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Entries » Blog » What's really changing the utility industry? Storage, pricing and demand response

Chris King |

What's really changing the utility industry? Storage, pricing and demand response

Once a year, the world"s experts in demand response get together at the National Town Meeting on Demand Response, which happened this week in Washington, D.C. The sessions covered technology, regulation, policy -- and, importantly, customers.

This vibrant melting pot of utilities, technology companies, demand response service providers, government officials, academics, and even students never disappoints. Ideas and insights abound, often from the conference"s effective use of real-time audience polling. Here are some key themes that emerged.

On Wednesday this group discussed the utility industry"s most disruptive technology. Believe it or not, it"s not the smart grid. Actually, it"s energy storage.

Jill Powers, Smart Grid Solutions Manager for the California Independent System Operator, noted that at the wholesale market level there is little chance that energy storage would cause much disruption.

But David Owens, Executive VP of Business Operations for the Edison Electric Institute, noted that if large numbers of customers were to get off the power grid by installing solar photovoltaic panels with local energy storage, that would completely disrupt the utility industry business model.

Energy prices that vary by time was another major theme. These include time of use pricing, critical peak pricing, and day-ahead or hour-ahead real time pricing. Paul Centolella, former Ohio PUC Commissioner, pointed out that customer participation in such "transactive energy" can be an attractive, money-saving option when combined with automated response. For example, automated demand response can be achieved via smart thermostats, which were discussed by Nest Founder Matt Rogers (who also invented the iPod).

How well can customers choose among electricity rate options? Georgia Power"s online Residential Rate Advisor guides customers through a quick and easy list of questions about their preferences, and automatically suggests the best rate option.

Especially interesting to me was reliability pricing. Huh?

This topic emerged during Tuesday"s consumer engagement workshop, where sub-groups were tasked with designing new, consumer-focused energy programs. The key insight was that consumers really don"t care about any other aspect of their energy service when the lights go out. They want the lights back on before discussing renewables, carbon emissions or time-based pricing plans.

So how about a "lights-on" insurance guarantee? For $9.95 (or whatever), a customer pays to guarantee that their lights will never be out for more than three consecutive hours. Many of us do this now with insurance policies to replace our lost or broken smartphones, DVRs, or even with car maintenance plans.

This solution addresses what is admittedly appealing to customers -- but it"s difficult for utilities to implement because of the interconnected nature of the power grid. The trouble is that restoring power to one customer almost always involves turning on a circuit or substation. The reality is that pinpoint restoration requires a smart grid with communications, control, software -- and perhaps local energy storage. Plus there are regulatory concerns, too.

But customers don"t care about all that. They just want the power on. I"d certainly pay for this reliability; electricity is essential in my household.

And how well is demand response working, especially as many U.S. utilities are hitting summer peaks? Baltimore Gas " Electric"s Cheryl Hindes told me that July 10 was an "event day" in their Peak Rewards peak time rebate program. When both temperatures and wholesale power costs soar, BGE asks its customers with smart meters to voluntarily reduce energy consumption between 4:30 and 8:00 pm. Nobody is required to take any action, but customers who choose to cut back during those hours receive a bill credit equivalent to $1 per kWh -- about 10 times the normal retail energy price. What"s not to love about that?

I can"t help being a little excited about BGE"s program, since I first developed the peak time rebate concept in 2004. I felt that customers would be more responsive to the carrot of a rebate than the stick of high critical peak prices. While PTR is not favored by many economists, the net effect to customers is about the same -- plus the program gets perceived by customers as a reward, not a penalty.

2004 was also the first year of the National Town Meeting. Last night we celebrated this gathering"s tenth anniversary with a bit of a roast of our admired and respected Executive Director of the Association for Demand Response and Smart Grid, Dan Delurey.

Thanks, Dan, for another great event. We"re already looking forward to next year.

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