Cleantech Market Intelligence
Wrapping Up a Tumultuous Year for Demand Response
2016 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.
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 (EGs) for DR purposes. In 2015, the US Court of Appeals overturned an EPA rule that 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.
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.
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 DR 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.