Technology creates new opportunities for demand- side management
Smart grid investments totaled more than $10 billion worldwide in 2009, and are projected to grow further in coming years.1 The term “smart grid” comprises a wide range of proposed upgrades to the electric grid infrastructure, including advanced metering with two-way communications, substation and distribution automation, distributed generation and storage, and dynamic systems control. Investments in these areas are intended to increase utility operational efficiency, enhance reliability and power quality, and enable a diverse set of value-added offerings for electricity customers.
Today, there’s considerable discussion about how to motivate residential customers to take advantage of smart meter deployments to generate demand response (DR) and energy efficiency (EE) savings, perhaps since the great majority of electric meters are attached to homes and apartments. While there are substantially fewer commercial and industrial (C&I) meters in the United States than residential meters (18 million vs. 125 million),2 non-residential customers make up 60 percent of electricity consumption.3 Through rates, the C&I customer class will be funding a substantial portion of smart grid investments. C&I customers receive some of the same benefits from smart meter investments as residential customers do—for example, increased grid reliability and automated outage detection. But to gain the full support of C&I customers for smart grid investments, utilities will need to create and proactively communicate a compelling value proposition that highlights the benefits specific to the non-residential segment.
One important category of smart grid technologies is the hardware and software that enables C&I customers to more fully engage in DR, EE, and other energy management initiatives. The smart grid infrastructure can support a wide variety of emerging C&I smart grid applications that drive customer and utility value, including those that create opportunities for more intelligent energy consumption.
The opportunity for EE and DR savings in the C&I segments is substantial. A 2009 Electric Power Research Institute (EPRI) report suggests that C&I EE potential is in the range of 258 TWh, which is nearly double the 140 TWh potential identified in this same report for residential EE potential. EPRI also indicates that together C&I EE and DR have a maximum achievable potential to reduce summer peaks by 68 GW by 2030.4
The smart grid value proposition for C&I customers must account for the fact they are fundamentally different from residential customers (see Figure 1). For example, residential customers tend to have one or two decision makers with a personal financial interest in the utility bill, and the loads are relatively homogenous compared to C&I customers. On the other hand, C&I customers don’t necessarily have one authority on energy spend or energy consumption decisions, and loads are quite diverse across facility types.
There’s significant dialogue occurring currently around how to increase DR and EE program participation in the C&I customer segment, yet these conversations tend to include only a cursory discussion about how the smart grid is going to drive additional savings. In fact, most current utility DR and EE programs targeted at C&I customers generally don’t include a tie to advanced meters. While many residential smart grid dynamic pricing pilots that have demonstrated DR impacts both with and without enabling technologies like home area networks, in-home displays, and appliance controls, fewer studies have evaluated the impacts of smart meters and dynamic prices on the C&I customer class. Those C&I pilots that have been evaluated indicate that dynamic rate structures demonstrate a smaller impact on C&I customers than on residential customers.5
While advanced metering on its own might not generate significant DR and EE in the C&I market, smart meters that are coupled with smart building technologies can enable tremendous benefits to both utilities and C&I customers. Smart building technologies comprise a wide range of hardware (e.g., building management systems, lighting control systems with dimmable ballasts, etc.) and software (e.g., online tools that present real-time energy consumption data, third party software that enables DR aggregation, etc.). Leveraging smart metering and enabling smart building technologies, intelligent applications can be built to motivate C&I customers to respond to prices and system conditions, determine energy efficiency strategies, and optimize overall energy usage.
DSM in a Smart Grid Era
EE and DR are closely related yet distinctly different. EE is the sustained reduction in energy consumption (kWh) achieved either by improving the efficiency of energy-using equipment or making operational changes to allow for the same level of service to be provided with less energy usage. In contrast, DR is the temporary, replicable reduction of customer demand (kW) in response to such electric system conditions as high system load, transmission or distribution congestion, elevated power prices, or system emergencies. Generally, EE can help offset or defer the need for new baseload generation and reduce carbon emissions, while DR can help avoid the need for new peaking generation, and reduce wholesale costs for power during critical times.
There are a variety of examples where C&I smart grid technologies have been employed to benefit utilities, as well as C&I customers, through increased DR and EE. Undoubtedly, additional applications will emerge as the smart grid for C&I customers evolves.
• Short-notification, reliable demand response: C&I smart grid technologies are enabling a new class of DR resources that are increasingly providing utilities and grid operators with more flexibility in their control rooms. In the past, C&I DR was equated with interruptible tariffs; these resources were generally not considered firm and were rarely called upon. Today’s DR is providing dispatchers with an additional option to address both planned and unforeseen system needs. DR is now providing not only emergency capacity, but year-round peak-shaving resources and quick-response ancillary services.
C&I smart grid technologies have expanded the capabilities of DR resources. Now, for example, more and different types of loads can be controlled at C&I facilities. In addition, C&I smart grid technologies enable fully automated DR, which makes participation easier and less obtrusive for facility managers. As a result, utilities can dispatch the resource more frequently, and customers can self-schedule load reductions in response to system prices.
While not all C&I DR resources can be automatically controlled, those that can be are enabling a new class of DR that can respond automatically and very rapidly to signals from utilities and grid operators, providing ancillary services that may be used to help balance intermittent renewable resources, for example. C&I customers can automate load reductions by programming load control scripts in building management systems, or sending wireless signals to lighting control systems. DR resources currently participate in 10-minute response reserves markets with strenuous rules and performance standards, such as the PJM Interconnection’s synchronized reserves market, the Electric Reliability Council of Texas’s (ERCOT) load acting as a resource program, and National Grid’s short term operation reserves market in the United Kingdom. As smart grid technologies are deployed at more C&I facilities, such DR participation will become more widespread.
• Customer-centric demand response: Historically, customers that committed to participate as DR resources were required to be available for the entire availability period defined by a utility or grid operator. Smart grid technologies have enabled DR participation to be much more customer-friendly. Utilities and third-party aggregators can now maximize customer participation by using advanced software algorithms to effectively manage a diverse set of DR capabilities across thousands of C&I customers, assembling a portfolio of customers that in aggregate provides the utility with a firm, dispatchable resource (see Figure 2).
In many cases, the capabilities of specific C&I customers won’t exactly match the resource needs of the utility. For example, some types of C&I facilities might be able to curtail load for up to 10 hours at a time; others may be limited to shorter event durations. Certain facilities may be able to use direct load-control technologies to respond within five minutes of event notification; others may require more time to manually shut down certain processes. Some types of load (e.g., air conditioning) are able to reduce load only during certain seasons, while others can perform consistently year-round. A utility might need a firm amount of DR capacity to be available from noon to 8:00 p.m., but a manufacturer might not operate past 6:00 p.m. That manufacturer can and should be able to contribute to the DR program, but will require a complementary resource in the DR portfolio that can respond from 6:00 p.m. to 8:00 p.m.—and smart grid applications can help manage a diverse portfolio of C&I DR effectively and reliably.
• Real-time energy data—“You can’t manage what you don’t measure”: Historically, most C&I customers have had only monthly billing data to manage electric utility costs. Today, C&I smart grid technologies are available that capture real-time building data—meter data and potentially sub-meter and building system data—and present that data in meaningful ways. These technologies can drive value for C&I customers by empowering management teams with much more insight about energy use and costs.
Many C&I customers find that being able to view such real-time data gives them enhanced awareness of their overall energy usage. For example, in a phenomenon sometimes referred to as the “Prius effect,”6 online web management tools can enable customers to monitor their performance during DR dispatches, as well as to compare their usage on a monthly basis to uncover operational issues. Customers might use the software to avoid setting a new monthly peak demand, or to monitor weekend and nighttime energy usage to reduce unwanted phantom loads. If a customer is utilizing the software in two similar buildings, it can quickly determine if those facilities have significantly different energy usage, and take steps to identify and fix anomalies in the inefficient building. In addition, some customers on dynamic pricing tariffs will be able to use the applications to assist them in reducing load in response to high prices.
Notably, utilities might choose to sponsor customer access to online energy management tools as a marketing strategy. The software platform can be used to advertise the utility’s energy efficiency programs and drive increased adoption.
• Fully integrated demand-side management: A C&I smart grid platform can drive both the control and management of temporary reductions in energy demand (DR) and the identification and monitoring of sustained energy reductions (EE). Leveraging a common technology platform for integrated demand-side management strategies can greatly reduce marketing and implementation costs. In addition, a utility might be able to fund measures that deliver both EE and DR at a level greater than it would be able to fund a measure that delivers only EE or only DR.
Monitoring-based commissioning (MBCx) is a type of EE measure which relies on the presence of advanced meters and smart building technologies. The same technologies used to implement MBCx can be deployed to enable automated DR, thus generating both kWh and kW savings. MBCx generally refers to the real-time, continuous monitoring of thousands of points in a building to detect and correct anomalous consumption and ensure persistent savings. MBCx requires real-time visibility not only to meter-level consumption data, but more granular building data. Monitoring and control technology is installed to capture real-time energy usage data from interval meters, as well as to interface with building or energy management systems (BMS/EMS). This data is used to create benchmarks and identify efficiency measures that enhance building operations on a continuous basis. A customer can program its DR load curtailment plan directly into its BMS to automate responses to utility dispatch signals.
A Vision for the Future
There’s tremendous potential for utilities to create and communicate a smart grid value proposition for their C&I customers. However, for this segment to get the most out of utility smart grid investments, C&I customers must be allowed full access to their meter data, in real time. For example, in California, the Public Utilities Commission recently ruled that “it is reasonable to require” the utilities to provide customers “with access to the customer’s usage information on a near real-time basis by the end of 2011 should the customer desire that information.”7 Such real-time access to data will drive the development of sophisticated and useful energy management applications.
In order to spur competition for smart building technologies and applications, customers should be able to give third parties access to that meter data as they choose. Many C&I customers—especially those with more restricted resources—don’t have the capacity to define and employ complex energy strategies. In these cases, outsourcing some or all of this function to a third party can be an economic and effective decision. Because C&I facilities, unlike homes and apartments, have diverse loads and operational needs, delivering C&I smart grid applications requires specialized skills. Utilities, as well as energy services firms, technology providers, and consultants, employ trained professionals that can aid C&I organizations in harnessing the potential of C&I smart grid technologies to unlock the full value of energy management. To do this, there won’t be one universal energy management application—much like there isn’t one credit card, or clothing store, or financial institution.
Much as consumers like to have the option of choosing their brand of smart phones or morning cereal, C&I energy users will have different needs and technology preferences. A variety of companies will likely be competing in the marketplace to develop the most useful, valuable tools. In the long run, the tools that provide the most value will win out—much like Internet Explorer won out over Netscape, Facebook over MySpace, and iTunes over Musicmatch Jukebox. And five years from now, it’s likely that C&I customers will be receiving extraordinary value from the smart grid, in ways that we can’t currently envision.
1. Pike Research, “Smart Grid Technologies: Networking and Communications,” 4Q 2009. Executive Summary.
2. See, Federal Energy Regulatory Commission, “National Assessment of Demand Response Potential,” June 2009, Table A-1.
3. 2009 data. See, Energy Information Administration, Electric Power Monthly, Table 5.1, October 2010.
4. See, Electric Power Research Institute, Assessment of Achievable Potential from Energy Efficiency and Demand Response Programs in the U.S. (2010 - 2030), January 2009.
5. See, Ahmad Faruqui, Jennifer Palmer and Sanem Sergici, “The Untold Story: A Survey of C&I Dynamic Pricing Pilot Studies.” Metering International, ISSN: 1025-8248, Issue: 3, Date: 2010, p.104. The C&I pilots evaluated include the California Statewide Pricing Pilot, Baltimore Gas & Electric’s Smart Energy Pricing Pilot and Connecticut Light and Power’s Plan-It Wise Energy Program.
6. Researchers have learned that the Toyota Prius helps save drivers money not only because it switches efficiently between gasoline and electric power but also because of its conspicuous control screen, allowing drivers to see their real-time gasoline efficiency.
7. Conclusion of Law 77 in California Public Utilities Commission Decision (09-12-046), p.77.