Long live Demand Management?

The relatively young demand response industry, which focuses on curbing power consumption for the benefits of consumers and utilities during peak periods, seems to be in the midst of a euphemistic name tweak. More importantly, it reflects a potentially larger change in how these companies may someday operate.

"Demand response is more politically known as demand management," said Phil Davis, senior manager, demand response solutions at Schneider Electric, which constructs demand management systems for large corporations. "Lighting in most businesses is very ripe for demand management."

As if on cue, 'demand management' has popped up independently in interviews in the last few weeks where 'demand response' used to be.

The shift toward the use of the term 'management' in part underscores a belief that these systems could be better utilized. Peak power events tend to be somewhat scarce, admits Gary Fromer, CEO of demand response provider CPower. Some large utilities with extensive demand response programs haven't declared a peak power event in three years, he said. In California and Ontario, there might be only six to seven events a year.

On average, demand response systems are in operational mode maybe three to ten hours a year, he estimates. Imagine if you had employees who got paid for three hours of work a year? (In media, you'd call that person 'publisher.')

Demand management, by contrast, would modulate power consumption on a consistent basis throughout the year. Instead of curbing power three to ten hours a year, demand management companies could take control of air conditioners and other devices for 50 hours a year or more with smaller dips in power curtailment over a far wider base, Fromer said. CPower is mulling ways to manage power between grid assets in this sort of environment.

"Demand response is a technology with many uses. The ability to manage peak load is one very simple deployment of that application," Fromer said. "The issue is can you do it across more and more customers and do it more surgically?"

Not everyone likes the term or thinks it will happen soon.

"I don't know if demand management is the right thing to call it. It is industry jargon," said Gregg Dixon, senior vice president of marketing at EnerNoc. With over 3 gigawatts of capacity in its network, EnerNoc remains the largest demand response company out there. "There is a spectrum of responses that fills a need between demand response and energy efficiency."

EnerNoc provides "dispatch of load" services, which are akin to demand management, but it constitutes a small part of its business and, because energy efficiency will always be a subservient goal to running the business in most customers' minds, it will likely stay that way.

A bigger problem lies in infrastructure and customer acceptance. Utilities don't have accounting systems to track demand response systems that are currently in place, he said. Most simply ask demand response providers to track the results of their actions in spreadsheet form that is then passed along via email. In other words, we're a long way from controlling things automagically.  

A more significant linguistic change has come in how utilities talk about demand response, according to Dixon. Until very recently, demand response was called a 'program.' In utility speak, programs are run out of marketing departments and tend to wax and wane in significance over time. Some have now begun to look at demand response as a 'resource,' or something that is controlled by engineers and that has become crucial to operations.

In some ways, one could speculate that demand management is in the same spot demand response was a decade ago. Comverge was founded in 1997, while CPower and EnerNoc were born in 2001 -- and it took all three of these firms years to gain customers. Many of the companies that can be described as demand management providers -- Adura Technologies, Lumenergi, Optimum Energy, BuildingIQ -- are relatively new, have only a few marquee customers, and largely concentrate on single applications such as lights or air conditioner chillers. EnerNoc last year bought Cogent Energy to start providing building efficiency services.

Regulation is actively encouraging the change. In California, new buildings with 500,000 square feet or more of space that get half or less of their lighting needs from sunlight will have to install lighting controls and join management programs, says Albert Chiu, program manager for demand side policy at PG&E.

By 2011, approximately 650,000 commercial and industrial buildings in California will receive their power under dynamic pricing schemes, which dovetail with demand systems. Business consumers can opt out, but dynamic pricing will be the default, Chiu said. Only high-use customers get dynamic pricing as a default now.

"We want to use demand response and dynamic pricing to influence market pricing," Chiu said. "The low-hanging fruit [i.e., changing out inefficient light bulbs] is not there in building management. A lot of the new lighting products are control related. We want to encompass controls in the Title 24 (California's efficiency code) area."

Connecticut and Pennsylvania, meanwhile, are aggressively pursuing demand programs.

Despite the attractions of demand management, the delicate balance between curbing demand and customer satisfaction still needs to be worked out. Take a hotel, says Mike Frost, president of demand management startup SureGrid. A hot summer Saturday afternoon is an ideal time to crank back air conditioners from a utility's perspective. A hotel hosting a wedding reception will disagree and try to override that, said Frost.

EnerNoc's Dixon gives a national perspective. Commercial buildings command about 800 gigawatts of power capacity. But if you eliminate the buildings without building management systems (about 50 percent) and the ones with building management systems that won't work with demand response systems (another large group), and further reduce it by the number of customers (9 out of 10) that won't allow utilities to automatically curb power on a regular basis, you're left with about 5 gigawatts, says Dixon.

Since you can only curb power in offices by around 20 percent before disrupting employees, that leaves about a gigawatt that could be harvested, he argues. In this sort of world, building owners might put in systems for curbing power, but they might function independently of peak power reduction services.

Whether demand management comes quickly or slows, lingering fears that utilities may take over these services may not come to pass. To work properly, a demand management provider has to have the power to control equipment inside homes and office buildings: HVAC systems, lights, pool pumps, refrigerators, etc. Consumers will have major questions about privacy.

It could also result in a regulatory nightmare. "If a utility were to start sending service people to do behind-the-meter kinds of work, it would raise questions on who pays. Is it part of the rate base," Davis said. "It is not going to be enough to talk to a building. You have to be able to talk to the drives and the chillers and all of the other things owned by the customer."

Nonetheless, the benefits from moving toward management are huge.              

"If you invested $100,000 into energy efficiency over the last ten years, you would have earned more than the S&P, more than the Dow, more than any traditional investment you could think of," he added. "If you have a ten percent profit margin, $1 saved in energy is $9 in revenue."