Residential Demand Response: Mirage or Reality?

Can residential DR yield savings and value for consumers?

There is a long line of startups and incumbents building hardware and software for home energy management. Here's a partial list: Tendril, Energy Hub, People Power, Alarm.com, ControlPoint, Lucid Design, and Microsoft's Hohm.

The suite of home energy management gear usually includes a display, a gateway and a set of plugs for appliances.  In some cases the equipment works with the utility smart meter, in some cases it doesn't.  Most of the systems would presumably have a demand response element. 

The only thing that isn't in place seems to be a viable business plan that can generate revenue and profits from all that equipment.

How much are consumers willing to pay for residential demand response and home energy equipment?  How big a commitment are utilities willing to make (or are going to be required to make)?  What do consumer advocates and utility commissions think of Residential Demand Response (RDR)?  And will utilities make the same roll-out and public relations errors they've made with smart meters?

Demand Response, to date, has been the smart grid success story in industrial and commercial markets, including some recent high-profile acquisitions (Constellation acquiring CPower), but residential DR has not fared as well.  Comverge is a player in residential demand response and is experiencing massive operating losses.  The residential DR business model has yet to be proven despite the entrepreneurial and investor rush towards its potential.  

I moderated a panel on Tuesday afternoon that looked at residential demand response from a number of vantage points in an event organized by the WCA at PARC in Palo Alto, California.  It was a stellar group of experts:

Here's a glimpse of the panelists' thoughts:

Mary Anne Piette of LBNL

Piette said that, "California is peakier. The peak is growing faster than the baseload. And we need more powerplants just for those hot days."

Piette was involved with the creation of OpenADR.  OpenADR is an automated infrastructure that uses a client server data model, and DR can be automated with such a model -- this is one type of DR and it serves as a foundation for automation. OpenADR is primarily used in C&I in California, but there are also residential pilots underway.

She supports the concept of dynamic pricing and sees "the value prop as a market design issue."



Scott Hublou of EcoFactor

Greentech Media's Editor-in-Chief, Michael Kanellos, describes EcoFactor's business this way:  "EcoFactor combines a live weather feed with a computerized simulation of a home and automated controls to fine-tune a [home's] thermostat for unobtrusive energy efficiency. A heat wave is due to hit in the middle of the afternoon? The system might pre-cool the house with relatively cheap power until 1 p.m. and then let the air conditioner coast during the peak period from 2 pm to 6 pm"

Hublou described EcoFactor as a residential energy management solution to address the approximately 50 percent of energy consumed by the home's HVAC system with a control point at the thermostat. He declined to call the thermostat "smart," but rather a "[2-way communicating] dumb thermostat that knows how to talk and listen."

The firm creates a thermal model of the house that is essentially a picture of the HVAC metabolism.

"Demand Response is a grid-level answer to peak periods, not a solution in which a consumer should be required to endure discomfort or take daily action. Consumers want simplicity: turn on a switch and the lights go on, turn the switch off and the light goes off. To make Residential Demand Response work (or any permutation of Demand Response), it needs to be automated, and must not impact the comfort levels of the occupants," said Hublou.



Jim Nichols of EnerNOC

EnerNOC is a software and services company with a bit of a hardware offering.  The firm will have revenue of more than $250 million this year and an aggregate of several gigawatts of DR contracts, most focused on commercial and industrial (C&I) applications.  In the C&I sector, Demand Response is a "huge revenue stream" in "favor of the customer," with some customers getting "six-figure checks every month."  But "not so on the residential side," according to Nichols.

"The real challenge" in RDR, according to Nichols, is the "enablement" price of $400 for even a relatively inexpensive product like EcoFactor's thermostat.



Aloke Gupta of the CPUC

The California Public Utility Commission is very interested in Demand Response.  In fact, their priority list starts with energy efficiency, followed by DR, followed by renewables. 

Gupta showed slides that has the California IOUs predicting 1,500 megawatts of residential DR and 3,000 megawatts of commercial DR over the next decade.

Gupta (and Ms. Piette) made the point that DR does not have to be about just emergency and price responsive events, but rather can be about permanent load shifting by using energy storage to soak up excess energy at night and discharge it during peak hours to reduce the load on the electric grid.

Gupta also made the point that 15 gigawatts -- or approximately 30 percent of peak load -- comes from air conditioning. Comfort on a sweltering hot day is a difficult element to negotiate.



Marcel Hawiger of TURN (The Utility Reform Network)

TURN is a private not-for-profit organization representing California rate-payers -- litigating at the CPUC and working in Sacramento on legislative matters. The organization has worked extensively on residential rate design. 

 

"We pretty much opposed the smart grid rollout in residences in California," said Hawiger, adding, "It's HVAC, stupid, and how much does the automation cost?"  Hawiger continued, "TURN just didn't think that putting smart meters on everybody's house made any sense -- the benefits did not outweigh the cost of the meter."

"We also oppose mandatory dynamic pricing," said the staff attorney.  "There is a customer class of older low-income folks who will get hit hard by dynamic pricing and increased bill volatility."

"We lost smart meters," said Hawiger, adding, "Should rate payers further subsidize Home Area Networks and energy displays?"

Hawiger continued, "To really get a consumer response, you have to have air conditioning, a big home and a big price difference."  He suggested the price signal would need to be two times to ten times as much to make consumers change behavior.



Hawiger struck a cautionary note: "We are very wary of having rate payers further subsidize Demand Response. Rate payers already subsidize $2 billion in rooftop solar."

Residential Demand Response remains a more complicated product, sales channel and value proposition than the relatively simple C&I DR alternative.  Entrepreneurs, researchers, utilities and regulatory bodies are going to be very careful in balancing the security, privacy and costs with the as-yet fuzzy benefits of a full residential demand response program.