The future of a clean electricity grid will require more decentralization based on clean technology, like solar and energy storage. Large industrial customers are investing in these technologies and also signing up to moderate their electricity demand in response to larger grid needs (i.e. reducing usage when electricity becomes expensive and dirty to produce). Smaller users like homeowners can become part of a bundled, aggregated group that can produce the same effect as a single large user through automated software and payments that encourage reduced demand at key times.
Under an important federal regulation by the Federal Energy Regulatory Commission (FERC) back in 2011, clean tech companies sell this aggregated change in demand (called “demand response”) to regional grid operators as a package deal. The reduced demand that these companies bundle helps to alleviate strain on the grid, lower economic costs on the wholesale power market, and reduce pollution in the process.
But as I wrote in October, the future of this arrangement was in doubt, with the Supreme Court considering a major challenge to the legality of FERC’s order 745, which enabled this aggregated demand response. The issue is that states control their in-state retail market, while the federal government through FERC can only regulate the wholesale power market across state lines. When FERC allowed clean tech companies to bundle changes in user demand through retail price signals and then sell that aggregated change in demand to regional grid operators in the wholesale power market, opponents argued that FERC was overstepping its bounds into areas under state jurisdiction. Think of it like a commerce clause challenge to FERC authority.
Fortunately, the Supreme Court decided today in a 6-2 vote (Alito recused himself, with Scalia and Thomas dissenting) that FERC’s order was a legitimate regulation under the agency’s wholesale interstate market jurisdiction. As Justice Kagan wrote:
It is a fact of economic life that the wholesale and retail markets in electricity, as in every other known product, are not hermetically sealed from each other. To the contrary, transactions that occur on the wholesale market have natural consequences at the retail level. And so too, of necessity, will FERC’s regulation of those wholesale matters.
The court found that FERC can regulate in areas that directly affect the wholesale power market, as in this demand response arrangement, and that a scheme to provide payments for users to moderate demand and then sell it on the wholesale power market does not constitute a direct setting of in-state retail rates, which would otherwise be under state jurisdiction.
The implications of this decision are critical not just for demand response but for other clean technologies as well. As states look to broaden their clean technology base outside of their boundaries, they’re going to need federal regulations to enable interstate coordination, sometimes grounded at the local level. For example, just as customers can aggregate their retail demand changes to sell to the wholesale power market, they may want to aggregate their on-site energy storage such as using the Tesla PowerWall battery. Or they may want to aggregate power they return to the grid from their plugged-in electric vehicles. Or they may want to share surplus solar power from their roofs across state lines.
The possibilities are myriad and all indispensable to a technology-driven approach to decarbonizing our grid. With the Court’s decision today, this innovation can continue, leading to further economic and environmental benefits for all electricity ratepayers.
As I’ve covered before, the grid of the future will encourage people to use electricity at optimal times and not use it when electricity comes from dirty or expensive sources. It sounds straightforward but hard to execute in practice. Some have dubbed this demand response as “flexiwatts” — a term I admit to liking.
Now California is going after this demand response opportunity big time, with aggregators facing a deadline today to submit bids to investor-owned utilities. What that means in practice is that a company will be bundling a bunch of customers, ensuring the ability to moderate their electricity use on command and in unison, and then selling those bundled “flexiwatts” to utilities as a resource on par with generation.
The precedent is already there:
In September, Stem Inc. successfully bid aggregated customer storage systems into the CAISO real-time market using Olivine technology, as a demand response resource, part of a pilot program testing integration of the new resources. What to the wider grid looks like a reduction in demand can in fact be battery storage serving a client load, the company said.
“We’re sending energy to serve the clients’ load, so it looks to the grid like load going down,” Ted Ko, Stem’s director of policy, told Utility Dive last month. “It’s a new form of demand response, but it looks to the grid like demand response.”
Stem, along with EnerNOC, SolarCity and Tesla are all expected to submit proposals, GTM reports.
Experts expect a big response — ahem — to the solicitation today.
That’s the basic issue in an otherwise wonky case before the court. As new technologies enable customers to automatically change their electricity demand patterns to adjust to grid needs, companies are jumping in to organize them and then sell the bundled portfolio of customers and their bulk energy savings or changed demand as a resource to utilities and grid operators. Per the Washington Post:
The whole situation has created an economic opportunity for “demand response” companies, like Massachusetts-based EnerNOC, to provide software to big companies that use a lot of electricity, helping them manage when they do so. These big users can then potentially shift around how much electricity they use at certain key times when the rest of the grid needs it — for instance, changing the temperature in a building or dimming lights somewhat — and their willingness to use less at these moments has an economic value because it can blunt the amount of peak demand that there is.
The product that demand response companies are selling has sometimes been called “negawatts” — they give a value to not using electricity at a particular time. Demand response companies then sell these “negawatts” in auctions where grid operators like PJM Interconnection are constantly matching supply with demand to keep the lights on, and return some of the proceeds to the actual companies cutting usage — and overall, it’s been a pretty successful business model. EnerNOC, for instance, said last May that it had received about $ 1 billion in revenue in the prior three years.
These companies compete with traditional wholesale electricity providers as a new resource, and the big generators don’t like it. That’s why they filed a lawsuit challenging a federal agency decision to allow this competition in the wholesale electricity market. They argue this kind of aggregated demand response is fundamentally about retail electricity transactions, which the federal government can’t regulate (it’s up to the states to do so). The Supreme Court has agreed to hear the case, on appeal from the D.C. Circuit, which ruled for the traditional power providers.
But if these traditional providers win, then the concern is that nobody can regulate demand response, since states can’t regulate interstate wholesale power transactions and the federal government can’t regulate retail transactions. In effect, demand response blurs the line between the two.
The Court was evidently skeptical during oral arguments last week, but we’ll have to wait and see what the final decision is next year. The future of many cleantech industries could be at risk.
Part of securing big social and economic changes is simply marketing. And in the world of energy, we have a challenge with a confusing, jargon-filled economic and technological system. So it’s hard to reach the public with some of the big changes needed to achieve a clean grid with new renewable-oriented technologies.
With that in mind, it’s somewhat encouraging to see a new term — “Flexiwatts” — to describe the otherwise clunky “demand response.” While “demand response” may not make much sense on the surface, it refers to a critical concept: the idea that electricity users adjust their usage based on grid needs and price signals. This simple-sounding idea can make a huge difference reducing the need for the dirtiest power on the hottest days and also to integrat intermittent solar and wind energy.
Here’s the concept: when solar production peaks mid-day, users are encouraged to run most of their appliances, ideally through automation. Think of your networked dryer essentially being told to run by the grid at that time, when electricity prices hit bottom. And then when solar production tails off later in the day, maybe your devices wait to charge or your refrigerator slightly delays a cycle.
The result? The grid becomes cleaner and ratepayers save money by using the cheapest electricity the most and avoiding the expensive, dirty energy.
“Flexiwatts” can help communicate this idea to gain public support, as Chris Mooney at the Washington Post reports on a new Rocky Mountain Institute study:
“In the residential sector alone, widespread implementation of demand flexibility can save 10–15% of potential grid costs, and customers can cut their electric bills 10–40% with rates and technologies that exist today,” says the Rocky Mountain Institute report. “Roughly 65 million customers already have potentially appropriate opt-in rates available, so the aggregate market is large and will only grow with further rollout of granular retail pricing.”
Key to enabling demand flexibility are in-home “smart devices” — notably smart thermostats and programmable timers for dryers, hot water heaters, electric vehicle chargers, and other large consumers of energy. Some already exist, like Google’s Nest Thermostat.
Coupled with better ratemaking and these new networked appliances, hopefully we can soon see “flexiwatts” take hold in widespread fashion.
Then next up? “Negawatts” — or saved energy from efficiency measures. But that’s another story.
Your grid storage solution
Demand response, where electricity customers moderate their usage based on price and availability, is a critical strategy for balancing renewables on the grid (and for making the grid more efficient in general). Grid operators could start tapping into a powerful source, at least in California, Florida, and other warm states:
Through local intelligence — in the form of a chip on each device or a home computer for many devices — the collection of one million pools in Florida can be harnessed as massive batteries. Through one-way communication, each pool will receive a regulation signal from the grid operator. The pool will change state from on to off based on its own requirements, such as recent cleaning hours, along with the needs of the grid. Just as in the office building, each consumer will be assured of desired service.
Pools are, of course, just one example of a hungry but flexible load.
Of course, pools aren’t a great solution for droughts, but you get the idea. This option (demand response generally) is probably the cheapest and best bet for integrating variable renewables like solar and wind. It will still require infrastructure investment (note the microchips required on appliances) and better networking and rate design, but it’s doable and should be a priority. In the long run though, we’ll still need large-scale energy storage, whether it’s batteries or pumped hyrdo or some other technology.
California is already experiencing it, and it’s now the “new normal“:
Fast-forward to the early spring of 2014. The California Independent System Operator (CAISO), due in part to an unexpected abundance of solar generation in what was supposed to be the rainy season, had to institute curtailments of wind and solar power coming into the grid on four separate occasions. In one instance, more than a gigawatt of combined wind and solar power was curtailed, a condition that the grid operator calls over-generation or “overgen.”
There are three options to deal with the problem of renewable over-generation:
1) Store the surplus energy in energy storage technologies like batteries for later use,
2) Export it to other states, or
3) Encourage ratepayers to delay using electricity until this surplus becomes available.
California is trying to encourage all three options, and we’ll need them all to address the problem.
