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Citation Format [Vol.] PGH. J. Tech. L. & Pol'y [Art. #]Contact Information Thomas Beline, Editor-in-ChiefElana Kornblit, Executive EditorGeorge Ernst, Executive EditorJournal of Technology Law & Policy
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Demand Response Technology – What it is and why it’s importantby Julia DiPasquale Until very recently much of the
information regarding demand response activities and statistics was unavailable. The Energy Policy Act of 2005 had a goal
of making such information more accessible and required the Federal Energy
Regulatory Commission to report on the status of demand response activity in
the In August of 2006 the Assessment of Demand Response and Advanced Metering Staff Report was made public and a better understanding of demand response is now available.[2] This report brings attention to the importance of demand response technology implementation for both environmental and economic reasons. The electricity industry is complex and full of difficult terminology and the goal of this article is to make some of these concepts easier to identify with and comprehend for those who are not completely fluent in the industry’s jargon. What is Demand Response?
The Department of Energy and the Federal Energy Regulatory Commission have adopted the same definition for demand response: “Changes in electric usage by end-use customers from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.”[3] So what does this definition really mean?
Demand response is much simpler than it seems. When market prices of electricity are very high or when the power grid is overwhelmed and possible blackouts are looming, electricity customers are asked to cut back on their usage of electricity. In return these customers are given monetary compensation or significantly lower electricity bills because of their cutbacks. An important concept to understand about demand response is that it is intended to be a quick solution to an immediate problem.[4] When electricity demand peaks, either at specific times during the day or year, grid operators are able to quickly notify customers, through many different avenues, to make adjustments. The idea is to entice high electricity users to curtail[5] their use and allow such power to be redirected to other customers on the grid. The better the incentive, either through discounted rates or monetary subsidies, the more likely a high electricity user is likely to curtail.[6] It is also likely that the customers that would be asked to curtail have alternative energy sources, like back up generators, that they would be able to turn on in order not to interrupt their normal course of business. Why Demand Response is Important?
The benefits that can result from the use of demand response programs cannot be ignored. For customers that implement demand response technologies and chose to curtail their loads,[7] the monetary savings are noticeable. Along with direct savings on electricity bills, businesses will be better able to understand their electricity usage and manage its costs.[8] The electricity market and overall system will also benefit from increased use of demand response technologies. Variable supply costs will be controlled by more efficient use of electricity.[9] Wholesale electricity prices will be reduced in the short term.[10] From a long term perspective, by gaining the ability to reduce system demand when necessary the need for building additional resources to generate, transmit, or distribute electricity will be reduced.[11] Another long term benefit would be the overall change in the load demands of electricity customers.[12] By increasing the use of demand response technologies environmental benefits will also result. Use of electricity can be reduced overall, as long as businesses do not make up for curtailed use at a later time. Such reductions will reduce the generation plant emissions.[13] Implementation of demand response programs will also increase overall awareness of the importance to conserve electricity.[14] The Federal Energy Regulatory Commission’s report refers to ICF Consulting’s estimate that there is a possibility of saving $4 billion in annual system operating costs.[15] There is also evidence that when given the opportunity customers will take advantage of knowledge generated by demand response technologies and better manage their electricity demand.[16] What Needs To Be Done to Benefit from Demand Response:
It has always been known, but even further reinforced by the recent FERC report, that the key to getting demand response initiatives off the ground is enabling the necessary technology.[17] Without the proper technology customers will lack the ability to know when curtailment would be beneficial. Smart metering and thermostat systems would allow recordings of customer’s actual usage more frequently which is pivotal to accurately credit those customers that do reduce their load when asked and adjust room temperature automatically in response to price changes.[18] The necessary technologies for a customer would likely include a communication system to know when curtailment should occur, mechanisms to allow the actual reduction in electricity to occur, meters to record accurate usage rates, and at times on site generation abilities.[19] So what has been the problem for customer’s to get their demand response programs off the ground à Recovery costs
Despite the possibility of future savings, customers and utilities are reluctant to take the risk of purchasing the necessary capital to get such programs off the ground. [20] The Demand Response and Advanced Metering Coalition is a non-profit organization made up of third party providers of demand response technologies and advanced metering solutions.[21] The mission of the Coalition is to provide information regarding demand response and entertain ideas regarding the promotion of demand response technologies.[22] The Demand Response and Advanced Metering Coalition, or DRAM, has many suggestions for federal and state policy makers to help alleviate costs and encourage the implementation of demand response technologies by utilities and consumers.[23] The proposals presented by DRAM are very promising and should be strongly considered, they are as follows:
This list of very comprehensive suggestions is a great start in the promotion of demand response technologies. With a commitment by the federal and state governments, the importance of demand response will become evident and others will follow to make demand response technology the standard throughout the country. Although statistical resources about demand response are limited sources for further information are as follows: http://www.ferc.gov/legal/staff-reports/demand-response.pdf http://www.dramcoalition.org/index.htm http://www.dramcoalition.org/Resource-156/DRAM%20Comments%20to%20DOE%2005.11.22%20%20Submitted.pdf http://www.demandresponseinfo.org/ http://www.fscgroup.com/news/FSC_DRWhitePaperHeffner.pdf http://www.peaklma.com/files/public/CustomerPrinciples.pdf For an understanding of how demand response programs are structured by ISO’s in certain regions: Pacific Gas and Electric - http://www.pge.com/demandresponse/ ISO and http://www.ercot.com/services/programs/load/index.html PJM - http://www.pjm.com/services/demand-response/demand-response.html Book Resources – a great resource to help understanding the terminology and structure of the industry - Sally Hunt, Making Competition Work in Electricity (2002). [1] Energy Policy Act of 2005, Pub. L. No. 109-58, § 1252(e)(3), 119 Stat. 594 (2005) (EPAct section 1252(e)(3)). [2] Fed. Energy Regulatory Comm’n., Doc. No. 06-2-000 (2006). [3] [4] Fed. Energy Regulatory Comm’n., Doc. No. 06-2-000, at 5 (2006). [5] Curtailment is defined by the conservation of electricity use through the shutting down of operations or enacting alternative energy generation sources. [6] Fed. Energy Regulatory Comm’n., Doc. No. 06-2-000, at 5 (2006). [7] Load refers to the amount of electric power delivered or required instantaneously. Aldo referred to as demand. Usually measured in Mega watts. The term is sometimes used to mean all customers collectively. Sally Hunt page 427 [8] Fed. Energy Regulatory Comm’n., Doc. No. 06-2-000, at 10 (2006). [9] [10] [11] [12] [13] [14] Fed. Energy Regulatory Comm’n., Doc. No. 06-2-000, at 11 (2006). [15] [16] [17] [18] [19] [20] Fed. Energy Regulatory Comm’n., Doc. No. 06-2-000, at 128 (2006). [21] Demand Response and Advanced Metering Coalition, http://www.dramcoalition.org/index.htm (last visited Feb. 15, 2007). [22] [23] Demand Response and Advanced Metering Coalition, Comment to U.S. Department of Energy on Energy Policy Act of 2005 Section 1252 Report to Congress on Demand Response, November 2005, available at http://www.dramcoalition.org/Resource56/DRAM%20Comments%20to%20DOE%2005.11.22%20%20Submitted.pdf [24] Electricity portfolios are offered to large and industrial size customers by suppliers that provide fixed and market-based electricity prices, customized to the needs of each specific customer. Such services allow customers to lock in portions of projected energy usage at a fixed rate, reducing the risks associated with exposure to the market. Definition from Strategic Energy L.L.C. available at http://www.strategicenergy.com/ Portfolio_Products.php. [25] Public benefit funds exist in many jurisdictions whereby electricity customers are assessed a “wires” charge to generate funds for use in increasing/ accelerating renewable energy and/ or energy efficiency activity in the jurisdiction. In some cases, these funds are prohibited from being applied to demand response. [26] Such barriers include: reduced throughput, rate/price caps, lack of regulatory certainty, and few incentives to invest in demand response. |
