Beyond Demand Response Smart Flexibility Management in a Distributed Energy World

By Amit Narayan, AutoGrid

The energy world is undergoing a fundamental transformation. Renewable energy capacity is exploding. Renewables in 2015 represented more than half of global new power capacity, with record growth of 66 GW of wind and 49 GW of solar PV, the International Energy Agency (IEA) reports. Meanwhile, energy storage costs are plummeting, with lithium-ion battery pack costs having dropped from $1,000 per kWh in 2010 to less than $400 today, and on pace to drop to less than $300 per kWh by 2020, according to Bloomberg New Energy Finance. The Internet of Things (IoT) now enables energy service providers to connect to millions of smart thermostats, lighting systems, hot water heaters, CHP units and other distributed energy resources (DERs) in customers’ factories, office buildings and homes. Deregulation has opened up the electricity market so that utilities are now seeing system operators, electricity retailers, aggregators and even energy consumers actively participating in the energy value chain.

These and other forces are placing tremendous pressure on utilities, electricity retailers and other energy service providers to figure out how to balance supply and demand on an increasingly distributed and multi-directional grid, keep up with the competition by finding new ways to lower expenses and launch services that generate new revenue streams, and improve customer engagement by offering customers more energy choice and flexibility.

One way that energy service providers have sought to address these challenges is with demand response (DR). Since the 1970s, energy service providers have been using DR to reduce peak load, helping them avoid building peaking power plants, reduce expensive peak demand electricity purchases, and defer T&D upgrade investments. Navigant Research finds that global DR capacity represents 39 GW of capacity today-much more than grid-scale energy storage-and is scheduled to reach 144 GW in 2025. Yet, despite this success, energy service providers have still struggled to convince their customers to embrace DR and make DR a reliable dispatch-grade resource.

The Rise of Flexibility Management

A new way of thinking about and using DR, as well as energy storage and the myriad of other distributed energy resources (DERs) connected to the grid, however, is turning these connected energy assets into cost-reducing, revenue-generating, customer-engaging sources of reliable capacity-flexibility management.

Flexibility management enables energy service providers to predict, optimize and manage any energy resource, allowing it to be controlled, in real time and at scale. With the on-demand, flexible capacity delivered by DR and other DERs, utilities and energy service providers can smoothly navigate the transition from the traditional, centralized, fossil fuel-powered one-way grid to a modern, distributed, renewable energy-powered and multi-directional grid.

Flexibility management programs do not include just DR, but also DER management systems (DERMS) that manage smart inverters, energy storage systems, central heat and power (CHP) units and other DERs. They also include virtual power plants (VPPs) that can aggregate customer-owned energy storage, distributed generation and other demand-side resources and then monetize the capacity from these resources in energy markets.

The Power of the Energy Internet

While flexibility management offers energy service providers the opportunity to succeed in a new distributed energy world, flexibility management needs to be intelligently implemented if energy service providers hope to realize its benefits. Specifically, they must ensure that their flexibility management programs can reliably dispatch capacity from DERs, extract the most capacity possible from these DERs and maximize both cost savings and revenues. Fortunately, by harnessing the data flowing across the digital network that connects to the millions of DERs on the grid-the Energy Internet-energy service providers can optimize and extract flexible capacity from them. By making smart use of the Energy Internet, energy service providers can successfully use DR, DERMS, VPPs or other flexibility management programs to enhance system reliability, engage customers, lower expenses and grow revenues.

Solving the DR Dilemma

DR provides an excellent example of how the Energy Internet can supercharge the impact (and benefits) of flexibility management. For years, energy service providers have been frustrated by difficulty in engaging customers in DR programs. In addition, when energy service providers do engage customers, they’ve struggled to balance their customers’ demands for ease of use, device choice and self-control with their own need for simplified dispatch and predictable load shed.


Virtual Power Plants enable energy service providers to aggregate and optimize the capacity from customer-owned CHP units, energy storage systems and other demand-side distributed energy resources, and use this capacity to capture new revenue streams in wholesale energy markets.

Many energy service providers, however, are now using advanced analytics, online portals, mobile devices and other Energy Internet technologies to deliver customers highly personalized programs that are easy to enroll in and keep customers engaged, increasing participation rates. In addition, advanced analytics and machine learning technologies enable energy service providers to use flexibility management across the Energy Internet to reduce unpredictability from variable loads and load sheds-even from voluntary behavioral DR programs-providing them with reliable, accurate load shed when there is a DR event. By intelligently using the Energy Internet, utilities can finally deploy dispatch-grade demand response programs that leave both them and their customers happy.

Improving DER Integration into the Grid

DERMS provide a newer, yet just as relevant example of the power of the Energy Internet to enhance flexibility management benefits. Many energy service providers are using asset-specific solutions to manage the growing number of smart inverters, energy storage systems, CHP units and other distributed generation resources at the grid edge (if they are using any solution at all). While these “niche” solutions might improve management of these DERs incrementally, they do not help energy service providers reduce these DERs’ disruption of local power quality and skewing of voltage regulation, or allow them to optimize their entire portfolio of DERs, reducing the total amount of flexible capacity available to them.

The Energy Internet enables a network-centric DERMS approach that treats all assets, programs and customers as a portfolio of resources that can be optimized holistically. This approach harnesses all DERs-ranging from distributed generation to energy storage to DR-creating a “network effect” that multiplies impact. The Energy Internet also allows energy service providers to surgically target dispatch at the substation, feeder or transformer level based on local grid conditions. Energy service providers, for example, can alleviate or eliminate power quality issues by sending targeted power quality settings to groups of smart solar inverters in real time, preventing reverse flows and high local voltage. In addition, Energy Internet analytics can aggregate, forecast and optimize capacity from DERs at the substation, feeder and transformer levels, allowing energy service providers to better use their DER capacity to avoid capital investments in system upgrades. By allowing energy service providers to connect to and manage any type of DER, from any vendor, in real time and at scale, the Energy Internet transforms the proliferation of DERs at the grid-edge from a challenge into an opportunity.

Generating New Revenues From VPPs

Perhaps one of the most exciting ways the Energy Internet can enhance the benefits of flexibility management is to be found in VPP programs. By aggregating and optimizing the capacity from customer-owned DERs, VPPs provide energy service providers with an opportunity to use this capacity to capture new revenue streams in wholesale energy markets. VPPs have the added value of meeting their end-customers’ demand for services that help monetize the capacity of DERs. They also balance out the growth of intermittent renewable generation with energy storage systems and other low-cost DERs, helping avoid the need for new peaker plants.

Flexibility Management

By leveraging all categories of DERs on the Energy Internet, modern flexibility management solutions generate new revenue streams and cost savings for energy service providers.

Many energy service providers, however, have had difficulty deploying and benefiting from VPPs, as they have not been able to aggregate a wide variety of DERs in real time and at scale. Successful VPP initiatives have used Energy Internet technology that can collect data and optimize set-points every second, allowing them to forecast, control and aggregate hundreds of assets in close to real time. In addition, they have deployed VPP solutions with broad out-of-the-box connectivity that extends the size and reach of these VPPs, accelerating asset integration while maximizing the VPP’s scalability and flexibility. Eneco, for example, is currently using a VPP to control combined heat and power (CHP) units located in greenhouses and other DERs at other customer facilities throughout the Netherlands, helping them secure revenues in the country’s wholesale power market, integrate more renewables, and increase engagement with end-customers.

Integrated Flexibility Management

One additional advantage the Energy Internet delivers is the ability to combine DR, DERMS, VPPs and other flexibility management programs. The network effects of having a holistic view and comprehensive control over multiple flexibility management programs, for multiple customers, with multiple types of DERs, reduces deployment, customer acquisition and other costs while greatly increasing the volume, reliability and ultimately the value of distributed capacity.

Winning in the New Distributed Energy World

Flexibility management might have started off small in the 1970s with DR, but it has grown and evolved to the point where today practically every energy service provider in the world is considering how it can use DR, DERMS, VPPs and other flexibility management programs to meet the challenges of an increasingly competitive, complex and distributed energy world. The amount of capacity managed by AutoGrid Flex (AutoGrid’s flexibility management software), for example, has jumped from 150 MW in 2014 to more than 2 GW today. By allowing energy service providers to optimize the flexible capacity from all possible types of DERs, from all customers, and from any program, the Energy Internet provides them with the intelligence they need to maximize the benefits of flexibility management and win in the new energy world.

Amit Narayan is the founder and CEO of AutoGrid, Inc. From 2010 to 2012, he was the director of Smart Grid Research in Modeling & Simulation at Stanford University, where he led an interdisciplinary project related to modeling, optimization and control of the electricity grid and associated electricity markets. He received his bachelor’s degree in electrical engineering from Indian Institute of Technology at Kanpur and a Ph.D. from University of California at Berkeley.


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