Dan Delurey and Chris King, Demand Response and Advanced Metering Coalition
Since the August blackout in the Northeast, many in the electricity industry seem to be acting like a bunch of 8-year-olds on the soccer field. Everyone is running after the ball. No one is covering other parts of the field to enable them to be in a strategic position to defend the goal when someone takes off on a fast break.
The soccer ball in this game is new transmission and distribution lines and other traditional grid infrastructure. But, to win the game and prevent future electricity disruptions, it is necessary to cover additional positions on the field–the most important of which may be playing on the demand side.
Empowering customers as a strategic and tactical resource makes grid use both more efficient and more flexible, and reduces congestion and needle peaks. By helping prevent overloading, demand response helps prevent blackouts. By being available during restoration, demand response helps prevent circuit overloads and smoothes the ramp up of power turn on.
Demand response options
Like the range of players on a well-managed team, demand response includes a breadth of options: curtailable, interruptible, demand bidding, and dynamic pricing programs. Each works well in achieving its particular function. With curtailable rates, customers select their own firm service level and take their own actions to reduce load when called upon, usually four hours ahead. Interruptible programs are usually operated by utilities and allow for immediate power reductions. When the “refs” call these programs, response occurs in 10 minutes or less–and the umpire will call a foul and assess penalties for customers not reducing load sufficiently.
Pricing programs are more flexible and, like all good training programs, prepare customers for when their help is needed by giving them day-ahead notice and plenty of experience in different situations. Demand bidding lets customers set prices and load reduction amounts a day ahead of time. Bid amounts and load reductions can be related, so higher load reductions can be provided when wholesale energy prices are higher. Dynamic pricing programs include real-time pricing and critical peak pricing, usually with day-ahead notice.
Residential customers: Under-appreciated substitutes
The best way to ensure victory–to prevent overloading of the grid that can cause an outage–is to make the best use of all 11 team players, then substitute effectively to keep the team fresh throughout the game. Most demand response programs have focused on large commercial and industrial customers, who can provide the greatest response for a small number of customers. As these players begin to be tapped out, we need to remember and deploy residential customers. Like fresh players in a soccer game, residential customers are strong and enthusiastic team members and provide substantial demand reduction.
Hundreds of studies by utilities and industry experts over the years have shown that residential customers reduce load in response to electricity price changes with an average “price elasticity of demand” of 30 percent when price is doubled from off-peak to peak. Other studies, such as “value of service” studies filed in California PUC rate cases, confirm that residential customers have more flexibility than commercial customers; i.e. it is easier for residential consumers to turn their lights and unnecessary appliances off during a hot summer afternoon than it is for a business to shut its doors and turn away customers.
Demand response technology: Getting the right equipment
In sending our team on the field, we want them well equipped. Demand response infrastructure includes advanced metering, utility load control, and customer-owned automated controls. The ideal equipment is infrastructure that supports the range of options from curtailment to dynamic pricing. Advanced metering does so by providing hourly usage data daily. For this reason, and because, according to McKinsey and Co., demand response could save U.S. electricity consumers as much as $15 billion per year, the Federal Energy Bill includes tax incentives that lower the present value cost of advanced metering by approximately 20 percent.
The right equipment includes good communications technology as well. Ideally, communications networks should support data collection as well as control actions, potentially even sending usage and pricing information directly to in-home and in-business displays. A recent study by a committee working with the Office of Gas and Electric Markets in the U.K. found that in-home displays could reduce electricity consumption by 10 percent.
Managing the team’s budget
Our soccer team also has to live within its budget. An advanced metering infrastructure need not be expensive; indeed, several utilities, from PP&L to PECO to Puget Sound Energy, have deployed over 10 million advanced metering points based only on utility operating savings. However, in most cases, an advanced metering infrastructure costs a bit more than the offsetting savings, requiring a net investment of about $1 per customer per month according to regulatory filings by the California Con-sumer Empowerment Alliance. This works out to less than a mill per kWh. In comparison, demand response benefits are estimated at several times that amount–without even valuing the insurance policy against another massive power outage or huge wholesale price spikes.
Good coaches always think strategically. Let’s respond to the blackout of 2003 by managing smart: Let’s deploy all of our tools, including demand response programs, in different positions across the field; let’s test, refine, and optimize them in a rigorous “training” regime; let’s utilize the full range of talent from commercial to residential; and let’s equip them with the best possible demand response infrastructure. Only then will we have put ourselves in the best position to win.