Navigant Research Blog

New York Details Its Vision for the Future of Energy

— March 2, 2015

On February 26, the New York Public Service Commission (PSC) released its long-awaited Phase 1 Order on its Reforming the Energy Vision (REV) proceeding. The order lays out the PSC’s vision for how the future retail electricity market in the state should operate to maximize efficiency, improve reliability, engage customers, and create clean, affordable energy products and services. I can’t cover the entire 328-page order in one blog, but I’ll hit on the major decisions that affect the current utility world order.

The biggest variable in the REV equation was whether the PSC would require an independent party to perform the function of the distributed system platform (DSP), the central role of REV. According to the order, the DSP’s functions include load and network monitoring, enhanced fault detection/location, and automated voltage and volt-ampere reactive (VAR) control. That list covers a lot of what the utilities currently do, so taking those tasks away from them would have caused a major shift in the market landscape. However, the Phase 1 Order outright supports utilities acting as the DSP as a way to minimize the redundancy of actions. This singular decision vastly limits the potential impacts to the state and the utilities. Utilities must be breathing a sigh of relief.

Metering Alternatives

A second thorny issue was whether utilities should be able to own distributed energy resources (DER) or whether DER should be the sole domain of the competitive marketplace. Many market players wanted to prohibit the utilities from competing with them when they might have a natural advantage in acquiring customers. Under the order, utilities will be able to own DER if they run a solicitation to meet a system need and they are able to show that competitive alternatives are inadequate or more costly than a traditional infrastructure alternative. They will also be able to invest in storage to the extent it functions as part of the transmission and distribution (T&D) system. This seems like a reasonable compromise that should work for most parties.

The last major component is advanced metering infrastructure (AMI). Earlier communications from the PSC hardly mentioned metering at all, so it was unclear how the final rule would play out. In fact, the Phase 1 Order does not mandate AMI deployment by utilities. Rather, the PSC prefers the term “advanced metering functionality” (AMF)—meaning that other technologies, including ones provided by third parties, may be able to achieve the desired functionality cheaper and more efficiently than AMI. It states that “each utility Distributed System Integration Plan (DSIP) will need to include a plan for dealing with advanced metering needs; however, plans that involve third party investment may be preferred over sweeping ratepayer funded investments.” This indicates that utilities should consider AMI alternatives before choosing a path forward.

Ticking Clock

As far as next steps, the utilities’ integration plans must be filed by December 15, 2015, so the clock is ticking. Phase 2 of REV will consider reforming the PSC’s ratemaking process so that utilities do not have disincentives to further developing DER. Utility income is tied to bond funds now, but they should depend more on creating value for customers and achieving policy objectives. A draft proposal is expected by June.

It was interesting trying to guess which way the PSC would fall on these and other major issues. Now the real fun begins: implementing the vision.

 

Adapting to the New Demand Response Landscape

— January 27, 2015

Demand response (DR) was first employed in the United States the 1970s.  At that time, DR was implemented as a component of the energy conservation focus of demand-side management (DSM) programs to encourage consumers to use less electricity during peak hours or to shift their energy use to off-peak times.  Utilities have run residential direct load control programs as forms of demand management and offered interruptible rates to commercial and industrial customers for many years.

Today, however, the electric grid needs resources beyond just meeting peak demand situations, requiring more flexibility and faster response.  A number of drivers point toward increased DR adoption by utilities and grid operators around the world.  The changing resource mix in electric grids globally is creating more potential for DR to play a pivotal role.  As coal and nuclear plants retire due to economic or environmental factors, clean replacements are needed that can be built in short timeframes.  Conversely, as large-scale intermittent renewable resources like wind and solar power fill in this gap, they require backup solutions when the wind is not blowing and the sun is not shining.

New Training Course

At the same time, new market types, including ancillary services such as spinning reserves and frequency regulation, are opening up to DR.  The concepts of resilience and microgrids have taken strong root along the Atlantic Coast following Hurricane Sandy in 2012, and DR will be an integral part of those developments.  The advent of grid modernization is also tied to this new view on how the grid should be designed.  With the proliferation of advanced meters that can record usage at very small intervals, more dynamic types of pricing can be applied down to the residential level.

To help utilities navigate through this changing landscape, the Peak Load Management Alliance has developed a series of DR training courses.  The next session, DR Program Design and Implementation, will take place from February 18 to 19, hosted by NV Energy in Las Vegas.  The 2-day course will first cover program development topics like DR program types; how to determine market potential; designing programs and managing portfolios of programs; and calculating cost-effectiveness.  The second day will delve into program implementation strategies and tactics such as staffing and operations; strategic outsourcing; technology architecture and integration; and evaluation, measurement, and verification.

A Visit to the NOC

NV Energy is a pioneer in testing out innovative DR program designs in an extreme climate.  The company has a diverse portfolio of programs that includes a range of applications, along with various flavors of direct load control, dynamic pricing, and DR in combination with energy efficiency programs.  The Las Vegas course will include a visit to NV Energy’s operations center, along with a first-hand look at its DR management system in action.

For utilities considering or being required to implement DR programs (which includes just about every utility today), this is a great opportunity to hear from industry experts and meet peers from across the country to exchange experiences and best practices.  For more information on the course, please click here.

 

A Tumultuous Year for Demand Response

— January 6, 2015

Weatherman_webThe participation of demand response (DR) in the wholesale markets has been fairly stable for the last 5 years or so.  2014 blew those trends out of the water.

The year came in like a lion, with the polar vortex hitting the entire United States during the first week in January.  Virtually every region of the country activated DR resources during that freeze.  Overall, DR performed well, dispelling myths that it could not contribute to winter reliability.

The spring brought the annual forward capacity auctions for the 2017-2018 power year for ISO New England and PJM, which both showed lackluster results for DR.  In New England, while capacity prices doubled around the region, the amount of DR cleared capacity stayed flat from the prior year’s auction.  Meanwhile in PJM, while the capacity price in the eastern region stayed flat and the western price doubled compared to the prior year’s auction, DR cleared 10% less capacity than last year.

Legal Bombshell

Then the fireworks began.  Everyone in the industry had been waiting for a ruling from the U.S. Circuit Court of Appeals on Order 745 from the Federal Energy Regulatory Commission (FERC) on DR compensation in response to a challenge that was raised by the Electric Power Supply Association a couple years earlier.  The court dropped a bombshell by questioning the very jurisdiction of FERC over DR, and the entire DR community stopped in its tracks.

The rest of the year was consumed by appeals and writs and stays and various other legal maneuvers, with some parties trying to get the court’s decision to take immediate effect and others trying to delay it as long as possible and get the U.S. Supreme Court to take up the case.  As we enter 2015, the fate of the order is still in the balance, and probably will be until the spring, when the Supreme Court will likely decide whether to take up the case.

Meanwhile, Elsewhere …

Other accomplishments in the DR world have been overshadowed by the FERC 745 case.  Baltimore Gas and Electric unveiled the first default Peak Time Rebate program.  New York and California are undertaking large-scale utility transformation efforts.  Internationally, many markets in Europe are percolating with DR activity, and Asia is heating up as well, led by South Korea opening up its electricity market to DR in November.  Finally, merger and acquisition activity in the space has accelerated, with EnerNOC going on a buying spree and Constellation selling its DR business to Comverge to create CPower.  Many of the above topics, along with several other interesting developments, can be found in Navigant Research’s free white paper, Smart Grid: 10 Trends to Watch in 2015 and Beyond.

Will 2015 be equally eventful?  I certainly don’t expect a repeat of the polar vortex situation, so in that respect, DR should get a respite.  I do expect chaos on the regulatory front to continue, though, regardless of the outcome on Order 745.  The regional transmission organizations will likely continue to squeeze all resources, including DR, for higher reliability standards.  More states are expected to push for retail-level DR, both as a reaction to Order 745 and out of their own needs.  And the international arena is likely to expand strongly, providing a relief outlet for companies looking to diversify outside the United States.

 

CPower Reemerges as a Demand Response Player

— December 15, 2014

In October, I wrote about the announcement that Comverge and Constellation would combine their commercial and industrial demand response (DR) businesses into a standalone entity.  The questions were: What would the new company be called?  Would they take one of the existing names?  Combine the two names?  Come up with something new?  Instead, they brought back a familiar brand: CPower, the name of the DR provider that Constellation bought 4 years ago.

But this is not your mother’s CPower, according to Chris Cantone,  the company’s senior vice president of sales and marketing.  The C in CPower carries multiple meanings aside from the lingering brand recognition: the combination of Comverge and Constellation, customer engagement, and curtailment services.  “The market has been excited about the announcement, and our channel partners have been waiting for an independent DR provider,” Cantone told me in a phone interview.  The company is still in a little bit of stealth mode as the behind-the-scenes business combination unfurls, but expect a media splash in the near future.

Divide and Succeed

What value does this new structure bring to the parties involved? Cantone says that the future of DR will entail greater technical requirements, which were hard to fulfill under a larger organization like Constellation.  CPower can be more strategic and proactive on its own, while maintaining a preferred provider relationship with Constellation for its customers.  From Comverge’s perspective, there was a lack of synergy between its utility-focused residential business and its market-focused commercial and industrial business, so it made sense to split them up and allow them to build to their own strengths.

So was Constellation’s purchase of the original CPower 4 years ago a mistake?  No, asserts Cantone.  It was an invaluable experience for the old CPower DR experts to get immersed in the energy markets and learn how DR fits into the bigger picture on the wholesale side with generation and the retail side with customers’ energy procurement strategies.   Additionally, the 2011 deal was the move that set in motion the trend of larger energy entities investing in the DR realm, as Johnson Controls bought Energy Connect, Siemens bought Site Controls, Schneider bought Energy Pool (in Europe), and NRG bought Energy Curtailment Specialists.  Will those combinations survive?  Cantone thinks they will have to deal with the same issues that Constellation did, and we will have to see who can find internal solutions and who sets DR free.

The Real Threat

Regarding business strategy, the initial intent is to focus on the existing markets in the United States, like PJM, ERCOT, NYISO, ISO-NE, and California.  An expansion into utility programs could be the next growth step, followed by selective entry into the burgeoning international arena.

I contacted executives at EnerNOC to get their take on what looks to be their strongest competition, but they declined to comment .  In the meantime, EnerNOC and CPower may find common ground to combat the potential disruption from the court drama over FERC 745 to remove DR from the wholesale markets, which could affect them more than any amount of friendly competition could.

 

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