Courtesy of MIT’s Technology Review, an interesting look at economic demand response in which companies can effectively bid their power reductions into the energy markets—either in real time or for the following day–whenever they want and earn money from it. Starting to sound very close to smart markets…
The off switch is a fast-growing source of power in some parts of the electricity grid.
Grid operator PJM last week released a report, spotted by Greentech Media, detailing the results of its demand-response programs after a new pricing rule was put in place last spring. Since last April, $8.7 million of revenue was generated in the seven months after the rule, called Order 745, went to affect–more than was made in the previous 41 months.
The sharp uptick in participation shows that big energy users are willing to turn down non-essential power use to earn money and that utilities can rely on this “resource” in a significant way.
Demand response is an arcane corner of the electricity grid, but the spread of the technology over the past few years has helped make the grid cleaner. EnerNOC, which manages demand-response programs, says its services have displaced the need for 80 power plants that provide peak power. And as more intermittent wind and solar generation comes onto the grid, it will become an even more important lever for smoothing out power fluctuations.
Traditionally, grid operators turn on auxiliary power plants to keep pace with electricity demand, which typically starts going up in the morning and peaks in the late afternoon and early evening. Demand response helps meet that climbing need for energy during the day through reductions, such as adjusting thermostat settings, dimming lights, or changing when hot water heaters run. The idea is to run these voluntary programs so there’s no disruption to electricity customers and the changes, such as thermostat resets, are minor. Utilities run programs, such as raising air conditioner set points across thousands of homes, during very hot summer days when power generators are maxed out.
But the PJM report shows that so-called economic demand response has lots of potential, particularly in the commercial and industrial area. In that case, companies can effectively bid their power reductions into the energy markets—either in real time or for the following day–whenever they want and earn money from it. Last year, PJM increased its use of economic demand response by 714%, with 141,568 megawatt-hours taken off-line over the course of the year. One of the main reasons for the increase is a change in rules. With Order 745, large energy users, such as commercial buildings or factories, get paid the wholesale price for their power reductions when it’s cost-effective.
In the mid-Atlantic region where PJM operates, economic demand response is totally dominated by large corporations—those that consume more than 10 megawatts. But there is room for greater participation and use of the technology: PJM found that only 3 percent of the total 2,300 megawatts of hourly load reduction capacity was used last July.
In the past, these load reductions were done by phone calls to large industrial energy users. Now there is “automated demand response,” where software and control hardware automatically dial back power, a shift that will give grid operators more flexibility and push the technology further into the mainstream, say analysts. Lux Research estimates that demand response can account for two percent of the peak load demand and that these automated power cuts are cheaper than natural gas “peaker” plants and energy storage.
One of the biggest debates is how best to structure the rules to encourage participation. (Only two grid operators–PJM and New England ISO– have implemented Order 745.) Working out the most effective rules is important for the advancement of renewables. In Texas, where this a lot of wind power, about half of the power consumption during hot summer comes from residential air conditioners, which is why the regional grid operator is trying to use more demand response. With more mature technology and established rules for payment, it’s easy to see how demand response could scale to where millions of small power reductions help smooth out dips in supply from wind and solar farms and keep the grid in balance.
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