Tdworld 3816 Electricwaterheater

Deja Vu? Getting Demand Response Right

March 17, 2016
Maybe this time we will get demand management right.

The recent decision from the Supreme Court upholding FERC’s authority to regulate demand response programs in wholesale markets was a watershed event, according to some observers and somewhat inconsequential according to others. For those not following the issue, the decision affirmed FERC's position in Order 745 that the federal government, as well as states, can regulate demand response resources. That shared responsibility allows regional energy markets to use demand response resources on par with generation resources to meet demand at the lowest possible cost. 

A number of regional energy markets like CAISO and PJM have already implemented demand response auctions, so it was no big deal for them.  Others like ISO New England held back from including demand response resources in the day-ahead and real time energy markets and to provide reserves for these resources.  ISO New England now plans to move ahead with this effort.

It’s fair to assume that the increased certainty regarding the integration of demand response in wholesale markets will push the envelope regarding wholesale supply options, products and services.

This all takes me back to the “good” old days when I worked in customer services at an electric distribution company. The company was under financial duress and could not build new power generation resources to meet the significant growth in its service territory.  The public utility commission required the company to use energy conservation programs, in part, to address its projected load growth requirements.  The conservation programs included time-of-day rates with load control of water heaters and air conditioners. In those days, the appliance controls were simply commercial grade timers, which were always failing. 

In today’s new world, utilities, demand side management companies and even customers with sufficient load will be able to bid their demand management commitments into the market to supply the requirements of load serving entities. Regular auctions should help keep the price of serving the last KWh required in balance with the true cost of supply or conservation and should help weed out poor performers.  This is in contrast to the “good” old days when the utility took all the risk of potential uneconomic outcomes.  Or is it?  Only time will tell on that score because the utilities are still in that unenviable position of supplier of last resort.

One thing is certain: The technology exists to control demand side loads accurately and reliably.  Smart meters and two-way control technologies have replaced those nasty, old mechanical appliance timers.  It has become far easier to aggregate customer commitments and communicate in real time regarding the actions desired.     

So what about those water heaters and why did utilities give up on controlling such a beautiful load for so long? The fact is not everyone gave up on them and they are once again getting deserved attention.  The Brattle Group issued a report earlier this year entitled The Hidden Battery. The report describes water heaters and the controls available today for managing them as one possible solution for the increasing amount of intermittent generation being put on the power grid. Brattle and others are reminding us that the lowly water heater can not only help with peak shaving, but also frequency modulation and voltage support. The decision by the Supreme Court should remove any doubt that demand response can be viewed as a resource in the wholesale market for all willing to help work out the kinks.  Who better to take the lead again on managing water heating load for everyone’s benefit than your local electric utility? 

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