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Demand ResponseWhy demand response is the wrong idea (and how we should think instead)
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Jul 27, 2012
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Editor’s note: Warren Causey is a well-known researcher, writer and consultant who has specialized in the utility industry since the early ’90s. Previously with Energy Central's Sierra Energy division, he now publishes a weekly newsletter and runs his own consultancy with the tagline "Informed and Unafraid!"
He certainly was unafraid in one recent newsletter, where he argued we may be aiming at the wrong goals by seeking demand response and peak pricing. Instead, we should strive to make electricity so cheap that everyone can afford to use as much as they need, any time of day.
When you think about breakthroughs in things such as solar power and fuel cells and energy storage, maybe we could make electricity cheap and abundant for all (someday). Would that be a better goal than seeking better ways to limit our usage at peak times? I got Warren's permission to excerpt his piece below so you could read his reasoning. Please use the Talk Back form to respond with your own thoughts. – Jesse Berst
P.S. If you would like to subscribe to Warren's newsletter, click here to read more and the chance to subscribe for 15% off. SGN does not make any money for this referral. We offer it solely as a benefit to readers.
By Warren B. Causey
My friend and colleague Steven Collier, vice president of Business Development at Milsoft Utility Solutions, has posted an excellent blog here that outlines my position on smart grid and energy. He even provides his own quote for me, which I heartedly endorse. It is: "To paraphrase Causey, 'Why are we looking to energy rationing through increased complexity and inconvenience for consumers when what has made our quality of life and productivity of business so great in this country has been a ready supply of reasonably-priced energy?'"
Collier also quotes Brewster McCracken, who runs the Pecan Street Project in Austin. Collier says McCracken has asked in presentations, "Hey, have you heard about the secret plan to kill the smart grid?" The audience suddenly is curious. They'll say, "No. What's the plan?" And he'll tell them: "The plan is two-fold. First, we're going to try to make Americans quit using energy when they want it the most. Second, if they insist on using peak-time electricity, we'll bankrupt them."
Those two quotes pretty well sum up my thinking about and approach to the smart grid. It's a great idea, especially if we make the grid smarter through advanced technology. And, there really is nothing wrong with "educating" consumers to make wiser choices in energy usage. I always will remember my parents, who grew up in the "real" Great Depression, required that we always turn lights off when not in a room and using the air conditioner only when the afternoons in the South became unbearable without it.
However, too much of what is called "smart grid" talks about driving up the cost of electricity for consumers to the point where, as McCracken says, we "bankrupt them" for what have become their normal daily activities in a ubiquitous, low-cost electricity environment. Driving those costs up during the hottest part of the day makes no sense to me. Instead, we should do as Collier suggests: "utilities should be focused on making electric service as economical and easy for the customer as possible rather than trying to 'engage' customers to be responsible for the fact that the grid can no longer do what they want and need it to do."
More on this topic…
New study: Lessons learned in dynamic pricing
PJM goes to bat for "price responsible demand"
Smart grid insider: Tough times ahead for demand response?
| Demand response is a path to |
| There is a lot of background to what I'm going to say here, so I'll stay "high level". In my opinion, the existing electric pricing structure is rife with subsidies that actually prevent the development of less expensive electricity. As long as the real cost of generation and delivery is "averaged away" we will continue to have more of what we have. We could erect new subsidies to develop new technologies, but there again, that doesn't get you efficiency, it just gets new and different subsidies, with the risk of development of the new technologies resting on taxpayers' and ratepayers' shoulders. If end users are exposed to the actual (de-averaged) costs of the current system, many of the technologies that Mr. Casuey advocates will become "killer apps" in a competitive market, driven not by utility investment (i.e. ratepayer investment) or taxpayer-supported incentives, but by customer choice. Of course this will need to be a gradual transition, and many of the (truly needed and beneficial) subsidies in the current system will need to be unwound from averaged rates and re-established as explicit subsidies. However, I think markets will have their day. My $0.02 |
| Christopher Kotting - 07/27/2012 - 06:47 |
| Supply Trumps Demand |
| When I started as a new regulatory consultant with a large investor owned utility in January 1995, a colleague explained demand side management (DSM)- what we now call demand response (DR). As a newly minted MBA, with a myriad of business maxims swimming in my head, I knew that utilities made money selling electricity, and I could not understand that the regulators wanted them to sell less of their product (and make less revenue), or for that matter, why a consumer would want to consume less at the very moment when they needed it the most. I scratched my head as my friend explained the notion of peak energy pricing, etc, etc. Over time, as I became more sophisticated in my thinking, the fog lifted and I understood the rationale for DR: peak energy capacity requirements drive costs in the system - reduce peak and we all avoid capital investments and high operating costs. But over the years, I also came to understand the tenuous argument that depends on a series of successful outcomes in navigating the challenges of AMI, MDM, digital billing, TOU rates and DR programs - only to face that fundamental problem of price elasticity...will the delta between peak and off-peak pricing in TOU rates be sufficient to drive customers away from doing what they naturally want to do (start using electricity to run a variety of appliances inside their home when they come home from work)? And if so, is this the best, or only way forward? As the excitement of ARRA grant money and DOE-sponsored programs wears off, I suspect many utilities will realize in the wake of their AMI experience how difficult it truly is to implement a well-designed TOU rate and complementary DR program. I believe that the only way through to widespread success in lowering peak will be to embrace customers as partners and open up the dialogue to a variety of programs, ranging from new energy services that stress green energy or enhanced reliability, to wildly creative pricing programs, including not just TOU, but also prepay and flat rates, to distributed generation for energy self sufficiency - each with a peak reduction component embedded within. The bottom line - to reach the market and attain a change in user behavior, utilities will need to start thinking and acting like marketing companies, which may or may not include DR as we know it today. John Cooper, Partner, NextWatt Solutions |
| John Cooper - 07/27/2012 - 06:49 |
| Well Said Warren |
| Wow. Some common sense. Energy cost and availability is directly related to prosperity. It is good to see more acknowledgement of that. |
| Ralph Mackiewicz - 07/27/2012 - 06:50 |
| Smart grid, demand response and semantics |
| I would have expected better from Mr. Causey. In this short post he appears to subscribe to the trope that the smart grid means real-time pricing. He also employs the term "rationing" to describe such pricing structures--at least I assume that's what he means since I'm not aware of any utility that will prevent you from using electricity as long as they're not currently experiencing an outage. Which brings me to my point: much, if not most, of what the industry classifies as "smart grid" has little or nothing to do with residential customers. Advanced fault detection? Voltage optimization? Neither of these technologies hamper consumers' use of electricity in any way. In fact, they enable it by making the grid more reliable and more efficient. But let's talk about pricing. The simple fact of the matter is that it DOES cost more to produce and deliver electricity during peak periods. Traditional flat-rate pricing insulates the consumer from this reality. It is in effect a subsidy (how's that for a dirty word?) for residential users from the commercial/industrial users who make up the bulk of utility revenues. By the way, those big industrial users have done "demand response" under a variety of names for years, not because it was good for the environment but because it got them a lower rate. |
| Bob Fesmire - 07/27/2012 - 07:06 |
| time varying energy pricing |
| With ~1 msec from production to consumption, and >2:1 variation in demand on a daily basis, dynamic pricing is a tool to reduce the cost to an informed consumer, not to bankrupt them. By assigning a cost-based price to high cost energy, the utility can reduce the cost for lower cost times (low cost occurs >95% of the time in CPP applications). |
| Ray Hayes - 07/27/2012 - 07:18 |
| DR issues |
| Granted readers commentary, however, supposed, just supposed that energy is really scarce (forget for the sake of discussion the regulatory issues that forces pricing schemes); how does one ration electricity to consumers without being able to control peak demands leading to blackouts? Then you can begin to tie into this the pricing schemes and other factors. Seems like DR is a necessity if electricity is scarce due to any reason, no? |
| Eli Sheffer - 07/27/2012 - 07:53 |
| Demand Response wrong idea |
| I can recall those TV commercials many many years ago from the DOE about how nuclear power will make energy so cheap that customer meters won't need to be read.... |
| Douglas Faith - 07/27/2012 - 07:55 |
| DR Supply Side Equal = Compressed Air Energy Storage |
| I am thinking that we should seriously consider Compressed Air Energy Storage connected to the Bulk Electric System in 250MW (output) size facilities might both tame the wind and solar resources as well as lessen the difference in time of day prices. It costs money, but it might cost less than the cost to do demand response |
| Fredric Fletcher - 07/27/2012 - 08:17 |
| Usage vs DR |
| Causey has some good underlying points, but he destroys his credibility by using sensationalism and over the top hyperbole. Chris Kotting is right-on when he says that we need to expose the real cost of energy to consumers, and AMI with TOU is a great step in the direction. I think that Utility controlled DR is fundamentally flawed, but price sensitive home controls can bring significant benefits as long as the customer gets to set the policy and reap potential $ savings. Bob Metcalf has a fascinating presentaion on what he calls the Enernet. What if the Energy networks evolved in the coming years as the Telecom networks have over the past 25 years. Energy would become plentiful and inexpensive. New applications would emerge and quality of life might go up, significantly so in impoverished areas. Watch his fascinating video here: http://inphobe.blogspot.com/2009/10/enernet-bob-metcalf.html Conservation is a great first step, but the longer term goal should be towards plentiful supply. Personally I've invested in both increased efficiency of lighting and HVAC but also in roof top solar and I'm energy neutral on a yearly basis. My wife doesn't have to feel bad for turning on the AC whenever she is uncomfortable. We need to work on both the conservation and supply sides of the energy equation, but without the scare tactics Causey uses. |
| Joe Huber - 07/27/2012 - 08:52 |
| DR and the customer |
| Has anyone considered telling customers what problem utilities are attempting to solve with demand response? Consideration should be given to the fact that 50% of utility customers have average or above intelligence. Perhaps if customers that meeting peak demand is costly they would move non-essential demand to off peak time. At our house laundry is done during summer mornings and winter afternoons. |
| Dennis Fleming - 07/27/2012 - 08:54 |
| The Germans are Lowering Prices |
| Well, why not? The Germans with the extraordinary integration of renewables into their economy are realizing savings at Peak! See my post here (http://www.anewerworld.net/?p=59) and the link within it to the great Renew Economy article, "Why generators are terrified of solar." |
| Bill Hewitt - 07/27/2012 - 09:11 |
| Absolutely! ! ! |
| Thanks for sharing the broader vision: few brave enough to say so publically. The goal must be abundance, nothing less. There is no valid reason (based on the laws of physics) to deny that abundant, sustainable energy and a healthy environment for the long term are achievable. Policy makers and much of the industry are having the wrong conversation. A correct conversation starts with proper vocabulary. We're surrounded by abundant energy. The abundance deniers just aren’t paying attention (or ignore the obvious for other purposes). Don’t call the sun and gravity renewable, unless you’re sitting on a way to recharge or recreate either. Call it abundant, opportunistic energy. Call it sometimes inconvenient. Take the blinders off, so we can see the real “destination” and see the abundant opportunities and myriad possibilities. Narrow thinking has been slowing innovation. For human perspective, wind is perpetual, as is sunshine, and there are so many more possibilities around us – abundant energy we do not yet know how to use. The volcanoes, earthquakes, and hurricanes (typhoons) that rattle our world seem obvious evidence of the planet’s abundance of energy. Our technical challenge is one of conversion in form, time and place – transforming what’s available into a form that we can use when and where we need it. Grid modernization technology is in enabling innovation by decoupling things that have been traditionally dependent. The two-way flow and control of energy is now possible. Distributed conversion and storage is possible. ADR is a model of how NOT to sell a GOOD idea: with the message that users must give up control of their homes and lifestyle. This denies that there can be value to the user. Properly applied, ADR can enable users to have GREATER control over what energy sources they use when, and enables real value in adoption of distributed storage and conversion (Distributed Energy Resources). The potential value creates a market for innovative solutions to one part of the overall abundance solution. First we must remove the conceptual (and legislative) blinders. |
| Benjamin A. Rolfe - 07/29/2012 - 10:03 |
| There's a word missing |
| Benjamin pointed out, there's a word missing - sustainable. See what the world has done with abundant oil (not sustainable), gas (even shale gas is not sustainable in the long term), nuclear. Abundant and cheap are not the key words here, sustainable is the word. |
| Paul Scotson - 08/06/2012 - 07:37 |
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