State-specific analysis of demand response in the US
Analysis of Demand Response – Electric utilities across the globe are in a constant process of matching the amount of energy generated and distributed with the energy consumption needs of their consumers.
A very common occurrence is that sometimes the consumer demand for electricity surpasses the generation or available electrical capacity of the utilities.
The effect was insignificant until the first decade of the 21st century due to conventional power plants such as coal and nuclear power plants. With the penetration of renewable energy sources, the problem is more pronounced.
In an intermittent energy mix, it gets more challenging for the utilities to match the energy generated with consumer demand. A mismatch in such a scenario could lead to a blackout or brownout.
Demand Side Management and Analysis of Demand Response (DR), a utility incentive program, enables utilities to incentivize their customers to reduce their energy consumption during periods of high demand.
Advanced Metering Infrastructure (AMI) – Key enabler of Demand Response
Advanced metering infrastructure is the primary gateway for enabling programs like analysis of demand response, peer-to-peer energy trading, and controllability of HVAC systems.
As per US Energy Information Administration (EIA) data on advanced metering infrastructure, the US has an installed base of more than 110 million AMIs. The historical data of EIA indicates that AMI rollout has been increasing yearly, with an average yearly increase of 7 million AMIs.
State-specific Analysis (Top States)
The US power grid is one of the world’s most complex and rapidly evolving grids. Starting with federal-level regulatory bodies, every state has laws regarding electricity generation, transmission, and distribution.
As per EIA, more than 10 million customers enrolled in DR in 2021. Most of these 10 million customers were residential customers, followed by commercial and industrial electricity users. To understand the landscape of DR in the US, it is important to segregate the market by key states.
Maryland – Analysis of Demand Response
Regarding the number of beneficiaries registered with the state’s DR program, Maryland’s demand response (DR) program topped the list in 2021.
The primary reason for such success was Baltimore Gas and Electric’s (BGE) SmartEnergy Rewards Program. BGE, Maryland’s largest utility, has provided various rewards and incentives to customers.
To meet the goals of its energy efficiency program, BGE compensates consumers with rebates as they lower their electricity usage during peak hours. It all starts with a hassle-free opt-in process.
The program automatically enrolls customers with installed smart meters unless they specifically request to opt-out.
Maryland’s Success in Peak Demand Reduction through Revenue Decoupling and Customer Incentives
Maryland has also adopted a full revenue decoupling model in which they adjust the revenues such that utilities and shareholders receive compensation to meet their expenses.
To make the most out of shared earnings and financial incentives, BGE regularly sends alerts via SMS and email to customers to notify them of the times during which energy-saving efforts will be eligible for bill credits.
Timely installation of smart metering infrastructure and smart grid deployment achieved the objective of peak demand reduction.
With the basic groundwork already done, it was easy to draft energy-saving policies on top of them and execute the aggressive demand reduction plans.
The rewards offered by Maryland have contributed to the increased participation of consumers, resulting in a successful reduction in peak demand.
California has rolled out several DR programs. A trio of California Public Utilities Commission (CPUC), investor-owned utilities (IOUs), and independent and third-party non-utility Analysis of Demand Response Providers (DRPs) administer DR programs within California.
These DRPs, also known as aggregators, contribute to reducing energy requirements during peak demand on behalf of the customers who choose not to opt for utility DR programs. This leads to healthy competition in the market to meet smart energy consumption targets.
The aggregators are governed based on state regulations and market rules with some added flexibility. This approach comes under the Analysis of Demand Response Auction Mechanism (DRAM) program.
Introducing aggregators to the system allows the California Independent System Operator (CAISO) to deploy DR resources where energy reliability might be at stake.
This also makes California a home for DRPs, with 10,000 customers already registered. The key is the diversity of the vendors participating in these programs to meet the resource adequacy requirements.
California’s Efforts to Improve Energy Infrastructure and Demand Response Programs
This includes domain-focused aggregators dedicated to solar storage projects, home-energy controls for home automation use cases, home-based electric vehicle charging stations, and Self-Generation Incentive Programs (SGIP) utilizing behind-the-meter energy storage systems.
California has also been actively participating in mass-awareness campaigns like Flex Alert to educate consumers about the significance of DR programs. The Base Interruptible Program (BIP) is widely used by large-scale utilities to switch off their power. This leads to a significant contribution in load reduction with power for about 12000+ residential homes, in turn for a handsome amount. However, this is the last resort that CAISO opts for in an emergency. Other automatic analysis of demand response programs are also in place to automatically respond to energy-saving requests based on usage fluctuations.
As part of the next steps, California needs to update the infrastructure of its electric grid to meet the flexible customer demands. New policies and DR programs are expected to be introduced to achieve participation in advanced voluntary demand reforms.
The Electric Reliability Council of Texas (ERCOT) grid in Texas has been efficiently managing two of its commonly used demand response programs. This includes Load Resource (LR) and the Emergency Response Service (ERS). The basic components of these programs are participation and availability, upon which the payments are calculated.
The ERS program comes in 2 variations; one involves sending a notification to the customer in 10 minutes. While the other one requires sending a notification in 30 minutes. These programs are based on a 4-month contract. It starts from either February, June or October, tied with six optional timeslots in which availability is required. The only logistical requirement is the availability of a smart meter with no minimum size. It makes it easy for anyone to participate.
Unlike ERS, LR enforces the condition of a minimum load reduction of 100 kW. Participants are required to commit for a year and be available 24/7. The vendor must also have an under-frequency relay, two-second demand data, and direct load control. Under this program, the notification is sent 10 minutes earlier. After which the customer must curtail the load for several hours. Then they receive the financial reward on a monthly basis.
Industry Players active in AMI and DR Solutions
Along with the challenges, the market of DR in the US presents plenty of opportunities for new and existing players. All major Transmission and Distribution (T&D) equipment OEMs have entire product portfolios designed around the AMI and DR services. As equipment manufacturers or power systems infrastructure developers, several companies have taken strategic steps to tap into this market by doing mergers and acquisitions in the last decade.
Energy company “Constellation Energy Corporation” bought demand response services provider CPower in 2010.” Later on, in 2014, Constellation and a top equity firm HIG Capital LLC’s subsidiary Comverge decided to combine their commercial and industrial demand response portfolio, operating as a standalone entity with major stakes owned by HIG. In 2017, HIG sold Comverge to Itron for $100 million.
Acquisition and Merger Activities in the Demand Response Market
In 2017, Enel Green Power, North America, completed the 100% acquisition of EnerNOC for $250 million. EnerNOC was one of the top players and providers of energy efficiency solutions. They also include demand response to utilities, commercial and industrial sectors. Enel, a leading renewable energy developer, secured control over EnerNOC’s demand response portfolio of more than 5 GW upon acquisition.
In December 2018, a US-based power transmission infrastructure and energy developer LS Power. It concluded the acquisition of CPower, which was previously a HIG subsidiary. LS Power had a power systems infrastructure background, and this move indicated LS Power’s interest and intention to enter new emerging markets in the US power grid sector. The road map of LS Power penetration is to become a market leader in demand response and grid flexibility services. LS Power is doing so by strengthening CPower’s position in the market. In 2022, CPower completed the acquisition of Centrica Business Solutions’ demand response division. Through this acquisition, Centrica customers got access to value-added services for their Distributed Energy Resources (DERs) and CPower’s Artificial Intelligence (AI) capabilities.
Demand response is going to be one of the critical tools in enabling the clean energy transition. With more and more renewables on the grid, flexibility will act as a crucial factor. Energy-intensive facilities like commercial and industrial hubs are good candidates for DR programs. In the future, new technologies will be incorporated into the demand response program. For example, electric vehicles with a battery can become one of the potential contributors to demand response programs [Vehicle to Grid (V2G)]. From the supply side, implementation of AI will allow utility functionalities like better forecasting of demand through the use of analytics and modeling to predict weather patterns and other external physical phenomena which may affect the amount of electricity produced, consequently enabling them to better plan the demand response.