Navigant Research Blog

A Tumultuous Year for Demand Response

— January 6, 2015

The 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.


The Trouble with Trying to Reduce Residential Energy Consumption

— January 5, 2015

A recent story in The Wall Street Journal (subscription required) reminds us of the difficulty in trying to reduce energy consumption.  The story, by Jo Craven McGinty, notes that after 3 decades of effort aimed at lowering residential energy use in the United States, the overall level of consumption is still about the same, about 10 quadrillion BTUs per year.

Taking a deeper look, however, there is some positive news in the data.  While overall consumption is nearly unchanged, the average energy consumption per household has decreased, dropping to about 90 million BTUs a year in 2009 (latest year available) from about 114 million BTUs in 1980.

So, what is going on? Several things: newer homes tend to be larger than older ones.  And though they have more efficient envelopes and systems (double-pane windows, improved insulation, and efficient heating-cooling systems), it takes more energy to heat larger spaces, and the proliferation of devices in homes has required more energy use.  We now plug in more TVs, computers, DVRs, mobile phones, and second refrigerators.

The Efficiency Paradox

While our homes are more efficient, this is offset by an increase in energy consumption, a phenomenon called the rebound effect, or the Jevons Paradox, which holds that an increase in efficient use of a resource, like energy, can result in greater use and reduce the benefit.   This is not a hard and fast rule, and it is often debated among economists.  Nonetheless, there is a propensity toward squandering some efficiency gains once realized.  For example, when gas prices drop significantly, the cost per mile is lower, and people are more inclined to drive further or faster.

As McGinty points out, Americans receive mixed messages, being hectored to conserve energy while also being constantly invited to buy new gadgets and appliances that require energy.  This is evident in the U.S. Energy Information Administration data showing how consumption by type has changed.  In 1993, appliances, lighting, and electronics accounted for 24% of home consumption, which rose in 2009 to 34.6%.  Space heating was 53% of home energy consumption in 1993 and decreased to 41.5% in 2009.

Annual Residential Energy Consumption by End Use, U.S.: 2009

                               (Source: U.S. Energy Information Administration)

Helping to reduce residential consumption lies at the heart of home energy management systems and represents a key goal of utility energy efficiency programs.  No one is suggesting these efforts should stop just because the net result can seem frustratingly ineffective, or merely incremental.  But, as noted in Navigant Research’s report, Home Energy Management, one of the inhibitors to wider adoption is the uncertainty around net benefits.  Some argue that one way to avoid the rebound effect would be a tax to keep the cost of energy use the same.  But that would be a hard sell.


Finally, the U.S. Considers a National Energy Bill

— August 8, 2013

A new national energy bill in the United States appears to be making its way to the Senate floor and could be debated by lawmakers in the next few weeks.  Known as the Energy Savings and Industrial Competitiveness Act, the bill was introduced by Jeanne Shaheen (D-NH) and Rob Portman (R-OH), and passed by the Senate Natural Resources Committee back in May.  It has received considerable bipartisan support and has been endorsed by a coalition of more than 200 businessesincluding major industrial energy users such as Alcoa, General Electric, and International Paper.

The bill contains a set of prescriptive and incentive measures aimed at the commercial, residential, and industrial sectors.  It tightens commercial and residential building codes, which have been on a consistent trend toward increased stringency over the last few years.  It also directs the U.S. Department of Energy to reauthorize its industrial research and assessment centers (IAC), which assist small- and medium-sized manufacturers in uncovering energy efficiency opportunities.

Passing the Bar

The plan comes on the heels of the climate plan set out by President Obama in June, which established new funding programs to develop clean energy technology and also bolstered a number of existing programs, such as the Better Buildings Initiative, which commits the federal government to $2 billion of taxpayer fund-free energy performance contracts.  Although there is no direct relationship between the two plans, the Shaheen-Portman bill would lower the bar for many of the federal government’s internal energy efficiency goals by allowing the federal government easier access to funds for energy-efficiency measures in buildings and data centers.

The bipartisan support that the bill has received in its formative phases is a testament to the universal appeal of energy efficiency measures, which appeal to conservatives concerned with reducing costs as much as they do to environmentalists.  Many efficiency measures offer paybacks of less than four years.  As Rhone Resch, president of the Solar Energy Industry Association, put it, “Improved energy efficiency should be a national priority—not a political football.”

A long road lies ahead before the Energy Savings and Industrial Competitiveness Act becomes law.  But for the United States, which has been a laggard on national legislation to support clean energy, as the Pew Charitable Trusts concluded in a 2012 report, it represents a significant step toward the type of comprehensive strategy the United States needs to reduce carbon emissions in a cost-effective, and non-partisan, way.


Microgrids: The Golden Ticket for Advanced Batteries?

— June 10, 2012

Discussions about markets for advanced batteries – everything from electric toothbrushes to grid storage, and the various consumer-facing products in between – are some of the most interesting conversations we have at Pike Research.  End markets may exist somewhere, but the pathways these technologies will take remain unclear. Will they be lithium ion? Flow batteries?  We’re not sure. So, as we do with many cleantech technologies, we look to the U.S. military for guidance.

Microgrids have been floated as one pathway advanced batteries might take to achieve electricity grid integration.  In Texas, the Army’s Ft.  Bliss installation is now home to a 100 kW (20 kWh) lead acid battery system that is seamlessly integrated with the base’s microgrid.  The installation, and particularly the inclusion of the battery system, is as much about security for the U.S. military as it is about generating a return on investment.  The advantage of batteries is that they can address multiple applications – supply security, frequency regulation, and renewables integration.  While microgrids offer unique control over systems or islanding capabilities, batteries enhance these features and provide avenues to other revenue streams.

Utility procurement of advanced batteries may be a few years off while companies pursue a “wait-and-see” approach, but microgrids – either on islands, off-grid, or for niche applications – could provide a near-term testing ground.  Microgrids may ultimately be where advanced batteries meet the smart grid.  For example, the Jeju Island smart grid project in South Korea will integrate community and residential energy storage as part of a microgrid on the northeastern part of the island.

Pike Research’s upcoming report on advanced batteries for utility-scale applications broadens the discussion on the microgrid opportunity for advanced batteries.  We anticipate the discussion growing over the next year.


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