The Next Killer App: Load Management, Only This Time for Real


Tomorrow's Network: A Two-Way Street

Fortnightly Magazine - August 2000


The technology is here. What's missing is the will to use it.

Electric restructuring may seem to have unleashed a Pandora's Box of ills. In reality, however, it has opened the door to creative endeavors. The present difficulties--spiking spot prices, congestion in transmission and distribution, unavailable generation, and arbitrage winners and losers--mark nothing but a rite of passage. Simple survival is the watchword. The industry must move through and past these difficulties to get to the promised land of deregulation: .

Following in the footsteps of other now-deregulated industries, such as telecommunications, electricity will evolve into a new paradigm of free-flowing transactions between suppliers and purchasers. In this "Electrinet" (an electric power analogue to the Internet), competition will replace the utility's duty to serve with a shared between consumer and marketer. This evolution likely will take the 15 years or so that true change has taken in sister industries.

During the early stages of this deregulation and transition, the "killer app" will emerge in the form of market-driven load management, in which electricity customers participate actively in the electricity supply-demand balance by shaping their electric demand patterns. And it will take place using today's electric infrastructure--but only for something gotten in return. And that something is real profit and real loss.

Yesterday's Model: Notify and Control

The first heyday of load management, from the late 1970s to early 1990s, stemmed from regulatory directives that sought to defer the need for new generating capacity. The available technologies typically were one-way, open-loop systems with little capability to verify changes in demand patterns, and even less opportunity for the customer to take more than a prescribed role. Load management programs involved activities like these:

  • control of residential air conditioners/water heaters,
  • control of small commercial air conditioners,
  • control of agricultural pumps,
  • notification of the need for load curtailment by larger commercial/industrial customers, and
  • community programs to reduce total peak electric demand continuously.

In control- and notification-based programs, the communications infrastructures had to be built from scratch, including radio towers, powerline carrier/ripple equipment, and leased telecommunication lines. In most instances, the only way to "verify" demand reductions was by checking samples of customer sites to see if equipment seemed to be working--months after actual load management operation. Meanwhile, the financial incentives were paid, and challenges like "free riders" abounded.

Marketing was simple and effective--participation in the programs was sold on a "for god and country" basis. After all, customers who participated contributed to the preservation of total electric system reliability. And when they expressed concern about discomfort, inconvenience, or specific actions they needed to undertake, a simple reminder about why they chose to participate generally led to their remaining on the load management program. Reminding them of the financial incentives associated with the programs didn't hurt either, although the programs generally weren't sold as a mechanism for bill reduction.

Tomorrow's Network: A Two-Way Street

The next generation of load management addresses market-driven issues that arise in a competitive electric market, not just through a regulatory directive. It also takes account of the players in the emerging electricity value chain--generator, power exchange, system operator, power marketer, distribution company, energy service provider, and customer. While each of these entities attempts to establish itself within its niche, the big picture is orchestrated by interactions among the elements of the value chain, not by a vertically integrated utility structure. The new load management provides a means for influencing these interactions in a way that benefits the entire value chain, and that integrates the customer into the chain as an active participant.

Load management plays such a vital role because of the real-time nature of electricity. It must be consumed as it is produced, and vice versa. Viable technologies for the storage of electricity in large amounts and for long periods of time do not exist as they do for natural gas. Thus, load management, as a means for addressing economic or reliability issues associated with the production and delivery of electricity, provides real value to the deregulated market. However, the deregulated market has specific functional needs that the regulated marketplace did not. The new load management must

  • operate in real-time, or nearly real-time, to accommodate day-ahead and hour-ahead markets, as well as relatively instantaneous cataclysmic events.
  • operate as a two-way, closed-loop system that assures real-time confirmation that demand modification expectations are being achieved.
  • stay flexible enough to offer differentiated service to customers with varying needs, e.g., semiconductor fabricators with stringent electricity availability requirements vs. cement plants that are immune to variability in the availability of electricity.
  • provide rapid settlement of confirmation of customer performance, and of the financial benefits owed to the participating customers.
  • be marketable on an economic basis as well as a reliability basis.
  • provide each member of the electricity value chain with a "fair share" of the benefits if they play a role in the load management program.
  • provide the flexibility to address issues at various levels of the electricity infrastructure, including the generator, transmission line, substation, distribution feeder, transformer, meter, and end use.
  • provide capabilities that not only result in demand reductions to alleviate capacity constraints, but enable load growth through economic development and electrotechnology marketing to improve the utilization of assets.
  • set the stage for demand trading, in which "negawatts" supplant the need for megawatts.

To serve all these functions, technology advances must be made, ranging from customer end uses and facilities to the electricity supply components and infrastructure. Although the dream of an Electrinet that provides the ultimate in customer choice will take a while to realize, recent developments in technology and infrastructure have facilitated the deployment of interactive load management programs without changing the existing electric grid configuration. The emergence of pager, cell phone, and Internet communications infrastructures and technologies has forged the kind of a two-way closed loop needed to make load management respond to market incentives. The customers can even interact with their homes and facilities from remote locations (e.g., via laptop connected to the Internet), and modify the operation of the home/facility remotely.

Gone is the need to construct micro-infrastructures (e.g., a set of radio transmitter towers) to notify customers and/or control their electricity use. Instead, load management programs can "piggyback" on the existing systems. Together with the electric grid, these systems comprise a "virtual universal wire" that conveys electric power, voice, images, and data. Thus, the basic technological needs of the next generation of load management exist; and the seeds for an Electrinet have been sown.

The Snag: To Hear What the Market is Saying

So if the technology needed to deploy market-driven load management exists today, why isn't it penetrating the deregulating electricity market?

The hitch is a lack of reliable information on which to base the design and implementation of load management programs. To fix it will require data gathering and analysis (see Figure 1). What supply resources are available to meet electric demand in each micromarket (geographic, temporal, and customer type)? What is the degree of capacity constraint or richness of each asset? Knowing the answers will let you identify opportunities for involving customers in active roles in balancing the supply and demand of electricity.

Under deregulation, the information dependencies of various objectives and opportunities have shifted from the load shape objectives that guided demand-side management, least-cost planning, and integrated resource planning in the regulated era to load duration curves, or LDCs (see Figure 2). It is necessary nowadays to understand the electricity demand patterns and how they burden supply assets across the entire 8,760-hour spectrum. The reason is that the time scales of concern under deregulation range from the traditional 90 to 150 hours a year (for reliability-triggered load management) to thousands of hours for developing approaches to improving the load factor of underutilized supply assets. That different players (e.g., utility distribution companies, and system operators) view the situation at different levels of aggregation (state, UDC system, substation, feeder, etc.) only complicates the picture.

After the opportunities (e.g., demand reductions, demand trading, economic development) have been identified, a study of customer potential is needed to determine which customer types would be best suited to specific program types, and how much they can contribute. This evaluation of potential must be scaled down by an estimate of the degree of participation expected from each customer type. When program marketing begins, customer qualification guidelines must be followed (e.g., to screen out free riders), which likely will pare down the potential even further.

Next, a determination of customer receptivity to the program operating criteria--based on economics or reliability--needs to be made. Issues like pricing structures (which will likely be real-time in flavor) and level of benefits to the customers need to be addressed. That will begin the process of moving from the obligation to serve to a balance between willingness to pay vs. willingness to serve.

Once the stage has been set, participating customers will need to overcome any uncertainty regarding how to respond effectively to real-time requests, perhaps including a facility assessment that examines their end-use technologies and how the operation of those technologies can be modified to meet the goals of the program. Customers often are conservative when asked to modify their operations, for fear that doing so will adversely affect their business or lifestyle.

When the gathered information has been provided to the supplier(s) and customers, technology selection and program implementation can commence. Next comes program operations, where the rubber meets the road. For instance, circumstances like heat waves can result in multiple days of operation of a demand-reduction program--which may prove too much for some of the participating customers. Programs that use technologies with override features occasionally will see less demand modification than expected. When customers drop off the program, all forward benefits to the value chain will be reduced unless those customers are replaced.

Betting the Company

The unforgiving nature of the competitive electricity market, and the growing tendency to deal with electricity on its own terms--use it when available--point to an endgame with emphasis on the timing of supply and demand. The ability to alter intentionally the balance of supply and demand will become a tremendous competitive advantage. The market will exact terrible penalties on those who don't heed its signals.

In this bet-your-company era, there will be no regulatory cushions or bailouts. So as deregulation takes hold, all members of the electricity value chain need to dig in for the long term. There's no rolling the clock back, and the first hundred years of a regulated electricity industry will be followed by thousands of years of free market activities in which load management (and eventually, an Electrinet) will provide the substrate for efficient and profitable market practices. Developing the information to gain time-to-market advantage for this kind of outlook means load management is not a short-term enterprise, as some have indicated. Rather, it's the foundation for winning in the long term.

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