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Feb 27 2012

Behind the Meter: Demand Response 2.0

A cold snap in February last year in Texas saw more than 1,000 megawatts of resources respond within minutes when a blackout appeared imminent. In July in New York, the system operator called on 2,000 megawatts of demand response resources to curtail load during an oppressive heat wave.

The list of similar emergencies is long. Those are just two of the potentially disastrous events in 2011 that load curtailment prevented from spreading when power demand came perilously close to overwhelming the grid from coast to coast.

Demand response was crucial in keeping the lights on, with the Federal Energy Regulatory Commission reporting that nationally, the generation resources available for demand response exceed 7 percent.

But some utility pros are now wondering if the effectiveness of demand response is starting to reach its limit. After all, the number of “grid events” when power demand comes close to exceeding available supply is increasing, all in the context of stagnant power demand as the United States continues to grapple with a slow economy.

When power demand spikes, customers are offered a financial incentive to reduce load, often saving the distribution utility a fortune by having it avoid paying high prices on the spot market, or to improve reliability. But the financial carrot may not be enough of an incentive for some customers.

“I would say demand response programs work fair. I wouldn’t say they work great because many times customers really did have a hard time notching back to their commitments,” said Richard Grigg, retired president of FirstEnergy Utilities, who is now a consultant.

“Quite often, depending on the price of power, many customers will prefer to buy through and pay the higher price until there is a call for a demand reduction,” he added.

In energy efficiency and demand response markets, a revised model may be needed.

For demand response, some say there is room for a variation that offers customers an option other than curtailing load when excess demand threatens to cause a grid event or outage.

In this model – perhaps it can be called Demand Response 2.0 – a large commercial or industrial user would tap into its own on-site generation instead of curtailing use and disrupting operations. Call it a peaker at the plant, if you will.

Tangent Energy Solutions, which is employing this model in the Northeast, said it would assume all the risk by building, owning and operating the power plant, perhaps a solar array or a small gas-fired turbine. It said its plan causes less disruption for the customer.

“It’s a back-to-the future model centering on the customer,” said Dean Musser, the president and CEO of Tangent. Musser founded demand response firm Enerwise, which was acquired by Comverge.

“What I really found was that customers didn’t appreciate having to interrupt their operations very much,” Grigg said. “Once in a blue moon it was OK, but if it becomes a regular thing they become quite concerned about the impacts on their operations.”

With some customers reluctant to curtail load, say, a steel mill that would suffer operational harm or expense well in excess of any benefit it gained from being paid to reduce electricity use, the attraction of demand response programs diminishes.

In the Tangent model, the power generators are also clean energy sources, relying on renewable energy such as solar power or new gas-fired generation. In the past, those quick-starting on-site generators were diesel-fired, a no-no in today’s regulatory environment.

With photovoltaic-powered solar arrays on-site, generation would come close to matching peak load on the grid.

In the new model, renewable generation is on the customer side of the meter. “The solar customer can see how much they’re getting out of the system and get a tabulation of how much money they’re saving, so they get an idea of how much they’re saving over what they would pay if they stayed on the grid,” Grigg said.

The solar and gas generation is owned by Tangent, so the power customer assumes no risk. The model works best where power plant construction is constrained or where transmission bottlenecks occur, as in PJM Interconnection and New England.

But risks do exist for this behind-the-meter model. Although the shale gas boom has created an abundance of supply and low prices, Musser said any backlash on water usage could limit the resource and cause prices to rise. Also, states might be pressured to relax their renewables mandates, cutting the legs out from under the solar markets, Musser cautioned.

But last year, federal regulators made a breakthrough decision that gave a leg up to demand response.

The Federal Energy Regulatory Commission Order 745 that essentially makes negawatts equal to megawatts helped the customer-side approach for demand response.

The Pennsylvania General Assembly in 2008 passed an act mandating reduced energy demand but left implementation up to the Public Utility Commission. The law does not spell out anything specific about demand response.

Energy conservation and efficiency compelled distribution companies to reduce consumption by 1 percent by May last year and an additional 2 percent by May 2013.

“Most of the low-hanging fruit has been harvested,” said Public Utility Commission member Wayne Gardner. “Companies are going to have to come up with much more creative programs to get to the next round of customers cost-effectively.”

Behind-the-meter generation might just be one of those creative solutions.


One Comment

  1. Behind the Meter: Demand Response 2.0 | Texas Is Hot | Blog | Solar Power Generation IdeasMarch 19, 2012 at 6:59 amReply

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