Residential Demand Response

by Meir Shargal and Patti Harper-Slaboszewicz, Computer Sciences Corp.

Based on findings from the PowerCentsDC program and other pilots and programs, most customers who have tried dynamic pricing prefer it to standard pricing, including customers with low income.

The discussion has moved from if the industry should implement dynamic pricing to the best way to implement dynamic pricing. Too much emphasis, however, is being placed on which dynamic pricing option is best. The industry should focus instead on lowering barriers to participation, educating customers to help them be successful on new pricing plans, and looking at ways to improve response without inconveniencing customers.

At first, an opt-in program might seem best from a customer perspective, but opting out is superior from a customer perspective. Requiring customers to enroll presents a barrier that some customers never get past, even if they would benefit from dynamic pricing. Most customers have found it easier than expected to reduce energy use during demand response events, and a high percentage saved money on their bills.

For example, more than 91 percent of PowerCentsDC customers on critical-peak rebate or critical-peak pricing saved money compared with standard pricing.

An opt-out approach allows customers who strongly prefer standard pricing to move back to their familiar pricing plan, and by default it removes the barrier for other customers. If the dynamic pricing plan first introduced is critical-peak rebate pricing but otherwise is the same as the standard pricing plan, it is not necessary to allow customers to opt out, but doing so might give a small percentage of customers the satisfaction of avoiding a new fangled pricing plan. An opt-out approach is expected to result in more customers’ active participation in reducing energy use during demand response events, especially if customers see key information on their bills and utility Web portals. Computer Sciences Corp. (CSC) recommends showing customers on their bills how much energy their households reduced during demand response events along with their savings. The Web portal should show more detailed information and provide it more quickly, allowing customers to review their savings the day after each event.

Longest Journey Begins With First Step

As far as what the best dynamic pricing plan is, it’s more important to pick one and support it well rather than worry about which is best. Introducing dynamic pricing requires a significant investment to replace or upgrade important software systems, as well changing and creating business processes to adapt to offering electric service to dynamic pricing customers. It is anticipated that after utilities successfully offer one dynamic pricing plan, utilities generally will entertain offering another time-based pricing plan. Dynamic pricing introduces changes for customers as well: learning about critical-peak events and how to reduce energy use during events, setting preferences for event notification, and understanding new bill formats and how to navigate an enhanced Web portal. Once customers become accustomed to one dynamic pricing plan, they will be in a better position to select among multiple plan offerings.

Sun Good for Cucumbers, Rain for Rice

Some utilities have started with dynamic pricing and others with time-of-use pricing, but eventually, utilities will offer various pricing plans. Arguing about which is best will be as useful as deciding which smart phone is best; no ideal time-based rate will appeal to all customers just as no consensus on the best smart phone exists. Some customers will be drawn to critical-peak rebate pricing because there is no risk. If customers don’t succeed in earning rebates, their bills never will be higher than the standard rate. Critical-peak pricing (without a time-of-use underlying rate) might appeal to customers with large homes and who use a significant amount of energy for air conditioning; they might be willing to reduce energy use for a limited number of critical-peak days–but not every nonholiday weekday. An alternative time-of-use rate with a short peak period of only three hours has been well received by customers of Arizona Public Service and Salt River Project.

You Have to Earn Respect

As utilities roll out smart metering and dynamic pricing, many seek to change their interactions with customers. Utilities recognize that a customer education plan is essential to build a partnership with customers. Developing and implementing good tools is a first step, but customers will need education to learn how to use the tools, potential customer benefits, and what they need to do to be successful. Most customers equate success to paying less on the new pricing plan than on their former pricing plan. For others it might be more complex, a combination of not paying more coupled with environmental benefits or competing with similar customers on “How low can we go?” during events. The industry is making progress on how best to provide information to allow customers to gauge their success, remembering that most customers understand little regarding how their energy use and spending compares with similar customers. Customers generally understand time and money and have not expressed eagerness to learn about kilowatt-hours and kilowatts. The industry should analyze energy-usage patterns for customers and present the results in terms that interest customers–time and money–rather than anticipating customers will study load-profile data.

Smooth Seas do not Make Skillful Sailors

Legacy industry systems, practices and processes were not created in a demand response world.

Most industry innovation has been directed toward rolling out smart metering, revamping back offices and rethinking the purpose of utility Web portals.

It’s time to address going beyond meters into homes.

A growing number of new and mature startups are focusing on how best to move forward, and many pilots are in the market. Some common issues that these new pilots address include:

  1. Improving prediction of what actual load can be tolerably shed,
  2. Improving ability to validate the load shed vs. target in real time, and
  3. Working around pre-programmed response to adapt to the specific situation on the day of the event.

Best Way to Predict Future–Create It

To provide widely adopted, valuable, residential demand response programs, the industry is adopting a more holistic view of demand response, beginning and ending with customer partnerships. As with any new venture, there might be rough spots–witnessed within the past year. As a result, utilities are walking before they run and working to earn customer respect and trust.

Authors

Meir Shargal is part of the leadership team of the CSC Global Utility team. He is responsible for growing the practice and delivering successful projects for utility clients. Reach him at mshargal@csc.com.

Patti Harper-Slaboszewicz is part of the smart grid practice at CSC/Utilities. She is a consulting and management professional with more than 20 years experience in utilities and consulting. Reach her at pharper slabo@csc.com

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Residential Demand Response

An intelligent way forward

Demand response has delivered significant value for utilities and customers in the commercial and industrial customer segment for many years. Bulk energy consumers have achieved significant savings through time-of-use rates, peak pricing and other unique programs crafted to help both the customer and the utility be more efficient in the way that energy is produced, delivered and consumed.

In recent years, the market has once again turned its attention to engaging the mass market of energy consumers in demand response (DR). Regulators are increasingly convinced that even small changes in residential load patterns could provide significant benefits when aggregated in total. And research has indicated that residential DR penetration rates of as little as 30 percent could provide significant consumer and utility savings.


The key to success is the broad scale adoption of technology that enables residential consumers to engage in a program with little or, preferably, no effort.
Click here to enlarge image

However, utilities and regulators will need to address three primary challenges to DR for the mass market to be successful in the energy market place: technology, value, and time. And, if programs are to achieve widespread market acceptance and adoption, utilities will need to fully automate residential DR to keep it simple for consumers.

Technology

Significant technology upgrades are necessary to effectively provide these programs to consumers. Today’s technology can meet virtually any desired objective, but the real question that utility executives and regulators are now grappling with is whether or not there is a business case to support these large and expensive initiatives.

The successful, large-scale, residential DR programs of the future will be technology-enabled, not consumer-enabled. Mass-market DR will allow utilities to more effectively manage energy delivery system infrastructure and will increase the integrated efficiency of systems while providing consumers with rebates and/or rate savings for participating in programs. Peak demand conditions typically occur between 2 p.m. and 7 p.m., when many residential customers are not home, so automation technology will be required to ensure that DR programs achieve their market objectives.

Value

DR must remain a win-win scenario for the consumer and the utility. Investor-owned utilities, which serve more than 75 percent of retail customers in the United States, will embrace regulatory DR constructs if they provide a positive and balanced outcome for all utility stakeholders. The transparent nature of costs and benefits for DR programs must be available to help regulators make the best decisions for their utility and consumer constituents.

Business cases will become the universal translator to ensure that these goals are achieved. The value proposition for DR programs requires savings that are significant enough to overcome the installed cost of the technology needed to implement the DR program.

New meters, communication equipment, energy management software, operational effects and other factors have historically influenced each C&I customer’s decision to implement, but this isn’t the case for the mass residential market. Few residential consumers are going to have the time, desire or skill to build a business case to implement a DR program on their own. Regulators must act in proxy for these mass-market consumers. The key to success is the broad scale adoption of technology that enables residential consumers to engage in a program with little or, preferably, no effort.

The adoption of advanced metering infrastructure (AMI) is the first step in this technology evolution. The utility business case for advanced metering has been proven out in a broad cross section of the industry; cost considerations and benefits to utilities and consumers have already been well established. Over the next five years, tens of millions of consumers will be enabled with a smart meter and utilities will deploy communications systems that provide two-way connectivity to these customers. At the same time, in-home technologies that communicate with the utility provider and optimize energy management functions will become more efficient and more affordable. The convergence of smart meters and these in-home technologies will provide a technology platform that will allow flexible DR programs to be implemented with a strong value proposition for utilities and consumers alike.

Time

In the past 30 years, there have been more than 100 documented DR pilots. Each of these DR pilots has proved that consumers will eventually care if their price “pain point” is reached. Where that pain point actually sits for consumers is very different across the United States and, depending on socioeconomic factors, within specific utility service territories.

Generic pain point statements that claim a 3 or 4 times price multiple is required are misleading because they are not applied to the base multiple; current retail electric rates range from 5 to 15 cents/kWh. In addition, regulators will generally not allow base rate increases of 2 or 3 times current prices. They may allow critical peak pricing or other time-based rates for a small portion of the total yearly consumption period, but that will not effectively address the nation’s inefficient use of critical energy resources.

Widespread DR programs will take time to implement and be accepted. The inflation adjusted price of electricity has remained relatively flat or, in many regions, has declined for the past 20 years. Electricity is something that consumers largely take for granted because it is not worth our time or effort to manage it directly in comparison to the rest of our expenses. This will not change tomorrow just because we want it, legislate it or regulate it.

Keeping it Simple for Consumers

Public reviews across the country are now clearly showing the value proposition of broadscale deployments of AMI and its ability to technologically enable DR programs that can be unobtrusive to end-use consumers. Load cycling and other non-critical load management (pool pumps, air conditioning, etc.) can and will provide significant benefit to the grid on a consistent and predictable basis without impact or inconvenience to consumers.

What is the most practical way to take residential, mass-market DR and ultimately put it into widespread practice? Regulators can start by abandoning complex and arcane tariff concepts for the mass market to keep this as simple as possible. Let’s consider a simple three-stage tariff, in which the pricing is strictly for illustrative purposes.

Stage 1

The utility can enact the non-critical load cycling scheme whenever it chooses. Consumers will receive a 5 cents/kWh reduction in their retail price for all consump-tion. If they choose to override the scheme-they’re in the middle of their annual Fourth of July party-they will pay 5 cents/kWh more.

Stage 2

This is additional voluntary load shed for the consumers who will actually respond to price signals. If consumers see the message on in-home displays (or cell phones, pagers, blackberries, etc.) showing the scheme has been activated and they shed another 30 percent of their load in addition to the Stage 1 reduction, they get another 3 cents/kWh saving.

Stage 3

This stage is for true grid emergencies. It allows the utility to actually turn the loads off instead of dumping entire portions of the grid for under-frequency or under-voltage load shedding schemes that inevitably impact critical care customers.

This type of three-stage approach would provide a period of time for the utility to resolve a system problem without any blackouts or brownouts or with even a significant impact on consumers. Consumers’ non-critical loads are off, but power would still be available for in-home critical care, lights, computers and phones, and no critical care customers or facilities such as hospitals would be impacted.

It’s simple to explain, provides value to consumers, creates a new and very effective resource for the grid, and it begins the education process that will lead to comfort and trust with consumers, so that more advanced DR has a realistic future. Technology makes this approach possible, and the technology exists today.

As in-home technologies become pervasive, these solutions will become even more affordable for all stakeholders. Without broadscale, two-way AMI deployments, however, the utility industry will be unable to effectively engage this mass market and its huge potential.

Over the next decade, technology-enabled DR programs will become important tools that allow the industry to manage the grid, enhance customer service, improve our energy supply and protect our natural resources and the environment more efficiently and effectively than we can even imagine today. Advanced metering and DR programs are real, and it’s time we embrace them as key enablers for the energy industry of the future.

The result will be a more environmentally responsible and efficient industry with economic benefits for all utility stakeholders and society at large.

Author
Chris Hickman is a 15-year utility industry veteran. He currently serves as head of regulatory affairs and business solutions for Cellnet Technology, Inc. Hickman can be reached at chris.hickman@cellnet.com.