Navigant Research Blog

This Land Is a Demand Response Land for You and Me

— June 26, 2015

Just like the old folk song, June has been a good month for demand response (DR) from California to the New York Island. First, the California Independent System Operator (CAISO) released a proposal to allow aggregated distributed resources to bid into its markets, potentially as early as next year. Then, the New York Public Service Commission (NYPSC) approved all of the plans of the state’s utilities (aside from Consolidated Edison [ConEd]) to commence DR programs this summer. The programs are modeled on ConEd’s existing suite of DR programs.

CAISO found a way to introduce a new acronym, distributed energy resource provider, or DERP, into the industry lexicon. The proposal lays out a framework for allowing aggregated resources of at least 500 kW to participate in the market. There is also a requirement that any aggregations serving more than a single grid pricing point must be limited to a single type of technology. Metering has been one of the hurdles to DR participating in CAISO markets because the system requires generation-scale monitoring. The new rules would allow DR to be aggregated via the Internet, providing for a broader range of resources to be brought to market with less cost. DERP aggregators will be a scheduling coordinator metered entity, which will avoid “having each sub-resource in a DERP aggregation engaged in a direct metering arrangement with the CAISO,” according to the proposal. Access to ancillary markets, however, will still require resources to allow constant monitoring by CAISO. CAISO’s board is set to consider the proposal in July, but would need approval from the Federal Energy Regulatory Commission (FERC) before it can move ahead with the plan.

Meanwhile, in New York …

A week later across the country, NYPSC gave the green light for the upstate investor-owned utilities to follow ConEd’s lead and offer distribution-level DR programs to their customers starting this summer, a very quick turnaround time. This order is one of the early wins of New York’s Reforming the Energy Vision proceeding to transform the utility model in the state. The programs have three basic types: a peak shaving program to be called on a day-ahead basis when demand is expected to hit the summer peak; a local distribution reliability program to be called on as needed for localized issues; and a direct-load control program that lets customers install a device that can be controlled by utilities to control loads to compensate for system stress. Customers can take part in the programs individually or through an aggregator. This summer, the utilities are prioritizing areas that offer the greatest benefits at the lowest costs, based on factors including system stress and local distribution constraints for the year. All of the DR programs will be available starting next summer.

So, while the DR community continues to wait for the Supreme Court’s ruling on FERC Order 745 on DR compensation, the states are pushing the DR agenda ahead rather than waiting for direction from the feds.

 

The Customer Interface in the Cloud

— May 12, 2015

As described in Navigant Research’s recent white paper, The Energy Cloud, the power grid is undergoing a fundamental transformation to a decentralized architecture. This shift will bring profound changes to traditional stakeholder relationships. Specifically, the broad array of residential consumers—most of whom are beholden to their utility service providers and lumped together as a monolithic entity in traditional rate design—are emerging as one of the key underlying drivers of this change.

For utilities and stakeholders responding to this shifting market, early battles are being waged to lock-in consumer engagement. As Tesla’s recent Powerwall announcement demonstrates, in this emerging landscape, brand matters. Interface matters. Ultimately, as described in a recent article in Intelligent Utility, future customer engagement strategies will have to be diverse, flexible, and multichanneled. But above all, these strategies must seek to facilitate a connection between the residential consumer and the products and services they demand.

Prosumer Defection

Empowered by greater access to tools and direct marketing from intrepid companies, residential customers are exercising more control over their electricity usage and spending and over when and what type of power they buy. In some cases, these consumers are demanding the ability to self-generate and sell onsite power back to the grid. The dramatic rise of solar PV has demonstrated that, at the right price, consumers will embrace choice and ownership over their energy consumption patterns.

A growing minority of energy prosumers, meanwhile, are cutting out the utility entirely. As zero-energy homes demonstrate, when the capabilities of rooftop solar and other distributed energy resources (DER), energy efficiency improvements, and home energy networks are integrated, the resulting network can render the traditional utility-customer relationship obsolete. When aggregated across a distribution network, utilities take notice—which is exactly the scenario described in the Rocky Mountain Institute’s Economics of Grid Defection report.

Renew and Replace

Customer empowerment is not unique to the power sector. As markets mature, the industrial model of companies owning and people consuming is often undermined by technology innovation. This typically results in a power shift in favor of customers. In the power sector, companies like NRG Home are positioning for just this scenario.

While the initial adoption phase of customer empowerment has ushered in a broad transformation on the grid through energy efficiency and DER, the next phase, replacement, will bring about a far more profound shift. Ford’s Model T proved that customers were willing to embrace the automobile over horse and buggy, for example. As disruptive as this was, the next hundred years proved that customers will exercise greater scrutiny and demand for product diversification, giving rise to a $1 trillion dollar industry.

During this replacement phase, companies invest to compete both for existing customers and for the customers of competing entities. They refine their product lines and cater to increasingly specific segments of the market. Some bundle services to drive value. Others sell no tangible products at all and instead provide access or an interface.

Who Needs Products?

Meanwhile, residential consumers are moving beyond the static behaviors accounted for in traditional utility rate design. Regardless of the market or circumstances, over time, consumers become more sophisticated and knowledgeable about the products they consume. They exercise greater scrutiny around quality and sourcing. They seek value and convenience. Eventually, they come to expect that technology will cater to their preferences.

Ultimately, presented with more choice with respect to price, quality, attributes, and features, consumer’s preferences and demands begin to define product lines. It’s the coming replacement market for demand-side energy solutions. In the home, for example, consumers have responded to product diversification in seemingly banal appliance markets like washers and dryers and more recently thermostats and smoke alarms.

It takes a long time to break down something as longstanding—and with as many private sector and government interests—as the power sector. But as the emerging energy cloud demonstrates, it’s happening; people are opting for more control over their energy dependence.

As customer engagement strategies mature in the energy cloud, there are important lessons to glean from the fast-expanding sharing economy where consumer entrepreneurs are competing with well-established entities. Interestingly, some of the fastest-growing companies facilitating these transactions—Uber, Facebook, Alibaba, and Airbnb—own no products at all.

 

PG&E-Bidgely Pilot Yields Energy Savings, Now It Needs to Scale

— April 20, 2015

Separating energy use in a home down to the appliance level for improving efficiency has long been a goal of technology vendors and utilities alike—some call it a holy grail. The latest effort by California utility Pacific Gas & Electric (PG&E) and partner Bidgely yielded up to 7.7% energy savings among some 850 participants in a pilot program. The results were announced recently and highlight one of several methods aimed at energy load disaggregation.

The PG&E-Bidgely pilot lasted from August through December of last year. Customers who took part were given an in-home energy monitor that gathered real-time electricity consumption data from a smart meter and broke it down by device. For example, the amount of usage by an air conditioner, refrigerator, pool pump, or clothes dryer was broken out along with a cost estimate. The Bidgely system then provided updates and alerts to customers through online access or mobile devices. Armed with this data, customers could take steps to reduce their consumption, such as delaying a dryer cycle until rates were lower or adjusting the air conditioner (AC).

Points of Entry

Other vendors in this space, like PlotWatt and Smappee, offer to analyze and interpret energy consumption down to the appliance level, as well. Both offer ways of detecting appliance-level consumption and utilize a separate device to do so. But unlike Bidgely, these companies are not focused on utilities as their market point of entry. PlotWatt aims its service at residential customers and restaurants, while Belgium-based Smappee is going direct to consumers for now.

The other big player working to help utilities’ customers reduce consumption is Opower. Though it does not disaggregate household load, its programs do help residential customers change their behavior to reduce consumption. Opower programs have shown that energy use can be reduced by 1% to 3%. In behavioral demand response programs, peak demand has been lowered by up to 5%.

Mainstreaming

For its part, Opower has been able to convince dozens of utilities to deploy its solution at scale among millions of end users. The challenge for Bidgely and the disaggregation competitors is this issue of scale. Can they also provide insights and help change user behaviors across a large number of customers? These latest results are promising, and Bidgely has expanded with projects at Texas utility TXU and London Hydro in Canada. As noted in Navigant Research’s report, Home Energy Management, there is growing momentum and consumer awareness around the latest tools for reducing energy use. The trick will be in sustaining this momentum and moving beyond early adopters and into the mainstream.

 

In Golden Age, Natural Gas Becomes Generation Workhorse

— March 9, 2015

The promised golden age of natural gas has begun to take hold globally. Fortunately, rising natural gas demand will not require a corresponding increase in infrastructure spending across the United States, according to a recent report from the U.S. Department of Energy. These findings hold even as the U.S. electric power sector—currently the largest consumer of natural gas in the country—saw generation from natural gas replace that of coal in recent months. This corresponds with a sharp increase in demand for natural gas from multiple end-use sectors.

With the Henry Hub reference price for natural gas in the United States lingering below $5 per million Btu (mmBtu) since the early part of 2014, a demand surge is expected to continue across the power generation sector.

Renewables and Gas

The United States, already the largest consumer of natural gas in the world, is expected to see a 33% increase in demand by 2040, according to the U.S. Energy Information Administration’s Annual Energy Outlook 2014 reference case. Growth is expected to be 42% for the electric power sector between 2012 and 2040 under the same scenario.

Living up to its promise as a bridge fuel to a low carbon future, natural gas is helping backfill baseload generation, especially in areas where coal plant retirements are highest. The combination of wind or solar power and gas-fired generation, meanwhile, has emerged as an option for states looking for more access to lower-carbon electricity. This hybrid approach is playing out across the expansive areas of the West, where electrical grid transmission bottlenecks have made it difficult to export renewable generation from areas of high productivity (e.g., Wyoming) to population centers on the West Coast, for example.

Not Laying Pipe

The increased use of natural gas in the electric power sector, however, is not without potential challenges. Unlike competing fuels, natural gas is delivered as it is consumed, and cannot be stored onsite like coal. Furthermore, adequate infrastructure is needed to maintain electric system reliability. The investment of $65 billion in new interstate pipeline construction over the past 18 years appears to be sufficient to deliver natural gas from producing regions to end users across the country without substantial new investment.

Unlike the U.S. electrical grid, natural gas power plants and natural gas production are both broadly distributed rather than geographically concentrated, reducing constraints on interstate pipeline capacity. What’s more, lower-cost investment options, such as improving the utilization of existing infrastructure and rerouting gas flows, are far cheaper than building new pipelines.

As the U.S. power sector faces several concurrent transitions—retirement of coal-fired generation, aging electrical transmission infrastructure, and a surge in the use of intermittent renewables—these findings suggest that natural gas will continue its emergence as the workhouse on the modern electrical grid.

 

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