Move over Bill and Hillary. An even more electrifying power couple is emerging: Energy Efficiency and Demand Response, or EE and DR as their fans call them.
EE and DR may not be well-known beyond the world of energy geeks, but their pairing was the focus of intriguing discussion last week in Washington, D.C. at the National Summit on Integrating Energy Efficiency and Smart Grid, sponsored by the Association for Demand Response & Smart Grid (ADS), the National Association of State Energy Officials and National Home Performance Council.
The two industries have a lot in common. Both are all about saving energy. Efficiency cuts electricity use at all times. Think light bulbs and insulation. Demand response reduces electric demand at specific, costly moments on the grid – think hot afternoons — and usually it does so through incentives or penalties charged to energy users.
The gateway drug
Buoyed by new technologies and markets, EE and DR are beginning to work in concert to heighten energy savings. The pairing is new, and many models are being tried in various states. The conference was largely about navigating the new relationship.
“We’ve put them in the same boat and taught them how to play together,” said Mark Martinez, manager of demand-side management strategy and policy at Southern California Edison. “But it is hard when you have these two separate successful programs that are separated by regulatory mandates, by policy directives and by different commissions.”
Making demand response, the “gateway drug” is one way to pair the two when trying to persuade customers to save energy, he said. “All that you have to do is dim the lights, and I’ll pay you money. You can use that money to invest in energy efficiency.”
Even on their own, EE and DR are now significantly influencing US energy markets. Electricity sales have historically gone up each year throughout the US, but no more.
“Today, energy efficiency has eliminated demand. It has eliminated sales growth,” said Val Jensen, senior vice president of customer operations at the Illinois-based utility Commonwealth Edison. Electricity consumption is down by about one percent, the same amount that electric use would otherwise grow. “So we are at zero,” said the utility executive.
Meanwhile, demand response is intruding on the generation market. Power plants see their business soar when demand for electricity peaks. Often this occurs on hot summer afternoons when air conditioners are cranking. And if it looks like the peaks will grow over time, new power plants are built. But DR is stealing some of that business. DR resources grew by 4.1 percent from 2009-2011 in the US organized markets and last year accounted for anywhere from 2.6 percent (Texas) to 10.7 percent (New England) of peak demand, according to a report issued in October by the Federal Energy Regulatory Commission.
This is all good news if you’re in the business of saving energy, not so good if you build or sell energy.
Who’s disrupting who?
Dan Delurey, ADS executive director and conference moderator, raised the “D word” – disruptive technology. Should utilities be quaking? Will EE and DR lead to a utility death spiral, where electricity sales drop so much, their business model no longer works?
Ralph Cavanagh, co-director of the energy program for the Natural Resources Defense Council, called for calm.
“I don’t buy this disruptive theme for an instant. I’ve heard this before. Some of you were around in the mid-90s when a wave of excitement about disruptive technology drove massive agitation across the utility regulatory spectrum. Those folks were wrong,” he said. “The grid is not about to become obsolete. It is about to get better, if we can all work together to realize these opportunities, if we’re not artificially divided by some kind of crazy panic about the future that freezes utilities in place as investors.”
What will keep utilities from freezing? Again and again speakers said regulators need to come up with a new way to compensate utilities. Today, most are paid to maintain electric reliability through electricity sales. So why would they want to encourage their customers to buy less of their product?
“We have to figure out what this model is going to look like,” said ComEd’s Jensen. “As much as my company believes in the promise of energy efficiency to benefit customers and the economy, we are not going to keep investing $200 to $300 million worth of efficiency – because we have a model that does not work for us.”
Rolling in clover?
Utilities aside, this marriage has its own problems. A plethora of new smart technologies are competing in the energy saving space. EE and DR at times vie for the same customers and resources.
“Are there any things that are mutually exclusive or dare I say cannibalistic? Or is there just a larger pie that we’re all working on and everybody is going to be rolling clover?” Delurey asked.
NRDC’s Cavanagh responded: “Everybody is not going to be rolling in clover. All-of-the-above doesn’t work primarily because we don’t have enough money for all-of-the-above. There are investors who are going to have to make choices. The most important of those are going to be the utilities.”
The discussion over energy efficiency and demand response comes at a time when efficiency is receiving tremendous financial support from state governments, while demand response is left to fend more for itself in the marketplace. This is true in New England, where efficiency receives funding from several sources, among them the Regional Greenhouse Gas Initiative and a system benefits charge added to the bills of utility customers.
The ISO forecasts no growth in energy demand for the next decade because of the high spending on energy efficiency, according to Henry Yoshimura, ISO New England’s director of demand resource strategy. In contrast, the ISO does project an increase in peak demand.
“We’re still seeing some peak growth. How are we going to address that?” he said. “We need to rethink how we think about demand response. I want to think about this as an energy efficiency resource, not just as an emergency capacity resource or an ancillary service resource that we just call up for a few hours a year. This is something we need to see happening much more often across the year.”
That change can occur if utilities adopt price responsive demand – a structure that allows customers to respond to the frequently changing price of electricity. Customers see prices go up during the peak so they avoid washing clothes, or they reduce air conditioning use. New England lacks such dynamic pricing because utilities have been slow to install smart meters.
What could ultimately integrate EE and DR? Stop saying demand response and energy efficiency; call them both ‘demand resources’, said Steve Cowell, chairman and CEO of the Conservation Services Group. Both EE and DR are ultimately “working with the customers to manage their energy use so that the collective markets can work better,” he said. “Let’s not divide ourselves by the name.”
The National Summit on Integrating Energy Efficiency and Smart Grid drew about 150 people, not a large crowd but some of the most interesting thinkers in the EE and DR space. Check back at EnergyEfficiencyMarkets.com for more articles about ideas from the summit or join our LinkedIn group for regular updates.