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Demand Response Contracts Being Signed

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Matt Chester 762,288

Energy Analyst, Chester Energy and Policy

Official Energy Central Community Manager of Generation and Energy Management Networks. Matt is an energy analyst in Orlando FL (by way of Washington DC) working as an independent energy...

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Apr 17, 2019Apr 14, 2019 2:05 pm GMT
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Demand response is the process of encouraging customers across residential, commercial, and industrial sectors to shift the timing of when they use their most energy-intensive applications for energy in an effort to diminish the demand on the grid during traditionally peak demand. Industrial customers may agree to conduct a specific process overnight in exchange for a rebate from the utility, or residential customers may be offered different electricity rates that incentivize running the washing machine or charging an EV outside of the early evening hours when demand typically peaks. This ability to shift the timing of power use is a valuable addition to the toolbox of utilities who are getting creative in managing energy loads in an efficient, clean, and affordable way.

As the idea of demand response gains more momentum, a real sign of that progress is being seen in the number of demand response contracts that have started to get signed recently. Utilities and markets are increasingly treating demand response agreements and programs as a commodity, akin to how additional generation tapped into during peak demand is a commodity. This trend seems to only be increasing, and the deals signed in the past week are likely a sign of things to come.

For example, Ameren and Enel X announced a contract for Enel X to provide 100 MW of demand response:

Under the terms of the agreement, Enel X will manage Ameren Missouri’s entire C&I demand response portfolio. It will recruit participants from different industrial sectors in the utility’s territory and manage the portfolio of C&I demand response resources. Participants can enroll in Ameren Missouri’s demand response program by contacting Enel X directly.
Customers participating in the C&I demand response program can earn payments for committing to reduce their electricity consumption temporarily when demand on the system is highest.
Enel X will fully manage Ameren’s portfolio of C&I customers participating in the demand response program, optimizing each customer’s participation and maximizing their financial return, the company said.

ELP_Missouri

Additionally, Solect Energy was awarded a contract with Medford for Microgrid Energy Management System which included in its terms some valuable demand response. While the whole contract includes solar and storage in addition to demand response, the announcement noted:

An added benefit of the microgrid’s “solar + storage” combination is the ability to lower expensive demand charges. Demand charges are based on a customer’s monthly peak load, and in many cases [in Massachusetts] can account for up to 70 percent of a commercial customer’s electricity bill. In addition, the city can take full advantage of the storage capacity to more effectively participate in a range of Demand Response programs to further reduce operating expenses.

Lastly, Centrica recently agreed to a demand response deal with the Tokyo Electric Power Company. Tokyo Electric Power is Japan's largest power provider, and it looks to harness Centrica's demand response technology to provide enhanced flexibility to the grid. The software solution of FlexPond:

"will be delivered under a commercial ‘software as a service’ model that allows the utility to use the proprietary platform as a basis for its own virtual power plant, ultimately delivering demand side response capacity from various flexible generation and demand assets.
Kyushu would appear a pitch-perfect location for the introduction of a VPP given its density of industrial customers and renewable energy projects.

How do you see demand response in the coming years-- will it continue to be marketed and sold as a commodity in these cases? Will utilities bring the efforts more in-house that prevents the need for such contracts?

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Bob Meinetz on Apr 18, 2019

"Demand response is the process of encouraging customers...to shift the timing of when they use their most energy-intensive applications for energy in an effort to diminish the demand on the grid ..".

Matt, demand on the grid, with very few exceptions, is far below capacity at any time of the year, and there's no evidence DR creates "enhanced flexibility."

The only purpose of DR is to shift the responsibility of providing electricity to meet demand, during peak, from generators to consumers. That's all. There is absolutely no benefit to consumers - and arguably, consumers should be compensated for the lack of flexibility DR imposes on them when they consume electricity.

Is it "a way for customers to save on their electricity bills"? I would challenge anyone who thinks so to show me one customer who is saving money compared to before DR was implemented. What utilities are doing is raising rates on everyone to pay for their losses on DR customers. Again - net zero gain for consumers.

If a utility is using storage to save on peak generation, they can kick in compensation for battery/inversion losses, based on the U.S. price of carbon ($42/ton) and the source of generation, while they're at it. This is what under-regulated monopolies have always done to captive consumers, and the answer isn't to find a better way to market it. The answer is to call it what it is.

Matt Chester on Apr 18, 2019

On average, DR saves customers money. Here's one report using EIA data:

Based on data collected in EIA's annual survey of electric power sales, revenue and energy efficiency, about 9.3 million customers in the United States participated in demand response programs in 2014. Most of these customers (93 percent) were in the residential sector, with the average residential customer saving about 100 kilowatt-hours (kWh) annually and in turn receiving about $40.

Commercial and industrial customers make up a small share of the number of demand-response customers (7 percent and less than 1 percent, respectively), but they provide larger shares of the energy savings and receive much larger incentives.

Industrial customers delivered more than half of all actual peak demand savings from demand response in 2014. The average annual commercial customer incentive was almost $600, while the average industrial incentive was more than $9,000.

California is the most active state in demand-response markets: The state contains 12 percent of the nation’s population but has 20 percent of the total demand-response customers and contributes 20 percent of the total peak demand savings.

Bob Meinetz on Apr 18, 2019

"Most of these customers (93 percent) were in the residential sector, with the average residential customer saving about 100 kilowatt-hours (kWh) annually and in turn receiving about $40."

EIA is simply taking the amount of energy saved, multiplying that by a current average rate, and concluding they "saved money" compared to a non-DR customer. I have yet to see a comparison of their bill before DR was implemented with a current one.

Is there one utility in the country whose revenue has gone down after DR was implemented?

Bernard Finucane on Apr 18, 2019

The only purpose of DR is to shift the responsibility of providing electricity to meet demand, during peak, from generators to consumers

This is only a bad thing if you imagine the grid as a way to distribute centrally generated electricity to passive consumers. The industry is moving away from this as focus shifts away from generation towards transportation and storage of energy. The distinction between producers and consumers is getting less clear as generation decentralizes.

Bob Meinetz on Apr 18, 2019

Bernard, the only reason I imagine the grid that way is that it's the most efficient, most equitable, least-expensive way to provide a reliable supply of electricity to the most people.

Believe it or not, distributed-energy entrepreneurs are making exactly the same mistakes DE entrepreneurs made over 100 years ago. Either those of today don't know enough physics (and/or history) to understand why, or they believe physics has changed in the last century, after remaining unchanged for 14 billion years. Maybe they believe electrical engineers had never thought of distributed generation, and simply stumbled upon the best way to generate and distribute electricity - a lucky guess.

The reason centralized generation is the most efficient relies on principles which are evident in everything around you. You have one heart, which pumps blood to every cell in your body; one brain, which controls every movement you make (and even those you don't intentionally make). Over eons of evolution the efficient production and distribution of energy has allowed some species to predominate due to fundamental laws of physics.

You might be surprised how many consumers are passive about how they get their electricity. Like healthcare or fresh water, they don't have the time, interest, or expertise to provide their own. To those who count on a reliable supply of electricity to do their jobs and feed their families, making one's own electricity is a hobby of the idle rich. The last thing they need are rich hobbyists making their access to electricity more expensive and less reliable.

Thank Matt for the Post!

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