Active Demand Management


A system approach to managing demand.

Fortnightly Magazine - November 2009

To accomplish many of the lofty goals set forth by consumers, government officials, and other stakeholders, several milestones of demand management must be accomplished. Customers must have a greater range of options and the knowledge and insight to make sustainable, energy-saving decisions. Grid-friendly appliances that demonstrate the value of grid-responsiveness and options to retrofit older appliances with at-plug grid-responsive tools must be available to the consumer. Finally, operating systems must be tailored to integrate demand management system solutions into the utility back-office.

The utility industry is embarking on a transition whose end isn’t fully understood. That uncertainty is due at least in part to the fact many utilities and regulators aren’t yet comfortable relying on smart grid and demand response technologies as a substantive resource planning tool. In short, many people don’t believe demand management can accomplish more than a very small and incremental dent in the overall load and system usage profile, and that dent will be accomplished at a high cost and perhaps as a notable security risk compared to simply building more power plants and stringing more wire. This isn’t stopping utilities and vendors from making those investments, but companies and regulators are questioning the assumptions used in smart-grid investment planning. Some analysts point out that experience teaches that the more complex a system becomes, the more fragile it becomes. Many people in this mature, bricks-and-mortar industry generally distrust modern technologies as a resource planning solution. They think we’re putting too many eggs into the smart-grid basket, and we’ll regret it as we did our heavy reliance on nuclear and gas during their boom periods in recent decades.

However, the underlying problem hasn’t gone away. As industrialized societies continue growing, worldwide electricity demand is estimated to double by the year 2030, and the minor inconveniences that customers currently notice in the power grid will increase, becoming more pronounced and problematic. In addition, the notion of expanding power capacity simply by building new power generators can’t be offered as a reasonable alternative, as obtaining building permits for these new facilities is increasingly difficult.

In addition, consumers and stakeholders are pressing for productivity increases to accommodate demand growth and rising capital costs. Users are expecting quality, reliability, and power production increases on the one hand, while at the same time demanding that the electric power industry reduce or mitigate its carbon emissions and increase energy efficiency. Managing the grid will become more complex with implementation of state renewable portfolio standards (RPS), which will require that utilities use more renewable sources of energy.

All of these factors necessitate the implementation of a smart grid capable of monitoring the transmission and distribution and able to regulate transmission and distribution when the smart grid senses disruptions in the system. The implementation of a smart grid, along with an overall demand management system, will help provide the lower-carbon-emissions future that has become a necessity in terms of both our current standards and future energy requirements.

Offsetting Growth

Demand management is garnering attention throughout the electric power industry as a significant mechanism to offset some of this growth by reducing peak demand and allowing the industry’s current generation capacity to supply more of customers’ required power. If the average consumer were to adopt the practices associated with demand management and all it entails, peak demand can be reduced significantly, allowing current production capabilities to cover more of the estimated future demand. Smart grid tests conducted in the Pacific Northwest have shown that demand management can reduce the need to build new power generation facilities by reducing peak consumption by up to 15 percent. The Olympic Peninsula pilot project demonstrated that beyond peak demand, even base demand can be reduced significantly (up to 9 percent), which could allow utilities to avoid or delay investments in transmission and distribution.

A simple way to describe the impact of demand management is to say the least costly carbon kilowatt is the one that’s never used.

While certain concepts inherent to demand management might seem abstract to the general public, the current energy environment quickly will require a population-wide education on the limitations and future requirements of energy resources and generation and distribution of energy. Establishing the definition and purpose of demand management is the first step in educating the public. The consumer needs to know that it’s a process by which electricity providers, distributors, transmitters, and customers—residential, commercial, and industrial—manage their electricity needs, particularly at times of peak usage or in response to market costs, thereby limiting, growing, or eliminating demand for short periods of time. This process of controlling the amount of electricity used at crucial times has significant benefits. If usage decreases during intervals of peak demand, overall plant and capital cost is reduced, decreasing the cost of electricity for most people. Reducing peak demand also minimizes the likelihood of brownouts, blackouts, and voltage fluctuations.

Electricity’s high cost is driven mostly by the cost of electricity incurred during times of peak demand, when energy providers are forced to produce energy from generators which are only used for short periods of time and generally tend to be inefficient. As increasing amounts of electricity are required, the cost of production is greater. When the cost increases for the producer, the price paid by consumers also increases. Aside from lowering the cost at these times, limiting peak usage also allows the grid to more easily recover from any fluctuations.

When demand management is utilized to its fullest extent, significant progress can be made in improving the reliability and security of the large interconnected power systems that comprise power grids across the world. In addition, during times of peak demand, a great deal of stress is placed on electric infrastructure as a whole. When this happens, using normal mechanisms of demand management that focus on reduction in peak demand still won’t reduce stress in the network. Targeted demand management actually holds promise to reduce or delay the need for infrastructure and feeder system capacity expansion. Eventual impacts of demand management will be realized as real-time feedback control increases reliability and speeds up recovery.

As demand management continues growing as a feasible solution to our energy needs, it will convince consumers and producers to develop highly informed interactions between the supply system and demand components, creating more resilience in an electric grid with increased strength and security against brownouts, blackouts, and even attacks by hostile actors.

A wide variety of factors will become drivers for change in the electric power industry in the coming years. Demand for energy is predicted to grow quickly in the near future. In the next 10 years, power consumption across the United States is predicted to increase 19 percent, with an increase of 7 percent expected for transmission capacity on the grid. Additional investments in transmission and distribution will be required to meet the expected growth. However, building more transmission capacity and more high-voltage power lines will become costlier and more difficult from a permitting perspective.

Visible Savings

Demand management is a complex prospect with many coordinated and cooperative components. For demand management to function properly, individual components need to function collectively. These components include valuation and rate design; smart grid dispatch; customer outreach, registration and management; billing engine additions; premier user portal and keeping the customer engaged; dispatch controllers for premises; controlling load at the customer premise—residential, commercial and industrial; and modeling, simulation, and time-of-use (TOU) pricing (see Figure 1).

Other, less powerful demand management components include at-the-plug devices that turn off appliances when grid instability is sensed, and grid-smart appliances, which sense grid instability and regulate their own power usage. One specific example is a clothes dryer: When the dryer senses a problem with the grid, it will turn off its heating process while continuing to spin the clothes, until the instability has passed, and will then restart the heating process. This technology allows the grid to recover from several problems without inconveniencing the customer.

In a variety of tests, demand management has proved successful. These successes have been possible thanks to a wide range of decisions made and actions taken. Some of these include installing new electric meters and connecting thermostats, water heaters and dryers to a computer network that allows homeowners to customize how appliances function in terms of desired comfort levels or cost savings and with the ability to respond to changing electricity prices in five-minute intervals. The network software and meters can lower the temperature of a thermostat or water heater during times of peak activity and cost. Thanks to the software, customers are able to preview the financial implications of their efforts to control usage. The visible savings to customers is a key to the plan’s success. In one test, grid-friendly appliance controllers embedded in dryers and water heaters are able to detect and respond to stress in the electric grid. When stress is detected, the controllers turn off certain functions in appliances. These short disruptions in electricity consumption are often enough to balance out the instability between supply and demand on the electric grid. This allows the grid to recover and thereby prevents or reduces the effects of power outages.

Several different forms of demand management can be utilized when implementing the demand management solution (see Figure 2). Employing proactive instead of reactive demand management is one of them. With reactive demand management, TOU rates typically vary by rate period, day of the week, and season, with higher prices applied during peak rate periods and lower prices applied during off-peak rate periods, but without regard to real-time conditions. Even FERC has not included them in its June 2009 report, Assessment of Demand Response and Advanced Metering. Analyses performed by FERC-supported studies have found that static mechanisms don’t provide a dynamic price signal to customers that can be used to respond to unexpectedly high-priced days or reliability events. While this still has the potential to reduce overall usage at peak levels, they provide minimum support to a utility needing to reduce generation capacity or improve reliability.

In contrast, when proactive demand management is used, the customer is expected to perform specific actions based on the demand management mechanism to which they subscribe. The biggest benefit of proactive demand management is that specific actions deliver specific responses, resulting in a quantifiable reduction of load. One of the more advanced demand management modes involves real-time pricing.

For dynamic pricing and real-time mechanisms to work, customers need to be equipped with devices that automatically reduce consumption during high priced hours. For residential and small and medium commercial and industrial customers, the automated technology (known as a programmable communicating thermostat) adjusts air conditioning energy use where such devices are determined to be cost-effective. Large commercial and industrial customers are assumed to be equipped with automated demand response systems, which coordinate reductions at multiple end uses within the facility.

Standardizing Demand Management

Implementation of demand management isn’t without its costs and challenges. The key challenges include technological hurdles, consumer acceptance, regulatory reforms, and utility employee education. The first and most visible difficulty is the cost of the technology development required to allow customers to view and then modify their electricity usage. Much of the technology is still in the development stage and is expensive. The initial investment will be extremely hard for many consumers to accept, particularly when citizens are concerned about how the government will pay for an undertaking that would involve the electric infrastructure of the entire United States.

Another problem will be convincing individual electric customers to take the time to monitor their consumption, determining when to cut their demand and scheduling tasks that require high amounts of energy for times of the day with lower demand. To many this will be considered a major inconvenience. Also, many people will believe, however unlikely it might be, that installing equipment that monitors electricity usage will allow government to monitor their individual usage, eventually leading to the government’s ability to control when and how people use and control electricity within their own homes.

The Olympic-Peninsula project found that essential to getting customer acceptance is that customers have automated demand response equipment so they can set it and forget it, and change their preferences and settings in response to special or changed circumstances. This level of control is a valuable element in obtaining a higher level of engagement with customers. With a larger number of end users, the approach can be just as reliable in aggregate as direct load control with less impact on any given consumer. Striving for near-universal participation as a long-term objective ultimately requires developing this sense of partnership between the customer and the utility.

Other barriers include a lack of standardization of products, discount rate, and transaction costs. Demand management will need to deliver a predictable reduction in both base and peak energy consumption. It will need to provide a thorough mechanism that enrolls, sustains, and rewards customer involvement in demand reduction. Lastly, demand management must have the ability to use the same signals to dispatch other newer sources of energy like storage, renewable and distributed generation.

Regulatory concerns also will be a major factor when attempting to implement demand management. There are some regulatory environments that don’t reward operational efficiency of utility facilities. Conservation legislation might shy away from technologies that don’t directly promote conservation and renewable energy. Standards will need to be established for the measurement and verification of demand management resources. Wholesale demand management programs will need to be developed to operate within standards, along with any other new initiatives that will be developed in the future.

Utilities will also need to consider their employees when instituting the new technologies involved in demand management. Employees will need to be fully educated in all aspects of installation and maintenance of the new technologies. This education will incur both time and monetary costs for utilities and their employees.

Although demand management might not be a complete solution to all of the problems presented by the increasing global demand for energy, it’s a necessary step in the right direction. Giving individual energy customers more control over their own power usage and the costs they incur is another positive outcome of the demand-management process. The integration of demand management, along with other energy efficiency, conservation, and smart-grid technologies, will set the electric power industry on the path to a sustainable, profitable, and more controllable future.