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Smart Grid TechnologyThe demand response "Catch-22" (and how to fix it)
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Mar 7, 2013
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By Mark England
Sentec CEO
Demand response technologies, such as smart appliances, thermostats and home energy management systems, could revolutionise our energy consumption. By encouraging consumers to buy controls or appliances that can automatically reduce or shift power use during peak demand periods, demand response (DR) solutions can deliver benefits in many areas, including pricing and grid reliability.
In principle this sounds fine, but the problem is it’s the consumers and appliance manufacturers who are expected to invest and the utilities industry and government who reap the benefits by delaying investment in additional capacity or avoiding running up additional short-term generator resources.
The challenge with the smart appliance industry is not technology or the availability of smart metering. Technologically, we are capable of designing appliances now with all the functionality to deliver DR. The problem is that the business model is broken and needs a complete rethink to motivate and incentivize investment, as well as encourage manufacturer and consumer participation.
The business obstacles
The biggest roadblock for DR is the lack of motivation for the consumer. Inevitably a smart appliance enabling DR will be more expensive than a standard one, meaning consumers would be expected to pay more for something that, in principle is potentially less functional than the standard one (e.g. it may not “run” exactly when they want it to).
Finding a way to create a consumer benefit is essential to the success of DR. If the consumer has no way of benefiting themselves from using a smart appliance they will have no interest in buying one. Therefore, there is no business incentive for potential smart appliance manufacturers to invest in product design in the first place, as there is
no market to sell them. Hence today the average consumer can’t actually buy a smart appliance, so there is no opportunity to create a business around selling DR services - a classic “Catch-22” situation.
An example of a new approach
What if a consumer friendly brand, for example a favorite online retailer or supermarket chain, were to become an aggregator of DR services, acting as the middle-man between millions of consumers with smart appliances and the electricity generators and network operators. The ability to reduce the cumulative loads from millions of smart appliances during peak times could be sold by these aggregators for a good price, and then a fair fraction of this revenue could be passed onto the participating consumers. This would be clearly separated from the bills that they normally receive from their energy suppliers or network operators. Ringfencing the rewards from DR, rather than applying small discounts to existing energy bills, would allow consumers to measure the benefits of their smart appliances, and to choose how to spend these rewards with their favorite retailers on items or services that they are most interested in.
Page 2: How it would work >>
| Dr. England is Right |
| Dr. England has the motivation correct. I remember a Smart Grid presentation from a long time ago. A consultant was explaining, rather excitedly, how Smart Grid technology like DR could help a given large utility avoid having to build a new power plant. The question from the audience was never answered: Why would a consumer care about that? IMHO the framework Dr. England proposes is one of the few that makes sense to me: providing a tangible reward for the inconvenience of stuff not working like it does without DR. |
| Ralph Mackiewicz - 03/07/2013 - 07:42 |
| DR |
| The devil really is in the detais here....for Dr. England's approach to work, the "aggregators" he refers to would have to work hard to come up to speed with all of the rules of the RTO within which their local electric utility / distribution company (EDC) operates......how DR products are transacted in the energy and capacity markets, how is performance or lack thereof measured, what the penalties for non-performance is and how is that risk shared between the customer who can override when DR is called for through manual intervention of the operation of their appliances, etc., etc., etc......there are a myriad of these complicated details that Dr. England does not address.....plus, some utilities are already incentivizing their customers to purchase smart appliances through demand response rebates and dynamic pricing mechanisms......the real business model that is broken is the rate making one that is the responsibility of the state commissions.......today, the rates suffer from massive cross subsidizations....until we figure out ho to better build DR and smart appliance operation into the rate-making process, the true smart grid will not really take off on the costing side.... |
| Patrick J. Cook, Jr. - 03/07/2013 - 08:44 |
| Interesting approach but.. |
| Conceptually this is a good idea. However, the question remains how much money are we talking about. Until that question is answered manufacturers won't design it in and consumers won't pay for it. In these discussions we always hear about rebates, savings, credits, etc., but when pressed the amounts are negligible compared to the prospect of having a DR event at the wrong time. Override is fine except how does the customer know of the DR event to perform the override? Lots of questions remain but this is a great starting point to get the conversation moving again. |
| Bill Rose - 03/07/2013 - 09:09 |
| Negabucks |
| The business model for residential DR monetization by having "Negawatts" be turned into "Negabucks" is visionary. Negabucks can be conmingled with coupons, discounts for services as well as used for increasing other DR devices within the home. |
| Gary Sorkin - 03/07/2013 - 09:22 |
| It's all in the timing... |
| The one other fly in the ointment is the replacement cycle for these DR enabled appliances. Because we don't replace them regularly, and most of us only do so when they break, the time to achieve critical mass is likely to be too long to support the business model. A faster and simpler route could be to incentivise users to turn their appliances off using a model like Viggle's, which is a watch TV and get free pizza. It's probably the only way you can bring gamification into energy. If you could make that work, then it provides the basis for adding in automated DR aware appliances. But I don't think that applainces can lead the market. |
| Nick Hunn - 03/07/2013 - 09:32 |
| A new DR business model |
| Mark is spot on! The better model is to get really serious about a truly smarter grid, maximizing the application of advanced electronics, telecommunications, information and control technologies to combine: (1) automating the DR so that is doesn't required special expertise,, monitoring, analysis, effort or other inconvenience on the part of the consumer, (2) eliminating reduction in the quality of life or productivity of business for the consumer (i.e., they don't have to endure higher or lower air or water temperatures, noticeably dimmer lights, reduced access to other desirable appliance functions), (2) offering additional benefits to the consumer (e.g., mobile applications to monitor and control appliances, providing appliances with other enhanced capabilities and functionalities - after all, consumers regularly replace appliances to obtain enhanced functionality), (3) Enabling consumers who wish to do so to conserve energy as well as reduce demand therefore further reducing their energy costs (e.g., use CVR to reduce both demand and minimize energy consumption), (4) allowing consumers to choose options that maximize the energy that they are consuming from renewables or minimizing the carbon footprint of the energy that they are using, and (5) enhancing economic benefits to the consumer by sharing the benefits of a third party (the dreaded "disintermediary") aggregating their DR and using it to participate in structured energy markets. Let's stop worrying so much about optimizing the 20th century grid by reshaping the demand curve and creating a 21st century grid that optimizes the benefits to the consumer. Instead of just preserving traditional standards of reliability, quality of service and economy, take the grid to a whole new level. |
| Steven E Collier - 03/07/2013 - 09:41 |
| It is already being done...sort of |
| A number of the large energy companies here in the U.S. have "store fronts" where they offer energy efficient and DR capable appliances and devices for sale to consumers. The consumer who purchases these applicances / devices from the power company is rewarded with the promise of reduced energy bills and / or a percentage off their energy bills. |
| Barrett Powell - 03/07/2013 - 09:42 |
| RE:Residential DR - a long term dream |
| Catch 22 is a large part of the problem, but you also need to step back and ask what consumers really want. I've seen countless marketing studies stating "consumers want demand response". That is of course in accurate. Consumers what FREE electricity, 100% reliability, as much power as they can use, and a friendly person to call and complain to --- if the first three are not happening. All for no investment or tax costs. Impossible of course! But it is nearly as silly as saying "consumers want TOU" or "consumers want DR". Consumers do shop for bargins. If an appliance is $50 less and you can't see a big difference between it and the next. Why spend the $50. That scales down to small amounts probably under $20. Often the paint color (or finish) is more important the efficiency features. While a consumer may buy a furniture set together, they generally do not buy all new appliances in the house at the same time (dishwasher, washing machine, dryer, freezer, refrigerator, HVAC, ceiling fans, hotwater heater) (exception of course is a new custom house). What it all mean? 1. Unless a region already has power supply shortages and have implemented TOU, don't expect TOU to be implemented. Consumers will fight it. 2. Since not all appliances are going to be replaced at the same time, the utility or aggregrator must be capable of adding MANY DR capable devices bought possible from competing businesses to the customers account. 3. If you sell an appliance with the expectation that the DR will save them money - it better be noticable on the bill. Even for just one appliance, if not companies involved should expect eventual lawsuits claiming misrepresentations (mostly buyer remorse). 4. A $10 addon for DR will take forever to pay back if the customer doesn't have TOU. Even with TOU the savings for some appliances will be so dependent on the consumers use - that you may not see any benefits. 5. Appliances bought with out DR features in the past will be too expensive to addon a truly intelligent DR feature. Americans replace many of their old inefficient appliances over the last couple of years - with the recovery rebates. You should not expect another increase in demand for 7-10 years. Finally, overall improved energy efficieny improvements in the last round of appliances and future improvements, plus weatherization improvements will near negate the need for residential demand response. Customers understand that and that will slow DR adoption. |
| Dennis Heidner - 03/07/2013 - 12:00 |
| What's wrong with existing DR models |
| This is a good debate ! Remembering that DR is by definition automated, not requiring customer interaction or behaviour change, perhaps I should have gone into a bit more detail about why I believe the current models for DR don't work: - Applying the benefits of DR as a small discount on an energy bill means they are buried and can't easily be identified or remembered. Ask yourself why big chain stores have loyalty cards where customers earn reward points, to spend at their discretion, instead of just charging 1% less for the goods to start with ? - DR appliances need to be mainstream products, not special ones only available in special stores, if adoption is to be widespread enough for DR to have a network impact - Energy suppliers can't drive the same extra value from increased customer engagement that a big online brand can, so they will struggle to associate more value with DR participation/rewards that the increased website traffic would bring to, say, an online brand - Appliance manufacturers have an international customer base, whilst energy suppliers have regional or at best national ones. One single energy supplier can't typically bring enough customers to justify an appliance manufacturer's custom product development costs. It's unrealistic to expect every appliance manufacturer to deal with every energy supplier. What is the largest scale deployment of residential DR that anyone knows of - how many appliances, how many MW (GW ?) under control ? |
| Dr Mark England - 03/07/2013 - 13:03 |
| Hollowing out the Utility |
| This model does more than attempt to find a way to drive the adoption of demand response, it also serves to disintermediate or hollow-out the utility's relationship with the consumer. This may not be all bad, but certainly changes more about the industry than the application of demand response. I agree, the current business model is downright silly. This is only a harbinger of the changes the industry must make if they have any hope of surviving. |
| Carol Stimmel - 03/07/2013 - 13:30 |
| Experioence with DR |
| Speaking from experience, one of our clients' several stores called us recently complaining that half the lights in their store had gone out or that the lights had dimmed all of a sudden. Their utility had enacted a DR program to compensate to a peak in demand, however, they had failed to notify the store, head office, or us, their service provider in charge of hardware issues and data management. Needless to say the store owners' puzzlement went to annoyment, to anger. They discontinued subscribing to the DR program. Lesson to be learned: communication is key. Just a phonecall or email to us or to the store from the utility would have avoided a lot of unwanted confusion and interference of operations that day. *** On a related note to the suggestion made in the article, there already exist companies that manage energy data and systems for clients. Our company, for example, not only does Energy Data and Cost Analysis and Facilities Maintenance Management, but also manages Energy Controls whereby we can reduce or hald consumption by certain systems at our clients' locations (for example: dimming the lights or reducing the temperature). We also communicate with our clients regularly and resolve issues quickly. powerhousemgt.ca |
| Philippe Lyon, Powerhouse Management Services - 03/07/2013 - 18:37 |
| Appliance DR |
| I like the creative thinking, but also appreciate the obstacles and real world cost/implementation challenges pointed out by others. My spin is also aimed at appliances, the idea being to work with a leading appliance OEM to offer a docking port for a 100WH class Li-Ion battery. The FOB cost adder (w/o battery) could be a few dollars of sheet metal and connectorization, and the appliances could be populated by any utility/co-op/municipality/etc. with a subsidized battery pack and used to create an ultimate DR set (ultimate in terms of guaranteed "zero" load on demand, ultimate in terms of no "opt out" concerns since battery operation is transparent to the end user), and with other very intersting benefits of temporary emergency back-up, local DC power operation. I call the idea 'seamless demand response' and am in early discussions with third parties and open to more discussions with interested industry partners. |
| Mark Waring - 03/07/2013 - 20:15 |
| RE:Whats wrong with existing models |
| >"What is the largest scale deployment of residential DR that anyone knows of - how many appliances, how many MW (GW ?) under control ?" I'm not sure where the large residential DR implementations are currently located in North America. But I know DR (without smartgrid) has been implemented throughout Europe. Germany deployed ISDN back in the 80's and 90's. That gave many of the customers "high speed" computer access (128kBps..) but it also made it possible for two way signaling and remote control of loads. Typically the loads were the boiler, which provided the heat. Effectively giving the utility a means to setback the thermostat if needed. Even though France has a very high penetration of nuclear power, they had deployed larger hot water tanks that were controlled remotely and designed to heat "off peak". I've seen articles where there is some concern of having to give up the larger tank/control system because they are not compatible with the current smart meters. The two listed above were nationwide, not pilots, and they were have a long term demonstration of the effectiveness, benefits and problems. I'll see if I can dig more useful information up. While there was quite a bit of talk back three or four years ago about "Smart Meter" ready appliances about to releases -- its been pretty quite. I've checked recently and most of the press releases were for things about to happen in 2009/2010. I suspect the economy caused projects to be delayed. I have been actively looking for truly "Smart" appliances, internet ready. Miele made a dishwasher with an optional internt module. Unfortunately that module could only be used to download new firmware updates and report the service or repair status directly to Miele! It would not be difficult to create a common "bridge" interface that would allow the appliance to meet the local connection status. Very lowcost "CAN" interface modules are available. CAN is the network interface used for new automobiles. It is durable, low power and it would allow simple CAN to HAN, or CAN to Wifi bridges as addon appliance modules. I believe the real problem is consumer demand really does not exist. If it had - the appliances would long ago had iPhone web accessible pages built into ALL washer, dryer, ovens, etc. |
| Dennis Heidner - 03/08/2013 - 21:58 |
| RE:Whats wrong with existing models - part 2 |
| Mark, residential demand response always seems like a great opportunity - but for a number of reasons I believe it may just be a mirage. * For example EIA published a report this week ( http://www.eia.gov/todayinenergy/detail.cfm?id=10211 ) in which the describe how the residential energy uses is very peaky. The charts compare residential peaks against business and industrial and the article was well written. However I do not believe the obvious DR solution is the correct solution. * When you look at the swings, it is pretty easy to see the big drivers are simply the energy loss from the building envelope. So yes, we could use DR to adjust the thermostat to peak shave OR a better solution would be to insulate the house and reduce the OVERALL baseloads year round! * In another report I read on "ApplianceMagazine" (March 5th, 2013) BSH (Bosch & Siemens appliances) described how the appliances they make today use 73% less energy than the equivalent appliances fifteen years ago. That is pretty impressive. * But it also means if we are making the design decisions for DR peak shaving based on the consumption models two or three years ago, for appliances being sold in another two or three years, it will be very hard to prove that the savings actually came from the DR module -- and not just improvements based on the normal EnergyStar improvements.... whew -- sorry for long sentence. In another just release EIA quick news, ( http://www.eia.gov/todayinenergy/detail.cfm?id=10271 ) the author points out the space heating and cooling are no longer the majority of home energy use. Instead it is now the miscellaneous electrical loads. Those are "appliances, electronics and lighting". Understanding that appliances reduced energy loads signficantly in the last fifteen years, and CFL/LEDs are becoming the coming lighting source, that implies that "electronics" are now becoming a larger portion. Its our PC's, iPods, iPads, cellphones, DVR's, satellite dishes that are causing increased loads. I do not those many "little" devices would be as DR friendly. |
| Dennis Heidner - 03/08/2013 - 22:20 |
| RE:Whats wrong with existing models - references |
| Hot water storage in France with grid control... More thoughts on residential DR. * ( http://www.aceee.org/files/pdf/conferences/hwf/2012/2C-Lajoie-Mazenc-Final.pdf * ( I'm not sure about the German residential controls. I do remember that I saw the ISDN connection, devices made by AEG and connections to the boiler. We met relatives during the day (October) at their house and it was chilly inside. The explanation was the utility setback for power. If we had been at the house later in the afternoon or evening -- it would have already been upto temp. |
| Dennis Heidner - 03/08/2013 - 22:43 |
| Automated Domestic DR |
| The replacement cycle suggests a mix of smart/non smart appliances for decades. An alternative is to use appliance ID technology to automatically switch on/off existing domestic appliances at peak times via the web(fridges,freezers etc). Greenlet (Israel) can do this. So can London Rebuilding Society (UK). An interim measure, yes. But it lets aggregators automate/evidence the delivery of MW savings now, buys time for manufacturers to develop smart appliances and consumers to buy them. |
| Adrian McKeon - 03/15/2013 - 05:41 |
| RE:Automated Domestic DR |
| Adrian, for small scale that might be easy. For larger scale it might work if implemented correctly. There plug compatible devices on the market that could do some of that for small appliances. However, I believe there was a study done at MIT suggesting that if demand response operated in an "open loop" without feedback to power provider that the appliances were going to stop or suspend --- that you could actually create a situation where you have increased odds of instability. Example of this is the July/August(?) 2012 power outage in India. It was in part triggered by high demand -- when consumers (including business/industry) moved their heaviest loads to "low demand" times at night (time of use pricing). Too much of the load moved - but the pricing didn't change. The result was that the low TOU rate actually encouraged a behaviour which resulted in a blackout. * If appliances are going to be smart and use dynamic pricing - they need to send back that information to the local provider - so the information could be aggregated and passed on to the generator. * I think one of the other requirement for the process to work and be accepted by consumers -- is the ability for an appliance to "lock-in" a rate once it "bid" on a $/kW rate. This also means that the appliance really needs to send the power provider an estimate of how long and how much power would be needed. Then some kind of "receipt of transaction" saved for future reference. In my mind the process would be quite complicated -- and in the end it would just be easier to make appliances more efficient. A simple example of this is that my clothe washer has a button that you can push to run the machine in "economy" mode. But that isn't the default. Easy change would be to change the firmware for the washing machine, rename the button to "ENERGY HOG" and unless that button had been pressed to speed up the washing process -- always use the economy mode. This would really be a nearly zero cost change... except I suspect the appliance marketing people probably hated the idea... |
| Dennis Heidner - 03/16/2013 - 01:13 |
| Building the General Analytical Model |
| I believe that the approach Dr. England's speaks can be viewed in a genearalized Demand Response, Distributied Energy Resource valuation model. These topics are to be discussed this next month at the Transactive Energy Conference, May 23-24, in Portland, OR. An important first step is to make the economics real after fully accounting for the value. |
| Fredric Fletcher - 04/18/2013 - 09:27 |
| Hourly Pricing Can Deliver the Consumer Benefits |
| For residential customers, I think a much simpler and more satisfying method for delivering fiancial benefits can be achieved by providing coupons/discounts for the initial purchase of the appliances and offering hourly pricing for their electricity. The two primary utilities in Illinois operate residential hourly pricing programs, and evaluations of both indicate that residential customers display appropriate elasticity to hourly price signals (which addresses the "TOU created demand at the wrong time" problem cited above. The customer determines whether they want to use their appliances, and they realize a financial benefit by comparing their electric supply cost against the utility's standard price offering. Admittedly, the regulatory structure in IL isn't universal (the utilities are wires companies, and electric supply is sourced in the MISO market), but the programs have demonstrated that residential customers can provide peak demand reductions when provided with a market-based financial signal. Evaluations of these programs and customers' elasticity are publicly available on the Illinois Commerce Commission's website - one is called "Power Smart Pricing", and the other is "Residential Real Time Pricing." |
| Peter Millburg - 05/03/2013 - 06:57 |
| Demand Response in India |
| We have launched a pilot DR program for Mumbai , India , and are in 2nd year of operation. In India , where peak demand shortage is about 12% , this voluntary-no performance-no payment-no penalty program has seen more than 70% for participation. Looks like DR programs for energy deficit countries like India are going to be vital for next 10 years of so. |
| Rahul Pendharkar - 05/09/2013 - 03:56 |
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