For Best Results, Understand the Drivers Behind Utility Demand Response and Energy Efficiency Programs

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// For a utility demand response management (DR) or energy efficiency (EE) program to be successful, it has to be designed based on a deep understanding of the problem to be solved and keeping in mind the drivers behind the program.

It’s pretty clear why utilities embark on energy efficiency programs: to reduce energy consumption over the long CUP0033595term. But from my experience, utilities typically embark on demand response program for one of four reasons:

  1. Physical constraints. Physical constraints can be either a lack of or limited transmission or generation capacity to meet needs. Just like major highways, transmission lines can become jammed when lots of power needs to move from one place to another. With respect to generation, utilities may be retiring a plant and temporarily lacking in generation capacity, or perhaps demand is outpacing the utility’s ability to build new generation facilities.
  1. Cost avoidance. Utilities have to meet the demands of all energy users, which usually means buying energy from expensive backup sources to meet peak demands. Reducing loads means buying less power and incurring fewer costs.
  1. Increased revenue. The other side of the coin from cost avoidance is being able to increase revenue. A utility can sell excess energy into a market to gain higher revenues. Often the prices are high enough that it makes sense for a utility to pay customers not to use energy so it can resell that extra energy into a market.
  1. Legal requirements. Many utilities have regulatory requirements issued by a governing body such as the local utility commission or a board of directors. These requirements can specify an amount (in megawatts) or percent of total load that needs to be covered with EE or DR resources. This is often part of a renewable portfolio standard.

It takes different program designs to meet each of these demands. If the goal is to meet peak generation or transmission targets, the solution will be heavily seasonal: target HVAC in summer and heating systems in winter. So long as those are the chief elements driving your load, such programs should deliver results.

But the same approach may not work if you’re trying to sell energy back to a financial market. In that case, the key considerations are the market price you’d be getting, the quantity and duration of the loads you can control and requirements for financial settlement. If you can save energy through a DR program but the costs are greater than the market value, then the program doesn’t make financial sense; you’re better off simply selling the energy to the customer.

The point is, you’ve got to know what problem you’re trying to solve and design the program accordingly. It’s pretty clear that a program designed to address summer peaks, such as AC cycling or thermostat control, won’t help address an unexpected winter peak. For that, you need to plan ahead to ensure you have water heaters and the like under control, so you can get customers to opt in when you need them to.

In my next post, I’ll get into some best practices around DR and EE program design.

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