The Rising Value of Residential Demand Response

By Debbie Kimberly, Austin Energy

Utilities across the nation are adopting new residential demand response (DR) programs. By 2025, Navigant estimates that residential DR will reach 23 GW in North America.

What accounts for this surge in interest? DR comes down to pure economics-the payoff is almost immediate for both utilities and residents.

Austin Energy first implemented residential DR in 2001. During its lifetime, the program has grown significantly and since 2013 has included a bring-your-own-thermostat (BYOT) option. The BYOT option gives customers an $85 rebate per thermostat if they sign up for DR with one of Austin Energy’s approved internet-connected thermostat models. The program now includes four approved partners and 15 approved models from manufacturers such as Nest. The flexibility to choose a preferred thermostat has been an important component of Austin Energy’s residential DR program that ensures a broad base of potential participants among its customers.

So far, the DR programs have delivered notable savings on transmission and generation. Austin Energy considers its residential DR programs a success and sees strong potential for expansion in the long term. In 2016, Austin Energy calculated that its customers saved pass through charges of roughly $2.25 million in avoided generation costs and reduced energy demand by 50 MW for all DR programs combined.

How did these savings compare with the DR programs’ costs? While there are as many as 73,000 households currently participating in Austin Energy’s residential DR programs, about 13,000 of those are enrolled in BYOT. According to Austin Energy, if each DR participant received an $85 rebate to bring his or her own thermostat to the program, it would amount to about $1.1 million in costs. In addition, Austin Energy spent $650,000 to implement the BYOT program, bringing the project’s total cost to around $1.7 million. This investment represents less than one percent of Austin Energy’s total annual operating costs. Nest has estimated that, with DR impacts of about 15.5 MW for the BYOT program alone and almost $700,000 in annual savings, the return on investment is less than three years. As time goes on, Austin Energy expects savings to increase as new customers join the DR program and existing participants stay on for at least as long as the useful life of their smart thermostats.

On the customer side, smart thermostat prices range from $100 to $300. The Nest Learning Thermostat, for example, retails for around $250. Working with third-party researchers, Nest has found that its thermostat provides homeowners nationwide with an estimated $130 in heating and cooling savings on average per year. Homeowners can pay off the cost of the thermostat in less than two years and reap the benefits of an automated efficiency control for their heating and cooling for years to come. This comes on top of any rebates and the customer savings they get when the utility saves money.

Austin Energy customers save more than $2.25 million in one year combining the impact of all DR programs. As the eighth largest public power utility in the nation, Austin Energy serves close to one million residents. The growth potential for this program is immense and the savings will only increase as more customers enroll.

In addition to providing cost savings with strong long-term growth potential, the utility’s residential DR programs dovetail with its mission to safely deliver clean, affordable, reliable energy and excellent customer service. As a municipal utility, Austin Energy has an obligation to maximize the efficiency of its operations to keep rates down, and residential DR is a fast and effective way of meeting that obligation. The programs also provide a new point of engagement with customers, and because participation in DR as an energy service generally saves them money, their positive experiences (augmented with the familiar interaction with an internet-connected device) tend to improve their opinions of Austin Energy.

Residential DR is already a viable approach to lowering costs and a worthy investment.

As the energy landscape continues to evolve, utilities must adjust how they interact customers, who are transitioning from end users to reliable resources—residential DR programs with smart thermostats are a great way to start.

Debbie Kimberly is vice president of Customer Energy Solutions at Austin Energy. She joined Austin Energy in January 2013. The division in which she works is responsible for the utility’s energy efficiency and demand response programs, green building program, advanced transportation, market analytics, and key accounts, which serves Austin Energy’s largest customers. Kimberly has worked in the utility industry for more than 30 years and spent more than 22 years at the Salt River Project in Central Arizona. Kimberly earned a bachelor of arts degree in international relations from Stanford University and a master’s degree in international management from the Thunderbird School of Global Management in Arizona.

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