Nov 10 2008

The Invisible Energy Resource

The media rush to highlight every major new renewable power project, but another clean energy resource gets far less attention, even though it's flexible, abundant, relatively inexpensive and valued overall at billions of dollars.

According to a recent report by the North American Electric Reliability Council (NERC), this unheralded resource is equal to 29,000 megawatts of capacity during periods of peak summer demand--as much as all U.S. wind, solar, geothermal, and biomass power combined.

The report calls it "an effective and efficient capacity resource, on equal footing with generation" and says it "will become a critical resource for maintaining system reliability over the next ten years."

What's not to like? Only the name: "demand response." You've gotta love the way the utility industry chose such a dull term to hide one of its hottest products.

Simply put, according to Wikipedia, "demand response (DR) refers to mechanisms to manage the demand from customers in response to supply conditions, for example, having electricity customers reduce their consumption at critical times or in response to market prices."

In most markets, matching supply and demand is no big deal. If supply exceeds demand, sellers build up inventory and sooner or later cut their prices, prompting additional demand. Sellers also regularly adjust prices based on predictable changes in customer demand--think movie matinees or off-season travel discounts.

But until recently, electric utilities had no comparable way to change prices for most customers or to store inventory (excess electricity). Utilities could mainly affect the supply side, for example by ramping up or down infrequently used gas-fired "peaking" plants.

Demand response programs now give utilities a powerful new tool for balancing supply and demand. By encouraging customers to curb demand during periods of extreme peak loads, utilities--and ultimately customers themselves--can save the considerable cost of backup generation capacity that may be needed only a few dozen hours a year.

There are other benefits of demand response.  System reliability benefits because generation and transmission capacity aren't stretched to the limit.  The environment benefits from fewer power plant emissions.  And, last but not least, demand response programs can help utilities manage renewable resources like wind power. When the wind dies down, getting customers to reduce their load can rebalance supply and demand efficiently.

As NERC said of demand response programs in a report issued today, "their critical role in supporting the integration of variable renewable resources will only increase their importance as climate change initiatives progress."

The total value of giving utilities nationwide the ability to shave just five percent off peak demand comes to $66 billion, according to estimates by Brattle Group consultant Ahmad Faruqui.

At PG&E, about 119,000 customers now take part in one of a dozen demand response programs. Together they can reduce the utility's peak load by as much as 1,246 megawatts, equal in capacity to about three sizeable gas-fired power plants that cost hundreds of millions of dollars to build.

One successful program, which launched last year, is called SmartAC. In return for a $25 incentive payment, customers let PG&E install a radio-controlled switch on their air conditioner or thermostat. During supply emergencies, when customer demand pushes the limits of our electric supply, PG&E can cycle those air conditioners off for brief intervals, preventing any risk of rolling blackouts. More than 9 in 10 customers in the SmartAC program say they never feel the difference.

Another innovative program is SmartRate. It is available to residential and small commercial customers with automated SmartMeter(tm) electric meters, which measure customer usage at frequent intervals-hourly for residential customers, and every 15 minutes for commercial customers. Participants enjoy a discount of 3 cents per kilowatt hour between May 1 and October 31--except a few days a year, when afternoon rates jump by 60 cents per kilowatt hour for residential customers, and by 75 cents per kilowatt hour for commercial customers. Simply by turning off appliances during those hours, no more than 15 days a year, customers and the utility both save money and spare the environment.

Smart entrepreneurs are finding ways to extend the reach of these programs. For example, Ice Energy, which just announced another successful funding round, sells air conditioning units that freeze water at night, when electric rates are low, and use the ice to cool buildings cheaply during the day. Its technology may let commercial buildings shift as much as 40 percent of peak energy demand to off-peak hours, when rates are cheaper.

Last year, Ice Energy and the City of Victorville won one of California's "Flex Your Power" awards. Ice Energy projected that the 31 cooling units it installed in municipal buildings would shift enough of Victorville's energy consumption to off-peak hours to reduce CO2 emissions by 335 tons and reduce NOX emissions by 985 pounds over the next five years.

NERC estimates that the growth of demand response programs through 2017 will slice about a year's worth of normal growth in summer demand. Combined with energy efficiency investments, peak demand growth will be slashed 80 percent over that period, it predicts.

Surely a high-achieving program like that deserves a name better than "demand response." Any nominations?

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