I know I have an insider’s perspective, but I’m going to take a leap of faith and say we can all agree on a few things: energy demand continues to increase, and demand response plays a critical role in reducing consumption, especially during peak periods of consumption.
One of the only proven smart grid technologies, demand response (DR) provides a predictable, fast-responding, highly reliable and cost-effective solution for energy conservation. It brings to the proverbial table a tremendous value proposition, helping grid operators and utilities improve grid reliability while continuing to meet increasing energy demand, and simultaneously benefiting the environment by reducing the need for new peaking power plants.
But power generators fighting aggressively to stop DR’s expansion pose a threat to its continued development. To keep DR going strong, and to keep the country moving toward a smart grid that could serve as a global model, we need FERC and other regulatory bodies to stand firm in their support for DR and other energy conservation technologies. In the case of DR, their policies have a significant impact on the energy conservation industry, driving utilities to implement peak load reduction programs.
The present regulatory landscape looks promising for DR -- the challenge is to keep it that way. Today’s pro-conservation legislation includes Pennsylvania Act 129 and FERC Orders 745 and 755. Act 129 required utilities to develop plans to reduce electricity consumption by 1 percent by 2011 and 3 percent by 2013. Likewise, they must reach a 4.5 percent reduction in peak demand by 2013. FERC Order 745 requires that DR be compensated at the same rate as generation in the organized energy markets. Finally, Order 755 finds that there are services and technologies on the market other than generation assets that may better regulate frequency. This order similarly mandates that the organized markets provide compensation commensurate with the value of the frequency regulation for use of these methods.
These laws and regulations help lay the groundwork for a strong DR industry by stating clear terms and conditions and providing concrete environmental and economic benefits to the markets. Act 129 leaves no question as to what is required of the utilities under its jurisdiction, as it sets a mandate for third-party participation, specific reduction targets, a budget, deadlines and penalties. The FERC orders moderate generators and encourage the development of clean solutions, like DR, that help eliminate environmental damage. Consumers benefit as well, as the support for alternatives to generation takes the most expensive energy off the grid. The common theme across all of these developments is that they were shepherded by strong, principled policy leaders.
The supply side of the energy community -- namely, generators -- wants to halt DR’s progress because peak demand times drive profit for generators. But generators are the only stakeholder that benefit from peak demand, whereas consumers, commercial and industrial customers, and the environment all benefit from demand response. It is crucial that the FERC and other regulatory and legislative leaders fairly evaluate DR’s contributions to the market and the community as they strive to regulate the evolving energy industry and mediate the tension between conservation and generation.
Knowing the critical role DR can play in our nation’s energy mix, I am excited about some of the regulatory developments I see in the pipeline. For instance, the U.S. Green Building Council recently announced plans to release an updated LEED DR Pilot Credit, which will establish guidelines anticipated to increase participation in automated DR programs. Additionally, the Environmental Protection Agency has proposed to reduce acceptable ozone levels to a point that would render up to 96 percent of U.S. counties noncompliant, opening the door for more aggressive DR programs. Such strict requirements will increase fuel generation costs, necessitating reductions in energy consumption.
With the right regulatory support in place, DR stands to maximize its potential as the main catalyst for the development of a cutting-edge, functional and economic smart grid. A favorable legislative landscape will make possible Pike Research’s projection for strong growth in DR services revenues during the next five years, increasing from just less than $1.3 billion in 2011 to more than $6.1 billion by 2016. Pike predicts the curtailment services segment will continue to be the largest of the three key industry segments (the other two being systems integration/consulting services and outsourcing services), representing approximately two-thirds of the total market opportunity through 2016. Experts at the Brattle Group expect energy efficiency and DR programs to slow the growth of U.S. energy consumption by 15 percent by 2020.
It’s my hope that the U.S. will continue to promote energy conservation, with demand response at the helm. In a similar way that we are working with Eskom, Africa’s largest electricity provider, I want to see our country become a prime case study for how best to leverage this disruptive technology to bring utility electricity delivery systems into the 21st century.
We know DR delivers real megawatts of power reduction, amounting to tangible decreases in energy consumption. Let’s ensure it has a forward-thinking regulatory backup that can help continue to drive positive change and move us toward a promising energy future.
R. Blake Young is President and CEO of Comverge.