiding a big, Leaf-like gamble.  Ford has followed Toyota’s approach to plug-ins, outfitting old models with the new technology in order to reduce costs, and now the company is finally set to compete against the Japanese auto giant stateside.  The C-MAX Energi is the third plug-in hybrid to hit the market for the general public, and it gives Ford the opportunity to accelerate down the road that Chevrolet and Toyota paved.


Utilities Flunking Big Data 101

— August 2, 2012

Oracle has released an intriguing study that includes a survey of utility executives who collectively say they are not doing so well when it comes to Big Data – i.e., the challenge of making sense of large volumes of complex data that can be transformed to help improve business operations and customer service.  In fact, the utility executives rank themselves among the least prepared to handle the data deluge, something we at Pike Research have noted as a major challenge for the industry as it transforms itself with smart grid technologies.

Here is the relevant scorecard, according to Oracle’s study:

  • Public sector (government), health care and utility industries are the least prepared, with 41% of public sector executives, 40% of health care executives, and 39% of utility executives giving themselves a grade of “D” or “F” for preparedness
  • Overall, 29% of the C-level executives surveyed from 11 different industries in North America give their firms a “D” or “F” for preparedness
  • By contrast, communications industry executives claim to be the most prepared to handle the data deluge, with 20% giving themselves an “A”

Practically all the executives surveyed are concerned about the near- to mid-term data challenges, with 97% saying their firms must improve their use of data over the next two years.  Thus utilities are not alone, just behind the curve compared to others.

So why are utilities flunking out?  One reason is a lack of experience.  Few utilities have ever seen such a huge volume of data generated from utility processes.  In the past, utilities read a meter once a month and sent a bill.  That’s roughly 12 data points per year per meter.  With the latest technology, that volume expands exponentially, with the potential number of meter reads increasing to more than 35,000 per year per meter (based on 15-minute intervals).  That’s an increase of 291,900%!

And that’s just the meter read.  Some advanced meters also send and receive other data related to pricing, pre-paid options, load control, tamper detection, and temperature, which can amount to hundreds of additional attributes that must be processed and correlated.  In addition, the grid itself is being outfitted with a plethora of new two-way communicating devices that report their measurements even more frequently than most smart meters.  These additional types of data create new challenges that many utilities are just now trying to comprehend, and leverage to their benefit and that of their customers.

Moreover, the utility industry lacks skilled data analytics experts.  With just about everyone across the corporate spectrum seeking these people, utilities have to compete for scarce talent.  Most people with these skills are gobbled up by sexier industries, like communications or web-based businesses.  As a result, utilities are turning to third-party vendors for help with data analytics, and that will help ease the burden for the near-term.  However, utilities that want to leverage the data in their own way and perhaps save the cost of outsourcing will need to bring this expertise in-house.

The data deluge is a growing, long-term issue that will test utilities for years to come.  The message from the Oracle survey does have an upside, however: executives know they are failing, which is the first step in making the necessary changes to improving their performance.


Bad Air Days are Good for Clean Transportation

— August 2, 2012

Here is irony at its finest: in many places that refine petroleum products, the air quality has gotten so bad that residents are moving away from the cars that are their target customers.

During the opening session at the Plug-in 2012 Conference in San Antonio, Elaina Ball, the vice president of technical services and energy solutions at utility CPS Energy noted the region has been close to the EPA’s limits on air quality.  Having sufficiently high pollutants to violate the Clean Air Act earns an area the “non-attainment” designation by the EPA, which has serious consequences, including the loss of highway and transit funding, and requires shifting to cleaner transportation fuels.

Ball said that CPS is combatting the air quality problem by replacing coal power with solar, and by promoting electric vehicle adoption by installing 120 electric vehicle charging stations.  In addition to being home to several refineries, San Antonio also has several CO2-intensive cement plants, one of which is adding carbon capture technology.

The EPA’s naughty list includes several refinery-rich regions in Texas that are also promoting electric vehicles in Dallas-Fort Worth and Houston through NRG’s eVgo program, as well other hotbeds of EV activity including Phoenix, the San Francisco Bay Area, Los Angeles, Sacramento, Washington DC, New York, and several others.  Greenville, South Carolina, which is also concerned about achieving the notorious “non-attainment” designation, is home to the Proterra electric bus company, but in another irony, doesn’t have the money to switch its bus fleet to the vehicles produced there.

Even cash-strapped state governments will eventually find the dollars for alternative transportation and clean energy generation sources such as wind and solar, since paying the cleantech premium is still more cost-effective than hitting the non-attainment wall and losing out on those precious federal funds that create jobs and keep incumbents in office.  The EPA’s non-attainment rules are effective in forcing change in transportation and power production when conditions become unhealthy (despite the state of Texas now suing to overturn ozone rules).  For the nascent EV market, the EPA is an excellent driver.


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