At a time when major capacity resources like nuclear and coal power plants are failing to clear competitive capacity auctions, more than 7,820 MW of demand response cleared the latest Pennsylvania-New Jersey Maryland Interconnection (PJM) capacity auction for the 2020/2021 delivery year. The volume of demand response bids was actually lower than the prior year’s auction, since PJM has instituted new capacity performance rules which require all capacity resources to be available to perform whenever called upon. There was more than a little carping from certain communities over this rule change and the resulting lower demand resources bid. Nonetheless, demand resources appear to be one of the rising stars in this digital age and the unsung heroes, or villains, depending on your view of nuclear, coal, and renewables. One example of the untapped potential of demand response is another PJM auction first that allowed participation from “price responsive” demand resources, which are power customers who voluntarily curtail their electric consumption in response to wholesale power price signals.
For folks who are unaware, the PJM regional transmission organization (RTO) operates the world’s largest competitive power market. While some may argue this point, what happens in PJM is a reasonable indication of how energy resources may fare in a fair, but competitive market situation elsewhere. It is interesting to note that a 13% and 38% capacity factor is applied for wind and solar resources, respectively, participating in the market because that is their expected capacity contribution during periods of peak demand. Demand resources receive full credit for their demonstrated capacity. Moreover, demand resources may be existing or repurposed equipment as opposed to new infrastructure requiring massive investment.
The ongoing advancements in electronic technology, the web, communications and the digitalization of the grid are making it ever easier for residential, commercial and industrial customers to become demand resources. Evidence of the market potential was demonstrated by startup company Voltus, Inc., which developed a program platform and signed contracts in less than a year for 400 MW of demand resources with an estimated contracted revenue of $20 million. According to a Voltus press release, the hardware platform supports capacity, energy, and ancillary services demand response at a cost of less than $100 per control device, including end-to-end encryption of telemetry data over a secured cellular VPN. Voltus has contracts with hosts in ISONE, NYISO, PJM, MISO, Texas and California.
Itron, a leading provider of advanced metering and other smart grid technologies recently demonstrated that it believes the demand resource market is ripe for growth and expansion when it agreed to acquire demand response provider Comverge for $100 million. Comverge tapped into the demand for the next wave of energy management systems and cloud-based demand response, efficiency and customer engagement solutions. According to press stories, the Comverge acquisition will allow Itron to help utilities more effectively integrate demand and distributed resources to optimize grid performance and reliability.
I often wonder why utilities have not led the charge on demand response. Utilities are in the perfect position to develop and customize programs that will achieve the exact response needed to provide the greatest value to their systems and customers. Then I remember back to the 1990s and my utility employer’s fairly typical response to utility commission conservation and demand response mandates. Our colorful customer services manager summed it up this way: “How long would McDonalds be in business if it gave away its burgers?” Change takes time, but today it is encouraging to note that more and more smart utilities are thinking—we can give away the regular burger to get the customer on board for a combo package that includes a range of new for-pay services and guaranteed continued business. Great thinking, but hurry up and act, because technology advances keep making it easier for the next startup company to provide those burgers to your customers and steal away your business. Either way, demand response can compete on a level playing field and be a long-term winner.
