Phil Davis recently had an article published in Energy Biz. He discusses the recent FERC ruling that allowed PJM Interconnection to grant homeowners access to its demand response program, as well as overall trends in the residential demand response space. See the full article below or the quick link to the coverage.
A revolution in demand response?
Comverge Inc. can be excused a little self-congratulation now that PJM Interconnection has announced it will allow homeowners to take part in its demand-response program.
After all it was data provided by the Georgia-based supplier of utility-scale demand management solutions - in a test project it spearheaded for the RTO - that proved pivotal in a decision by FERC that could potentially result in far-reaching consequences for ISOs, energy suppliers and consumers.
PJM Interconnection has to date not utilized power from residential sources in its Synchronized Reserve Market. While European utilities have accessed residential/demand response for years, North American utilities have been more reluctant.
The impediment in the U.S., said John Rossi, Comverge's senior VP of Corporate Strategy, has been that in order for a DR supplier to participate in the synchronized reserve market, it must prove compliance with a one-minute metering requirement long thought impractical for residential customers.
Lacking that proof, PJM stalled - until Comverge offered to provide what it needed. "What we did was institute one-minute metering for a sample of the population, then ask PJM to drop load," Rossi said. "When the resulting data proved we were meeting the 10-minute requirement for load dropping, PJM felt it was time to approach FERC."
The new tariff ruling, issued in early August, means that now residential DR resources can contribute to - and be compensated for - balancing the grid in the same way their commercial/industrial resources already do, and bid into the synchronized market the day before the resource becomes available.
Observers across the DR arena view the action less as another way of monetizing assets than as a tectonic shift in the DR bedrock.
Phil Davis, senior manager of Smart Grid and Load Management Solutions for Schneider Electric, foresees a convergence of two operating strategies that could dramatically affect all players.
"One is that the distribution companies themselves will produce revenues, though ultimately that would be up to the regulators," he said. "Another is that Comverge itself would act as an aggregator and service provider for PJM."
Indeed, the tariff ruling, and tangentially Comverge's role in it, is indicative of the ongoing shift in the broader context of how the industry is thinking about DR.
"We're seeing the entire relationship between a utility and what we'd call a `prosumer,' someone who can both produce and consume energy," Davis said. "All of that could potentially change, just as we're seeing in New York, California, Texas and Massachusetts, where they're all moving aggressively through regulation or legislation to change how they work together."
Even the name for these resources may be changing, observed Brett Feldman, senior researcher in demand response for Navigant Research.
"The term people use now is DER, or Distributed Energy Resources, smaller power sources such as storage and advanced renewables that, aggregated, can deliver power sufficient to meet regular demand. DER is increasingly important in making the grid stronger and smarter, but getting there is going to require some very sophisticated efforts in integrating complex technologies into the infrastructure."
And don't forget the human capital factor, noted Davis, who sees education and recruitment of millions of residential customers to participate in this market as one of the more daunting challenges for the industry.
"That's a lot of homeowners to convince they should join in the program," he said. "You have to have realistic expectations about what you can get and how you can integrate that into the mix. Utilities have struggled with this for years; they'd like to see more customers participating, but if the customers won't play, they won't play - unless you fundamentally change how the rates work."
But the potentially revolutionary change implied by the FERC order, he says, is a shift from deterministic modeling to probabilistic model, or feeder assurance to statistical assurance.
"Basically you're taking an industry that likes to model things based on direct control, reliability, etc., and now you're moving toward the use of very large numbers of assets, i.e. homeowners. But you don't know that each of those homeowners is going to respond the way you want them to, or that the source - the pool pump or water heater - is going to be on and producing at the time you need it. What you're doing is making predictions on the likelihood of a sufficient number of folks being enrolled in the program and not only able to respond, but actually doing so."
Utilities, in effect, will have to shift the way they now manage a portfolio to the way an insurance company does.
"You're not thinking of them as people but as probabilities," Davis said. "If people do drop out, others join, others are unable to respond, or do so intermittently - then you need to be able to accommodate. As long as you don't care who's responding, only that enough respond that you get the outcome you want - then you can achieve results just as accurate as by a more direct method of control. Data analytics, in industry use for years now and already adapting to new requirements, may need to accelerate development in this new direction."
As for what the tariff might mean to residential DR suppliers, Feldman thinks the pure-play companies that have long dominated the field will meet more competition.
"Including residential in the already valuable DR portfolio just opens up more opportunities for more players," he said. "Some pure-play companies like Comverge and Schneider Electric, with a deeper reach into the utility communities, stand to gain the most. But big companies like Siemens and Johnson Controls, noting movement and new opportunities for profit in DR, are already looking to move into this space."
Smaller companies, though, observed Davis, will likely encounter a tougher competitive environment.
"Utilities work slowly, so what happens with the smaller companies is they're out there in pilots through the average utility's two-year sales cycle. And since it's another two years before anything happens, the smaller companies often run out of money. By contrast the larger companies can weather the delays; utilities want to work with someone with a healthy balance sheet."
That said, heightened competition may serve savvy startups well, if they learn to partner.
"Working with established players able to utilize their new innovations to make something new - while also assuring utilities of their healthy balance sheets and performance records - could serve both very well in the end," Davis said. "I also think we'll see players try to put together their own package internally."