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Dare to DR

Demand response—the reduction of electricity use during times of peak demand—remains a highly sought-after resource among utilities that experience capacity constraints at certain times of day and/or periods of the year.[1]  This is because reducing demand at peak periods is still lower in cost than comparable generation or purchased power options.

Utilities have encouraged customers to reduce peak demand—e.g., deliver “negawatts”—for many years, most often through static time-of-use and interruptible rates or critical peak pricing programs, neither of which requires sophisticated technology to provide one-way communication for alerting customers of the need to curtail usage.  Smart meters and smart phone apps are changing that one-way landscape to a range of options for two-way communications.  The Federal Energy Regulatory Commission (FERC) 2013 report on Demand Response and Advanced Metering indicates that advanced meters have achieved just over 22 percent penetration, while the Institute for Electricity Efficiency (IEE) provides a 2013 figure of 30 percent of all meters nationwide. The potential for demand response (DR) relies upon three stages of customer engagement in order to be fully realized:

  1. Customer knowledge and understanding of available DR offerings
  2. Customer participation in such offerings (i.e., signing up)
  3. Customer changes in usage behavior as a result of participation
  4. Customer sustained changes in usage behaviors over time

Factors limiting the achievement of greater levels of DR can be identified at each stage of engagement, as evidenced by various evaluations of DR programs and pilots to date:

  1. Ineffective outreach and messaging resulting in a lack of awareness or knowledge of the requirements and benefits of DR offerings that are available to them
  2. Low levels of participation – Lack of understanding or misperceptions about the disruptiveness of DR may be keeping many eligible customers from signing up
  3. Untapped potential for delivering the negawatts by overriding or ignoring DR signals
  4. Inconsistent response to DR signals

Technology solutions are one way in which utilities are expanding their reach and effectiveness in capturing DR resources.  For example, one of the primary utility benefits that factor into business case calculation for smart meter conversions is the expanded opportunity for engaging customers with demand response programs, and making it easier for them to respond.  Wireless methods of communicating with customers include an ever-expanding number and type of apps aimed at providing information about peak demand events, along with ways for customers to react remotely by adjusting smart thermostats. So the question is, are these kinds of solutions working?  Are these new ways of engaging consumers showing evidence of increases in the four stages of DR interaction?  Are they delivering more DR resources? Greater DR Potential than Ever FERC conducts periodic surveys to gauge the numbers and types of programs being offered, the potential size of DR resources, and the extent to which customers are being engaged.  Their 2013 report noted:  “Reported potential peak reduction associated with residential customers grew by 13 percent, from 7,189 MW in 2010 to 8,134 MW in 2012. Seventy percent of this increase is attributable to investor-owned utilities’ demand response programs. For residential customers, direct load control and time-based rates programs had the largest increases in reported potential peak reduction.” These figures, however, only indicate the potential for DR, not the results. ….But Limited Realization? According to a survey conducted by Parago in 2014, summarized in a report Turn-Up Demand Response, awareness of DR programs is low.  Parago asked 2,840 Americans in both competitive and rate-regulated markets about their awareness of, participation in, and preferred incentives for, DR initiatives.  Key findings summarized from their report are as follows:

  • 50% of all respondents don’t know if their energy providers offer demand response programs, and an additional 25% say these programs are not offered — another indicator of low awareness. 
  • From the 25% that indicated their utility does offer a demand response program, only 12% indicated that they participate.
  • Of consumers who participate in demand response programs, 2 out of 3 are not satisfied with — or are not sure about — the rewards and communications… 
  • Overall, 87% of consumers would participate for some type of monetary benefit, which would naturally include lower monthly bills. Other incentives of interest included prepaid card rewards or free energy-saving equipment.

A study by Comverge, called The Evolution of Communications for Demand Response , summarizes five ways in which customers can engage in DR offerings:

  • Paging – the oldest technique, still in use today
  • AMI – smart-meter enabled
  • ZigBee Gateway – smart meter-enabled
  • Cellular – wireless
  • Wi-Fi – wireless

While smart meters have greatly expanded the opportunity for more sophisticated two-way communications to support DR objectives, wireless is quickly gaining popularity.  Why? “Wi-Fi is the most cost effective solution since it provides many more benefits without the high infrastructure and maintenance costs from deploying advanced metering infrastructure.”[2] Even though technology advances have changed the options available for utility communication with customers about peak demand events, the actual levels of DR response remain frustratingly low.  The potential is indeed great, as are the pressures to capture all cost-effective DR resources.  And for those utilities investing in smart meters, making the value proposition to customers is even more critical to realizing the benefits included in business case calculations.

So what’s the bottom line? How do we dare customers to DR?  Investing in building awareness and getting the messaging right to better align the benefits of DR with customers’ perceptions of value will be critical to realizing DR potential to its fullest.  And probably just as important as investing in the new technologies themselves. [1] FERC defines demand response as follows: “Demand Response: Changes in electric use by demand-side resources from their normal consumption patterns in response to changes in the price of electricity, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.” [2] Comverge eBook: page 15.

[1] FERC defines DR as follows: “Demand Response: Changes in electric use by demand-side resources from their normal consumption patterns in response to changes in the price of electricity, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.”

[1] Parago; Tune Up parago.com/services/energy 

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