Navigant Research Blog

FERC Releases Latest DRAM Report

— January 11, 2017

ControlsIn December 2016, the Federal Energy Regulatory Commission released its 11th annual Assessment of Demand Response and Advanced Metering (DRAM) report. The report is meant to provide an update on national, regional, state, and utility progress in these two interconnected fields. Much of the report focuses on data and growth trends, but it also delves into regulatory and policy drivers and barriers in the markets to explain the trends. Publicly available data sources such as the US Department of Energy, regional transmission operators (RTOs), and state public service commissions were used for the analysis.

Expanding Markets

Starting on the metering side, the DRAM report states that an additional 6.6 million advanced meters were installed and operational in the United States between 2013 and 2014, for a total of 58.5 million meters. The penetration of advanced meters is also up from approximately 9% in 2009 to 41% in 2014. Regionally, Texas has the highest penetration at 80%, the Western Electricity Coordinating Council (including California) sits at 60%, and Florida is at 57%. After that, there is a large drop-off, with no other region above 35%; the Northeast Power Coordinating Council (New York and New England) is the lowest at 10% as of 2014. The report notes regulatory activities in numerous states that point to continued deployment of advanced metering infrastructure (AMI) across the country.

Regarding demand response (DR), potential peak reduction in the RTOs, independent system operators (ISOs), and Electric Reliability Council of Texas (ERCOT) markets increased to 31,754 MW, a 10% increase from the previous year, outpacing peak demand growth of 4%. The contribution of potential peak reduction to meeting peak demand increased to 6.6% in 2015, up from 6.2% in 2014. This increase can be explained to some degree by changes in the ISO-NE and PJM markets, which display the largest increases. The ISO-NE data includes energy efficiency, which continues to grow in the region while DR has remained flat. In PJM, the capacity price increased significantly in 2015, leading to a rise in DR in the market. However, in 2016, the price went back down and DR participation dropped.

Utilizing New Resources

The report also notes that the North American bulk power system is integrating an increasing level of DR, variable energy resources, and distributed energy resources. As a result, the North American Electric Reliability Corporation (NERC) is considering how these resources can be reliably integrated into the operation and planning of the bulk power system, as well as how these resources affect generation and load resources. To better understand and measure the performance of DR, NERC developed and approved four new DR metrics in 2015. These new metrics measure enrollment and event information to determine actual performance, including the resource’s contribution to improved reliability. Future efforts intend to focus on improving data collection, maintaining data quality, and providing observations of possible DR contributions to reliability.

The report closes by highlighting three barriers to DR growth: implementing time-based pricing, lack of additional market opportunities beyond emergency/capacity type programs, and coordination of federal and state policies. Those should all be easy to overcome by the next DRAM report in a year, right?

 

Winter Season Builds Business Case for Storage, Virtual Power Plants in California

— January 9, 2017

AnalyticsA little over a year ago, the underground Aliso Canyon natural gas storage facility began leaking. While the primary concern was how methane emissions might jeopardize public safety, this event also created a crisis in energy supply in Southern California. As it turns out, it became the largest methane leak in US history. By some estimates, the leak had a climate change impact equivalent to burning 1 billion gallons of gasoline. The value of the leaked natural gas has been estimated at more than $21 billion.

However, the leak from the gas field, which supplied fuel for a fleet of fossil fuel plants serving as one of the backbones of the regional power supply, also created an ideal market opportunity. The only way to fill in the gaps opened by the leak was through distributed energy resources (DER) that could be mobilized in short order. Among the innovative solutions are virtual power plants (VPPs) enabled by energy storage.

Distributed Solutions

The sate moved swiftly. The California Public Utilities Commission (CPUC) made a bold decision, calling for a wide range of DER in late May. Fortunately, Southern California Edison (SCE) and industry providers were positioned to move fast, since contracts were already in place for over 260 MW of energy storage, 5 times the amount SCE had been required to purchase.

Last month, Stem was among the first vendors to deliver aggregated behind-the-meter, commercial-scale storage services. It was the first to pass eligibility tests for SCE’s local capacity requirements. The company has now dispatched the first of many distributed energy storage projects, all of which contribute to its forthcoming 85 MW fleet for SCE, arguably the largest mixed-asset VPP in the world.

The speed and scale for delivering products such as demand response (DR), energy storage, and VPPs are important, as the energy demands of the winter months place an extra burden on utilities for reliable energy supply across the country. Already, independent grid operators such as PJM are revising DR products in lieu of the shortage created by the so-called polar vortex 2 years ago. PJM’s new capacity performance product has created controversy, but its intent is to make DR a year-round resource. Integrating energy storage into such resources can help make that goal feasible. (Last December, the CPUC also strengthened its commitments to DER as a key solution set for year-round reliability.)

Ranking Vendors

Navigant Research released a Leaderboard report late last year ranking VPP software vendors. As an analyst, there is no better way to win friends (and create enemies) than to create a ranking of vendors. Another Navigant analyst wondered why Stem has not on the list. Needless to say, one could make an argument it belonged in the ranking; other vendors also protested their exclusion.

The truth of the matter is that the overlap is increasing between energy storage, DR, and VPP Leaderboards, so this latest ranking was limited to four energy storage firms in order to limit eligibility (with quotas also established for large technology vendors and pure-play software companies). Preference was given to those firms whose software managed onsite solar PV with batteries and loads at the distribution level and then aggregated these into VPPs. Stem is a VPP innovator, but its business model had focused more on demand charge abatement for commercial buildings without onsite distributed generation. Thanks to its above-mentioned engagement with SCE, Stem is now certainly on my radar when it comes to VPPs and energy storage, joining a growing list of innovators.

 

Wrapping Up a Tumultuous Year for Demand Response

— January 3, 2017

Power Line Test Equipment2016 started off with a bang for demand response (DR) with last January’s seminal Supreme Court decision on Federal Energy Regulatory Commission (FERC) Order 745. That beginning might have marked the high point for the year in DR as various events in the regulatory, market, and corporate realms had a mix of positive and negative effects on its overall growth.

Regulatory

Champagne bottles were popped on January 25 in the offices of EnerNOC and other DR companies and advocates after the Supreme Court gave an unexpectedly early and overwhelming 6-2 decision that reversed the US Court of Appeals’ decision on FERC 745 on both parts of the case. The ruling established that DR does fall under FERC’s jurisdiction, and that the payment of the full Locational Marginal Price (LMP) in the wholesale energy markets is just and reasonable.

It seemed like an auspicious start to 2016 for DR. However, counterbalancing the good news to some extent were the US Environmental Protection Agency’s (EPA) rules for emergency generators (EG) for demand response purposes. In 2015, the US Court of Appeals overturned an EPA rule which allowed 100 hours of EG use for emergency DR programs. It granted the EPA a 1-year stay, which expired on May 1, 2016. The EPA had no plans to make changes to the rule, meaning that the court’s ruling remained intact, affecting upward of 20% of DR resources in some markets.

Markets

On the market side, wholesale and retail developments affected DR prospects. The annual PJM Base Residual Auction (BRA) price results for the 2019/20 delivery year came in lower than most analysts predicted. There were actually more DR megawatts offered into this auction than the year prior, but fewer megawatts actually cleared, likely due to the reduced price. Only about 6% of DR megawatts cleared as Capacity Performance (CP), with the vast majority clearing as Base Capacity product. With the Base product set to be abolished for the next auction, there is a big question as to how much DR will clear in a CP-only environment.

While there may be no cohesive national energy plan for the United States, several individual states have taken matters into their own hands to modernize the electric grid, with New York and California taking the lead. In both states, utilities held auctions in 2016 to procure distributed energy resources (DER), including DR, to address electric grid needs. California’s investor-owned utilities—Pacific Gas and Electric, Southern California Edison, and San Diego Gas and Electric—ran the second edition of the state’s Demand Response Auction Mechanism (DRAM). New York took the spotlight in the form of ConEd’s Brooklyn Queens Demand Management (BQDM) auctions in July.

Corporate

2016 saw several corporate activities with major and emerging players in the DR arena, beginning in May with the announcement that Opower was being bought by Oracle for over $500 million. Later that same day, word spread that CPower acquired rival Johnson Control’s Integrated Demand Resources business. Not to be overlooked, AutoGrid, a demand response management system and data analytics vendor, announced a new $20 million investment led by Energy Impact Partners. Finally, EnerNOC undertook several actions that raised questions about its future direction. First, it announced that it was ready to divest its acquisition of Pulse Energy’s utility customer engagement business from a couple of years ago, essentially laying off 5% of its North American workforce. A few months later, the company announced a restructuring, which included laying off 200 employees, mainly focused on the enterprise software side of the business. I don’t foresee 2017 being as active as the last, but a new administration in the White House could bring unforeseen changes to the DR landscape.

 

PLMA Fall Conference Highlights Key Trends in the DR Industry

— December 2, 2016

Power Line Test EquipmentIn early November, the Peak Load Management Alliance held its annual fall conference in Delray Beach, Florida. Aside from the election excitement surrounding the conference, some interesting sessions and trends emerged from the meeting.

The conference agenda has expanded over time as more special interest groups have formed to tackle hot topics in the industry. Community storage and thermostat groups have been meeting for the past several conferences, and this year customer engagement and retail pricing groups were added to the mix. The retail pricing group had a lot of ground to cover and had to first define the boundaries of its scope, since pricing can become a very broad topic if not properly fenced. There was an interesting dichotomy between the public power agencies, which have freedom to offer whatever rates they please, and the investor-owned utilities, which must get regulatory approval for any new rate structures.

Rate Making at the Center

The full conference got underway with an opening panel on rate making. Edison Electric Institute moderated a group including NRG Curtailment Solutions, Georgia Power, Consolidated Edison, and the Independent System Operator of New England. The panel showcased a wide range of perspectives based on varying beliefs in the power of competitive markets, the coordination between retail and wholesale markets, and whether utilities should get directly involved in customer enablement or if it should be left to market players.

Next, some utilities explained their demand response (DR)/smart grid programs for residential customers. National Grid detailed its Smart Energy Solutions pilot in Worcester, Massachusetts, which provided smart thermostats and Wi-Fi gateways to customers. Old Dominion Electric Cooperative described how it went beyond hardware to obtain more DR from customers through innovative communication methods to encourage behavioral changes based on pricing and usage information.

I had the pleasure of moderating a panel on demand response management systems (DRMS) that included PECO, NV Energy, and Consumers Energy. Each of the utilities outlined their implementation experiences with different DRMS vendors and offered best practices and lessons learned to those in the audience who hadn’t yet gone through the process.

Varieties of DR

After lunch, a panel that included North Carolina Electric Membership Corporation, NB Power, ecobee, Portland General Electric, and Nest covered the topic of winter DR. Winter DR has garnered interest in northern climates as well as areas where natural gas constraints are causing a lack of electricity generation (i.e., New England, PJM, and California).

After a long election night, presenters provided a smorgasbord of ideas throughout the next day. Hawaiian Electric discussed the impact of energy storage in combination with automated DR. Duke Energy outlined lessons learned from a smart thermostat program that did not get the desired benefits. CPower navigated the muddy waters of DR in California. National Grid and Weatherbug Home explained how to leverage Internet of Things devices for customer engagement.

The conference closed with a thought-provoking session with speakers from NV Energy, Skipping Stone, Navigant, Alternative Energy Systems Consulting, and Joule Assets pontificating upon the future of the DR industry. I’m looking forward to seeing everyone again in Nashville in April for the next round.

 

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