Navigant Research Blog

Demand Response & Efficiency: Why Can’t They Get Along?

— April 3, 2012

It seems only logical that demand response and energy efficiency should go hand-in-hand.  Both spring from concerns about energy usage and aim to accomplish the same outcome, i.e., energy reduction.  But reality doesn’t always follow logic.

Instead, often the two concepts are pursued by different departments and individuals within a utility.  What’s worse, the two organizations in some cases do not even speak to each other. Although demand response contributes to lower energy use, its main goal is not to achieve energy efficiency.  Rather, it aims to reduce the use of electricity on a temporary basis at a specific time (i.e., in times of peak demand, typically within hours or minutes) in order to balance the grid to avoid power shortages.  By contrast, the main objective of energy efficiency or conservation programs is to reduce electricity consumption on a long-term basis with the help of various energy efficiency measures.

Still, there is a strong interrelationship between demand response and energy efficiency.  In the residential sector, demand response is typically a standalone program that aims to achieve 1 kilowatt (kW) and perhaps up to 2.5 kW of energy reduction from the average household – sometimes through a smart thermostat or a load-control switch on an air-conditioning system.  This often requires incentives from the utility.  But when demand response is integrated with behavioral-based energy efficiency programs to raise customers’ awareness about energy conservation, interest in participating in demand response programs improves significantly.  According to Tendril, “When the ground is first seeded with behavioral-based efficiency programs that begin the energy awareness cycle of consumers – by delivering personalized, relevant information about energy use, the ability for them to set an energy savings goal and measure their progress towards that goal in an active learning environment – consumers can then opt in to more complicated energy management programs that include demand response.”

It is quite possible that the demand response and energy efficiency departments have more in common than they realize or are willing to admit.  Better-informed customers may be the link to integrate the two energy efficiency and demand response camps together.  By educating consumers about the benefits of participation and improving their access to detailed data about their energy use and performance, both groups will essentially seek to achieve the same goal – an educated, well-informed and motivated energy consumer.  Indeed, some utilities have already begun to take steps to bring the two initiatives closer together.  For example, industry sources tell me that some have recently appointed a director to head both the demand response and energy efficiency programs in order to coordinate efforts to benefit both and to leverage each other’s skills and know-how.  Instead of working at cross purposes, utilities should make every effort to create synergies between the two organizations so that they can truly work in unison to achieve new and improved energy efficiency and demand response behaviors.

 

Inverters Rise to the Challenge of Integrating Renewables

— March 13, 2012

The inverter – a technology with the rather unglamorous job of converting Direct Current (DC) produced by most solar and wind generation assets into Alternating Current (AC) for distribution throughout utility grids – is hardly the object of much love.  It’s traditionally been viewed as necessary component of most renewable distributed energy generation (RDEG), but nothing more.  A decade ago, inverters lacked any communications or larger smart grid optimization capacity.  How the world has changed.

I recently presented at the Inverter and PV System Technology Forum USA 2012 event in San Francisco.  While much of my own research (and presentation) focused on the ability of new inverters to offer the service of intentional islanding necessary for microgrids, I was astounded to learn the full gamut of other smart grid-type services modern inverters can offer.  I already knew about Princeton Power System’s ability to offer demand response, but I didn’t realize that many of the issues that seem to give utilities heartburn in regards to solar photovoltaics (PV) – voltage, frequency and ramping concerns – can now be handled by these inverters and “smart” solar PV systems themselves.

Of course, the functionality of inverters is also dependent upon scale.  Today’s inverter market can be divided up into at three primary categories:

  • Centralized Inverters: A relatively recent phenomenon, these larger scale systems have been propelled by the growth in utility-scale solar PV projects that can now reach 250 MW or even 500 MW in total capacity.  Companies such as SMA of Germany, which has deployed 20 GW of total inverter capacity worldwide and boasts a 35% total inverter market share, is big on this technology.
  • String Inverters: This is the most common configuration, as it can be deployed at a variety of scales and is, generally speaking, the most cost-effective choice.  As the name implies, inverters are linked up in a string, either in parallel or along multiple strings.
  • Micro-inverters: Perhaps the biggest market buzz surrounds these technologies, as they offer the ability to control output, voltage and frequency down to the solar PV panel level.  For example, the company Enphase – which deployed over 1 million micro-inverters in 2011 and has captured 34% of California’s residential market – can monitor the performance of all of its deployments every five minutes through a control center located in Petaluma, California.

Ironically enough, many of the variability problems utilities worry about with increased use of renewables can be mitigated by emerging solar and wind power technologies, with the inverter being one key solution.  However, right now, utilities will not allow inverters to provide many of these services in the U.S.  Markets around the world have yet to mature to create a power quality metric making provision of these services cost-effective for any of the parties involved.

Many of the Germans at the Inverter Forum (and they were in the majority since Germany is the world leader on solar PV) pointed out that the country has experienced no blackouts or major problems even though, on a per-capita basis, there is 10 times as much solar in Germany as in California.

One way Germany is able to address high penetrations of solar PV on feeder lines is that the grid operator can simply curtail solar PV systems below 5 kilowatts (kW) in size.  Interestingly enough, the entire European Union is also abolishing the standard utility protocol of requiring inverters to disconnect from the grid during a disturbance, which removes one of the largest stumbling blocks to microgrid implementations, and maximizes the value of these distributed resources.  The Europeans now see the light.  When will the U.S.  get up to speed and allow solar (and wind) technologies – including inverters – to help solve the grid challenges they allegedly create?

 

Has the Time Come for Prepaid Electrical Service?

— February 28, 2012

Everyone is familiar with prepayment, especially when it comes to prepaid wireless phone services.  But, in the United States, the concept of prepayment for electric services is not yet well understood. By contrast, electric prepayment is a common practice in many other nations, especially in the United Kingdom, Ireland, South Africa, and many parts of Asia Pacific.  In South Africa, for example, over 50% of the residents use electric prepaid programs that are offered by its major utility, Eskom, the largest producer of electricity in Africa and among the top seven utilities in the world in terms of generation capacity.  With the oldest prepaid program in Europe, the United Kingdom has approximately 14-15% of all households on an electric prepaid plan – usage of which, according to Ofgem, increased by 5% in 2010.  Recognizing that these types of services represent an essential part of the electric metering market, the U.K. authorities have mandated that the nation-wide roll-out of smart meters will include a prepayment functionality.

In the United States. some observers estimate that less than 10% of the 3,200 utilities in the country offer prepaid electric services.  Texas, Arizona, Oklahoma, Vermont, State of Washington and a few states in the Southeast have been frontrunners, especially among cooperatives and municipalities. The large independently-owned utilities (IOUs) have, on the other hand, been reluctant to adopt prepaid plans – in part because they are more constrained than the other utilities to comply with state utility commission rulings.  As a result, the overwhelming majority of prepaid programs in the country are run by smaller utilities, frequently serving rural and low-income communities with many transients like college or university students.

The oldest and best known prepaid program is the Salt River Project (SRP) in Phoenix, Arizona, which initiated its prepaid program – the M-Power Program – in 1993.  In 2011, its program enrollment rose by 16% to a total of 125,000 participants. This is an especially remarkable achievement because SRP does not advertise its prepaid services.  Oklahoma Electric Cooperative (OEC) offers another, albeit younger, example of a prepaid program with somewhat more than 10% of its total customer base currently enrolled as prepaid participants, i.e. about 5,122 customers. Every resident is eligible to become a participant in this program, though it is most popular among its student population.

Barriers to electric prepaid services have primarily stemmed from objections from consumer advocacy groups, public utility commissions (PUCs) and regulatory agencies.  One fear has been the possibility of utilities shutting off power to certain “disadvantaged” customers.  In November 2011, the Iowa Gazette ran an article pointing to the threat of electrical disconnections from prepaid programs for vulnerable residents, such as the elderly, individuals with disabilities or life-threatening medical conditions.  Another objection has been that prepaid programs might encourage low-income customers to disconnect electric service in order to keep money available for other necessities like food and clothing.  In some instances, PUCs have accused utilities of targeting low-income consumers for prepaid programs, fearing that they are stigmatizing these consumers.  Some time ago, these concerns may have had some validity, but they have begun to make less sense today as prepayment is increasingly becoming the preferred payment method among consumers in a wide variety of situations, especially among mobile phone users.

In addition, there is growing evidence that the benefits of electric prepaid programs far outweigh any of these concerns.  Customer surveys have consistently shown high customer satisfaction – around 80-90% of prepay customers are happy or very happy and would recommend the program to others.  Prepay consumers tend to feel that they are in control of their electricity bill and can better manage their budget by being able to choose when, how, and what they pay each month for their electricity. As one prepaid customer put it:  “It is easier to pay $25 every week than $100 at the end of every month.”  Because prepaid programs encourage consumers to pay attention to their use of electricity, many utilities, such as SRP and OEC, have been able to demonstrate improved energy efficiency behavior among their prepay customers.

Utilities also benefit from prepaid programs, through better revenue protection and cash flow.  With a traditional post-pay system, some consumers may owe hundreds or even thousands of dollars before they are disconnected, whereas with prepayment, a much smaller amount of less than $50 is owed before they are disconnected.  For example, at Brunswick Electric Municipal Corporation, reduction in write-offs has averaged between $1,000 and $2,000 per month. Moreover, in a prepaid system utilities can achieve significant administrative cost savings by not having to support resources to track and collect deposits for initiating electricity for customers, to send monthly bills and to collect reconnection fees from consumers that have been disconnected.  In many cases, electric prepaid services are a win-win.

The growing realization of the value proposition of such services, together with the increasing deployment of advanced smart meters that will greatly facilitate prepaid programs, has become a powerful incentive for U.S. utilities to seriously consider adoption of such plans.  And unlike programs in the past, which frequently targeted low-income residents, the prevalent goal today is to make these programs available to every utility customer.  As better customer choice becomes a key strategic focus among utilities, electric prepaid services will eventually become the new norm – even in the United States.

 

Smart Grid Governance a Work In Progress

— January 30, 2012

After a month’s researching smart grid governance for our upcoming report on smart grid governance, I’ve been reminded of this exchange, from the classic BBC sitcom Blackadder:

Blackadder:  Baldrick, your brain is like the four-headed, man-eating haddock fish-beast of Aberdeen.

Baldrick:  In what way?

Blackadder:  It doesn’t exist.

It’s a bit harsh to say that smart grid governance doesn’t exist, but we have a ways to go before there is widespread deployment of genuine GRC – governance, risk management, and compliance – in smart grids.  Especially in industrial control networks.  To set the scope, I considered the following as part of GRC:

  • Cyber asset discovery and identification
  • System of record for cyber assets
  • Cyber asset-based risk assessment tools.
  • Document architectures, policies, and standards
  • Change management
  • Configuration management
  • Accept asset, event, and compliance feeds from many systems
  • Legislative and regulatory compliance capabilities
  • Pre-built templates for relevant smart grid standards and regulations such as NERC CIP
  • Preparation for and management of audits

This list comes with the standard cyber security disclaimer that many of these capabilities may be assigned to other areas of cyber security as well as GRC.  As with nearly every assessment of smart grid cyber security vendors, I ended up with a mix of vendors that fit roughly into three categories:

  • Large companies who offer their general purpose GRC products to utilities as well
  • GRC Specialists – companies that were formed specifically to sell GRC
  • Niche specialists – who target a narrow, and possibly very successful, subset of GRC

All three sets of vendors have innovated, each in their own ways.  Some of the specialists have been doing GRC for nearly two decades.  That is surely impressive for a market often thought to be no older than Sarbanes-Oxley.  But there is no vendor offering an entire GRC suite based upon the above list of capabilities.  Maybe that’s okay, as the scope is rather wide.

Still, forced to choose between large companies with general purpose offerings or small companies with more focused offerings but not the same resources, I concluded that there are no leaders in this industry.  That’s not surprising for a relatively new industry.

More challenging than identifying an industry leader was to identify a client base for any of the vendors that were profiled.  Some very large vendors – and some of the innovators – could quote a list of utility customers in the 5-10 range, but clearly no GRC vendor has taken the utility market by storm.  The obvious corollary to small client bases is that very few utilities have deployed smart grid GRC yet.  Hence the reference to poor Baldrick.

So, Smart Grid GRC can be summarized as a new industry, with no established leaders, no company with a commanding market share, and the prospect of much legislation that has not yet been written.  That looks an awful lot like a growth industry, and for me, fun to watch.  But which way will it go?  The way of cyber security, with many point solutions that may or may not someday form a working whole, or similar to the meter data management market, wherein vendors compete to offer the most all-inclusive business-oriented solution for the market?

GRC solutions place a premium on business awareness and thoroughness – not something that can be said of cyber security disciplines such as encryption or embedded device protection.  So let’s hope that GRC will go the way of MDM.  There’s one other aspect of the MDM market that must be recalled: nearly all the MDM innovators have now been acquired by much larger companies.

 

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