Demand Response Trends in 2011
Demand response comes of age in markets and technology offerings.
Last year, we called demand response "unsexy." That trend has not reversed with another passing year. But that doesn’t mean that demand response and load management aren't getting more interesting.
There are many more holistic solutions than we saw even one year ago, when building management and DR were just starting to merge. Automation and tailored DR continue to make inroads, and not just in large commercial facilities.
Here are the trends that have emerged in 2011 and will continue to develop during 2012.
Demand Response Jumps Further Into Ancillary Services
Demand response has so much more to offer than just load shedding during peak events -- but just because it theoretically can, doesn’t mean it does.
Allowing for demand response to play in more ancillary markets is the future of demand response, and 2011 saw the first stabs at it.
In PJM Interconnection, Viridity and Enbala have small-scale projects that sell their power into the frequency regulation market, which balances the ups and downs of grid frequency on a second-by-second basis.
To take part in these markets, the sources need to respond within seconds, not minutes. Enbala and Viridity are both able to respond within the four-second intervals required by PJM.
EnerNOC is also doing a pilot to use demand response to provide balancing resources as more wind power is brought online in Bonneville Power Administration’s territory. However, EnerNOC said that the sources will be deployed within 10 minutes, which is a far larger window than the few seconds that will be needed in some other markets.
Although there are various small projects, there are also regulatory hurdles that will be addressed in 2012. In the region that falls under the Western Electricity Coordinating Council, the states aren’t even allowed to use demand response to provide regulation or spinning reserves. That is likely to change in the coming year, as WECC has already been ordered to open up the market to DR.
Once the technical language is worked out, the market will be opened. And although demand response providers want an open playing field, it’s not clear that the prices in the regulation markets will be that attractive for demand response clients, said Don Tretheway, senior market design and policy specialist at the California Independent System Operator. In California, there is no prescribed amount of regulation that the ISO must purchase, and there is already adequate supply.
“We’re enabling the new technologies,” said Tretheway. “Whether they show up is a matter of economics.”
Modular DR
Marriott International recently committed 23 megawatts of controllable load to Constellation Energy. It’s impressive not for its size -- 23 megawatts is a drop in the bucket compared to the thousands of megawatts that the utility controls -- but in the way that it highlights the direction the DR industry is heading.
The megawatts will come from 264 hotels that all have different ways to shed load in a manner that's invisible to hotel guests. All of the properties will be using Constellation’s VirtuWatt platform, which allows for both automated demand response and the ability to adjust load depending on prices in the energy markets.
The technique of aggregating small adjustments to drop megawatts is not unique to Constellation. Tailored, automated solutions that allow for companies to bid in more megawatts, or for new classes of customers to get into demand response, is becoming the norm.
Can’t turn down the HVAC because customers will be uncomfortable? Can’t adjust your production schedule? No problem. From big boys like EnerNOC, to smaller players like Powerit Solutions, there are various products in the marketplace for everyone from the biggest C&I customers to the corner store.
The modular approach also means that customers can shed load based on pricing and not just during demand events. Earlier this year, Johnson Controls acquired EnergyConnect Group, which offers a platform that uses price motivation to manage load throughout the year, not just on peak demand days.
Acquisitions and automation will continue to increase in 2012, especially as building management and demand response continue to be integrated into seamless platforms. As noted in the trends of 2010, the large building controls companies have continued to make acquisitions in the building management and smart grid space, while software kings like Microsoft are also moving into the market.
Tailored demand response programs may be proliferating, but it is still early days in the market. Jeff St. John recently reported that only 32 percent of building owners are involved in any kind of demand response today -- and only 19 percent have any kind of automated connection to smart grid systems. The lack of participation is often because building managers think of demand response as a blunt instrument rather than a fine-tooth comb.
As customized demand response becomes the norm in 2012 and beyond, the market will only grow.
Pay for Performance
Markets may be opening up for demand response, but demand response is only as attractive as the money that is on the table.
The most significant development in the world of demand response in 2011 was undoubtedly the decision by the Federal Energy Regulatory Commission to allow for demand response to receive the same payment as generation resources in wholesale markets.
Demand response providers heralded the decision, but it’s not exactly smooth sailing from here on out. Each regional transmission organization and independent system operator was required to establish a price level at which demand response dispatch is cost-effective compared to generation and then put together studies that assess the requirements for and effects of the ruling.
“The new FERC rule is recognition of the critical role that demand response plays in our nation's energy mix," R. Blake Young, president and CEO of Comverge, said at the time of the decision. “Demand response can now formally take its place as an equally valuable resource for meeting consumer needs across our electricity grid.”
Now if FERC could only establish a common language for demand response services and terminology for ancillary markets across the various RTOs and ISOs, it would entice even more customers to participate in these complicated markets.
LEED for DR
Smoothing out the tenant/owner relationship in the realms of demand response and energy efficiency has been a key issue in 2011. Companies have started to figure out early solutions to the problem of who pays for, and receives the benefits of, using less energy.
One of the ways to help mainstream demand response will certainly be its recent inclusion in therating system created by the U.S. Green Building Council.
The credit is currently available, Brendan Owens, vice president of LEED Technical Development at USGBC, told Greentech Media earlier this year. It’s already in its second version and will be available as a base credit starting in 2012.
Not only will this entice LEED buildings to add in demand response, it will also give more points to companies that pick automated demand response platforms, such as OpenADR, over manual styles of load control.
For new buildings, points can be earned for taking demand response into the design process, including lighting management, battery storage, hot water storage or integrating IT design with demand response strategies.
By integrating control systems into the design of the building, it would make it easier for buildings to participate, especially since the majority of buildings do not have an automated connection to smart grid systems.
Currently, most building owners are focused on energy efficiency, but LEED credits could help some of those properties kill two birds with one stone by laying out the types of demand response that can earn points. Plus, some of those energy management systems may also improve efficiency.
Most companies in the commercial energy management space are excited about the LEED points for DR, because it’s just one more path to bring their products to the market.
Although the credit is only in its second iteration, it could see two or three other updates before it is finalized as a base credit sometime in 2012.
Demand Response in Europe
The U.S. market is still trying to wrap its head around energy efficiency, and then demand response, but it’s a different animal in Europe.
Europeans already have far more efficient buildings, but that doesn’t mean that there is no opportunity for demand response. In a report earlier this year, GTM Research estimated the DR market could be worth €3 billion to €9 billion per year.
GTM Research notes that peak demand continues to grow in Europe, and reducing demand is cheaper than building peaker plants. Utilities can avoid capacity costs of about €0.6 billion per year for each one percent of peak load reduction achieved through demand response.
EnerNOC and Honeywell are both already doing DR in the U.K. market. Honeywell’s pilot is focused on reducing peak power flow on congested power lines in London suburbs. It’s using theOpen Automated Demand Response (OpenADR) platform, which has already gained acceptance in California and is now pushing for more widespread adoption.
The trends in demand response are also coming around full circle. Although the case for demand response is different in Europe, one area that could be important is to offer balancing and other ancillary services in areas with high penetration of renewables, primarily wind and solar. As noted, depending on the type of load, demand response can be used for a whole lot more than just shaving megawatts.
Because the end of a calendar year is a time for reflection, and in some cases, submitting lists of things you’d like to see in the next year (or under the Christmas tree), here is a short demand response wish list.
Clarify terminology. It doesn’t help that each regional organization has different definitions for demand response and the ways it plays out in each market. This disconnect even confuses insiders, so it’s no wonder that even savvy building managers are overwhelmed.
Small and medium commercial. We have written about various efforts to tap the small and medium commercial space for energy efficiency and demand response. But it’s complicated; it’s a work in progress -- and it’s also a huge opportunity. With strides in automation and fine-tuned systems, we expect some serious movement in this space in 2012.
Demand response for all times. The U.S. recently hit new records in nearly every region for peak energy usage and/or temperatures. Even so, demand response was not used to full capacity, usually because of rules that limit how often the loads can be called upon in a single season. And yet, rolling blackouts were barely avoided in Texas. Demand response has more to offer in critical times; the markets need to find a way to take advantage of that.
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