While demand response programs can be traced back to the 1970s, the evolution of IT and data management technology has allowed utilities and independent system operators to greatly expand demand response programs in the last 10 years.
This expansion has allowed the parties, including companies offering demand resource products, to create protocols that allow machine-to-machine communication and automate the operation of demand response programs, beginning with the application process as well as the business process downstream.
In an interview prepared for a Federal Energy Regulatory Commission (FERC) national action plan on demand response, Pete Langbein, manager of demand response operations at PJM, which operates the eastern transmission power pool, said revenues in the demand response market operated by PJM have grown a hundredfold. From the 10- to 20-million-dollar range in the 2007 timeframe, today it is close to a billion dollars and represents somewhere between 6% and 8% of the peak load on a capacity basis in PJM’s service territory.
FERC’s Order 745, approved in March 2011, moved demand response up several notches in the regulatory hierarchy. It requires that cost-effective demand response resources be compensated for the service they provide to Regional Transmission Organization (RTO) and Independent System Operator (ISO) energy markets as an alternative to a generation resource.
The FERC order said, “This approach for compensating demand response resources helps to ensure the competitiveness of organized wholesale energy markets and remove barriers to the participation of demand resources….”
The Business of Load Reduction
Demand response is a no-brainer, says Sara McAuley, director of Marketing Communications at EnerNOC, headquartered in Boston, MA. “We pay you to curtail once or twice a year; you don’t have to get budgetary approval, and you get access to our software,” she says.
Once people see their power usage laid out in the software, it opens their eyes to using energy more efficiently, she adds.
EnerNOC is one of at least a half-dozen companies typically known as aggregators who contract with businesses, manufacturers, government offices, and institutions to sell load reduction to utilities throughout the country and independent system operators such as PJM in the eastern states, Electric Reliability Council of Texas (ERCOT) in Texas, and the Midcontinent Independent System Operator Inc. (MISO) in the Midwest.
Geographically, EnerNOC’s largest market can be found in the Mid-Atlantic states in the PJM grid interconnection. McAuley says the company has customers in the Tennessee Valley Authority, Texas, California, and the Pacific Northwest, and smaller markets as well. It also has contracts with Excel Energy and PacifiCorp.
Large energy users, such as manufacturers and light industrial companies, provide the largest demand reduction contribution since they each can afford to drop 1 MW. Smaller customers, such as schools and government buildings, have much smaller loads and reduce on the order of 50 kW to 300 kW at any given time.
Energy Connect, now owned by Johnson Controls headquartered in Milwaukee, WI, likewise provides demand response technologies and solutions to customers across the US, including California utilities, the New York State Independent System Operator, PJM, and ERCOT.
Johnson Controls customers include commercial, local, and state government offices; steel and chemical and other industrial companies; universities; and the agriculture industry.
Comverge, headquartered in Norcross, GA, with offices in Colorado, Pennsylvania, and New Jersey, is most active in PJM and has contracts in ERCOT territory and with California
utilities. Unlike the other two aggregators interviewed, Comverge also contracts with residential customers, for example in Fort Collins, CO.
Jason Cigarran, vice president for corporate marketing and communication at Comverge, says while there are differences in programs between ISOs and utilities, the end result with both is to sign contracts with customers.
Cigarran says the company is very comfortable working with municipal utilities. He explains that the company works with these utilities to design programs that target how many megawatts they want to reduce. It then targets residential customers with air conditioning, and after signing contracts with them, the company installs thermostats inside the home or a controller outside the house. The utility then cycles the air conditioning based on the agreement with homeowners who are paid financial incentives—typically annual fees or a bill credit.
Cigarran says that, on the other hand, large industrial customers prefer to maintain control of their loads and curtail them based on what is already agreed upon when a phone call or signal is received from the utility or Comverge.