There are more ways to generate value from demand response than ever before, but so far that hasn't translated into massive payouts. Demand response technologies and programs have evolved to the point where value can be captured at the customer, distribution and wholesale levels, but a significant gap exists between the amount of available flexible capacity and profitability margins.
According to GTM Research’s new report The U.S. Utility Demand Response Landscape: Programs, Case Studies and Economics, utilities have experienced low to no load growth in recent years, which has resulted in fewer opportunities for demand response programs.
The report surveys 66 commercial and industrial and 35 residential programs, representing 60 percent of all demand response in the U.S. and 17 gigawatts of flexible capacity. Of that total, 9.1 gigawatts of capacity lies within the CAISO, MISO, PJM, SPP and TVA territories and is either directly or indirectly monetized in wholesale markets.
“Wholesale markets provide multiple opportunities for stacking benefits; however, not all utility programs have direct access to these value streams,” said Elta Kolo, grid edge analyst and lead author of the report. “Even as end users provide significant flexibility volume via demand response programs, more value isn’t being extracted from the available capacity -- which sits idle most of the time -- to influence day-to-day operations or pricing mechanisms.”
"The demand response space is in transition," she added. "Utilities have spent 10 to 20 years building up their flexibility portfolios and with the advent of technology opportunities from both 'bring your own device' platforms and software for DRMS/DERMS. This capability is expected to be utilized in a more dynamic basis in the medium to long term, which will enable monetization of DR in additional value streams."
FIGURE: Capacity Monetized in ISO, RTO and TVA
Source: GTM Research
The report illustrates how value streams can be found at all levels of the grid. “Demand response programs are increasingly becoming a customer engagement tool in addition to a flexibility resource for utilities,” said Kolo. “Dynamic interaction with customers is key to unlocking benefits across all levels through third-party, utility and ISO/RTO programs.”
FIGURE: Representative Value Streams for Demand Response
Source: GTM Research
Some lessons on customer engagement can be found within the umbrella of demand-side management, which encompasses both demand response and energy-efficiency programs. Utilities often administer energy-efficiency programs to incentivize energy-efficient retrofits and behavior that will reduce overall energy demand in the long term. Since these programs require customers to make capital investments, utilities will offer greater customer incentives.
In 2015, more than $3 billion was spent on energy-efficiency incentives versus the $1 billion spent on demand response incentives. “Energy efficiency and demand response are often bundled together,” Kolo noted in the report, “because the costs of running such programs can be recovered through the same mechanisms, including tariff riders, capital asset deferral and amortization, and expensing.”
The complementary evolution of demand response and demand-side management programs has an increased focus on customers. This GTM Research report brings together trends and mechanisms from more than 100 U.S. demand response programs (data available through a premium license or through the Grid Edge Executive Council) to demonstrate how utilities unlock value for their customers. It notes the challenges and opportunities for demand response -- specifically how it will continue to evolve as the adoption of distributed energy resources continues to grow.
Download the report brochure for The U.S. Utility Demand Response Landscape: Programs, Case Studies and Economics here.