DSM/Load Management Evolves into Demand Response

By Steven M. Brown, Senior Associate Editor

This year’s DistribuTECH Conference and Exhibition in Miami Beach, Fla., marked the annual gathering’s 12th edition. Not surprisingly, the show has undergone a number of changes over the course of those 12 years, but in at least one respect, this year’s DistribuTECH bore an interesting resemblance to the conference’s very early years-specifically, in its discussion of demand side management-type programs and technologies.

Twelve years ago, the show wasn’t known as DistribuTECH. Back then, it was the DA/DSM Conference, so named for its focus on distribution automation and demand side management. The conference’s distribution automation content has held fairly steady over the show’s history. But as the market for-and attendee interest in-demand side management waned in the mid- to late-1990s, the DA/DSM moniker was phased out, and the show eventually became the DistribuTECH Conference and Exhibition, as it’s known today.

This year in Miami Beach, though, everything old was new again. DSM and load management technologies were once again a vital component of the DistribuTECH Conference and Exhibition.

Companies such as SchlumbergerSema, Comverge Inc. and Cannon Technologies were touting their enabling technologies on the exhibit floor. In the conference area, an entire new track of conference sessions was devoted to discussion of what has become known as “demand response.” In those conference sessions, utilities such as Gulf Power outlined their recent successes with programs that aim to more closely associate their customers’ energy usage with the basic laws of supply and demand.

Undoubtedly, much of the renewed interest in load management technologies stemmed from the electric power supply and demand imbalances experienced in California and other Western states in 2000 and early 2001. Asking end-use customers from all customer classes to shift and curtail load was discussed as a possible stopgap solution to insufficient generating capacity in California and other supply-starved states. Now that supply and demand have come back into balance at least temporarily will the popularity of DSM and demand response-type programs diminish? Or will the additional benefits attainable via demand response keep those programs running?

Shifting Goals

Although many view demand response as the new, possibly more politically correct name for demand side management, proponents of demand response point out that the two terms are not necessarily synonymous. Demand response is only a component of the erstwhile DSM programs, says Elliot Boardman, executive director of the Peak Load Management Alliance (www.peaklma.com), a not-for-profit corporation whose mission is to develop, demonstrate and evaluate methods for reducing peak electrical demand.

“Demand side management is something that most utilities got into because it was mandated by their public utilities commissions,” Boardman said. “The commissions said “Thou shalt promote energy efficiency,” and that became demand side management.”

But demand response, at least as the Peak Load Management Alliance defines it, does not have energy efficiency as its primary goal-although demand response programs can serve as a complement to energy efficiency efforts.

“Demand response is different from energy efficiency,” Boardman continued. “With demand response, you’re not really saving energy; you’re just changing the way it’s used. You’re still using energy; you’re just using it at different times.”

Boardman said that while earlier DSM programs had efficiency as their main goals, modern demand response programs have as their main goals: economic benefits (both for the customer and the energy provider), improved customer satisfaction and improved power system reliability.

Customer Satisfaction

If improving customer service is one of the primary goals of demand response programs, then the GoodCents Select program in place at Gulf Power Co. could be the poster child for effective demand response. Gulf Power’s program utilizes a programmable thermostat, two-way communications through a gateway installed at the residential customer’s meter and a special rate plan. Gulf Power’s GoodCents Select customers pay varying prices according to a set schedule. Customers have the opportunity to save money by shifting some of their energy usage to lower-priced times of the day. In addition, the programmable thermostat lets customers set their heating and cooling systems, water heating and pool pumps to automatically take advantage of lower-cost periods.

During the GoodCents pilot program, Gulf Power’s 200 participants saved an average of 15 percent annually on their electric bills, and the utility found that it could shave its peak load by 2 kW per home in summer and 3 kW per home in winter.

Perhaps the most remarkable number that has come from the Gulf Power program is the customer satisfaction rate. During a conference session at DistribuTECH 2002, Brian White, mass markets specialist at Gulf Power, said that the utility’s GoodCents Select program is experiencing a 96 percent customer satisfaction rate.

White told DistribuTECH attendees that the key to this program’s success is the fact that it was designed from the start with customer focus as the No. 1 priority. For residential demand response to work, White said, the utility has to provide a rate that offers customers an incentive to alter their consumption habits, and the program has to be understandable and easy to use. Given the 96 percent customer satisfaction rate, it appears Gulf Power has succeeded in meeting both those criteria.

Improved Reliability

Renewed discussion of load management and demand response was spurred greatly by the California energy crisis of 2000/2001. Could voluntary customer demand response have helped lessen the impact of rolling blackouts on the West Coast? The Congressional Budget Office thought so. In a paper titled “Redesigning Our Energy Infrastructure through the Regional Negawatt Hub” delivered at DistribuTECH 2002 by Russ Malme, president and CEO of RETX, Malme quoted a line from a Budget Office report on the lessons learned from the California crisis: “Even a small drop in electricity use-like the decline that occurred in San Diego when the price freeze there was temporarily lifted-would have been enough to let the state avoid some of the disruptions it has faced.”

California’s well-publicized problems were due in large part to customer demand outstripping generator capacity. Now that supply has come back in line with demand, it might seem that demand response-type programs are less of a necessity.

Not so, according to Boardman. While shortfalls on the supply side of the electric power industry may have been alleviated temporarily, the cyclical nature of supply and demand makes it necessary to keep demand response programs in place as an aid to system reliability.

“At the current time, with growing supply, it’s not as easy to justify the programs,” he said. “But two years from now, when the economy has rebounded and demand is back up, we could easily be back where we were two years ago.”

Boardman also points out that while there may be plenty of new generation coming on-line, that power still has to be transmitted where it’s needed. Two summers ago, one of the main problems facing the utility industry was lack of generating capacity. Now, the problem of transmission bottlenecks has become Public Enemy No. 1. Boardman said that just as demand response could have been part of the solution for problems associated with power generation shortfalls, it can also help alleviate a lack of transmission capacity.

“There aren’t a lot of transmission lines being built. It’s not a supply problem right now as much as a transmission problem,” Boardman said.

With the benefits utilities can realize through improving system reliability and relationships with customers, Boardman doesn’t anticipate that popularity of the programs will diminish-with customers or with the energy providers that administer the programs. He’s confident in his assertion that “Demand response isn’t something that’s going to go away.”

EPRI Issues Guide for Electricity Demand Trading

The Electric Power Research Institute’s (EPRI’s) newly published Demand Trading Toolkit offers definitive guidelines for the use of demand trading by power market planners and operators. EPRI calls the book an important step in promoting a common language among power traders that will help accelerate demand trading in the electricity marketplace.

Demand trading is based on customer demand response&emdash;the ability of electricity customers to respond to short-term price changes (such as day-ahead or hour-ahead) or a region’s need for power capacity by reducing electric demand at appropriate times.

“We believe the trading of customer demand response promises substantial increases in electric market efficiency and stability,” said William M. Smith, EPRI’s manager of market-driven load management. “The Demand Trading Toolkit explicitly recognizes that the time value of electricity can be used to help optimize the balance of electricity supply and demand by encouraging customers to actively engage in electricity markets.”

Today’s demand response programs are critical to price-risk management because they provide a link between wholesale and retail power markets, said Joel Gilbert of Apogee Interactive, who developed the toolkit under EPRI contract.

“Individual customer size and ability to curtail electricity use can vary greatly, but the aggregation of their reductions provides a highly reliable resource for power market planners,” Gilbert said.

Gilbert cited 150,000 MWh of peak load reductions transacted this past year through The Demand Exchange, a large Internet aggregator of voluntary demand response. According to Gilbert, Demand Exchange customers have pledged to curtail as little as 100 kW and as much as 150 MW in curtailments that range from one hour to 24 hours.

The concept of electricity demand trading builds on conventional demand response approaches such as voluntary demand bidding programs, curtailment options and real-time pricing. Demand trading then provides an avenue for offering such demand response resources in regional power markets through a variety of market tools such as futures and options.

“We believe electricity market participants will buy and sell customer price-responsive demand reductions just as they now buy and sell blocks of power,” EPRI’s Smith said.

The Demand Trading Toolkit is available to EPRI members at no charge and to nonmembers for a fee. For more information, contact the EPRI Customer Assistance Center at 1-800-313-3774.

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