Demand response, or demand management, whichever un-sexy term you prefer, continues to grow by leaps and bounds. This year offered sweltering temperatures to drive load shedding during summer, as well as mergers and acquisitions that show the increasing value of DR-related services. Technology is also allowing for demand services to be automated, and to go far beyond the HVAC system. Here are some of the biggest stories to go down in DR in 2010:
Building Management Becomes DR
Large commercial buildings already have building management systems, so layering a separate system on top of that for DR seems redundant. Many startups see their technology as an addendum that could be integrated with what a building might already be using from Schneider Electric or Honeywell.
The move is going both ways. Companies like EnerNOC and Comverge are shifting into more comprehensive building controls, while management-specific companies, like Powerit Solutions, are shifting backwards into demand response.
This is also the hottest area for acquisitions in DR, as large companies look to increase their offerings, from HVAC DR services to lighting controls, and smaller startups are looking to carve their own niche that can easily be integrated into legacy control systems. This year, Siemens bought SureGrid, Schneider Electric picked up Vizelia and D5X; EnerNOC purchased Cogent Energy in December of last year and eQuilibrium Solutions in March; and ABB acquired Ventyz and Key Solutions for power management.
Although there are new startups every day, and some deep-pocketed companies like Honeywell and Schneider Electric are moving into DR, EnerNOC, with more than 5 gigawatts under management as of November, continues to lead in sheer volume. The company, which turned its first quarterly profit this year, is also responding to the shift to building management with its growing suite of products. Recently, the Boston-based company also jumped across the pond, providing demand response for UK Power Networks.
Earlier this year, EnerNOC secured a 10-year, 560-megawatt contract with the Tennessee Valley Authority, the largest contract in company’s history. For every other DR company, there is a lot of grumbling that they do things differently, and many argue better, than EnerNOC. If that is true, expect to see a suite of businesses take on the DR giant, but for now, EnerNOC is finding new ways to maintain its reign.
The standards race continues for demand response, but OpenADR is gaining ground with companies and expanding in California, which, along with PJM and Texas, is a focus for anyone peddling DR services. While companies are not looking to give up control of their systems, especially in manufacturing, some sort of automation will be necessary to bring DR to the mainstream in the next few years.
The California-based standard, which has been adopted by more than 60 vendors, is looking to drop costs, improve reliability and increase compliance far outside of the Golden State. In 2009, the National Institute of Standards and Technology and the U.S. Department of Energy chose OpenADR for smart grid demand response communications over the internet, and national standards are coming. Beyond a bevy of startups, major players like Honeywell are supporting OpenADR. Honeywell used an $11.4 million DOE grant to build an OpenADR system with Southern California Edison earlier this year; the building controls giant also acquired Akuacom, which provides demand response services to independent service providers and building owners using the OpenADR platform.
Constellation Energy Buys CPower
This fall, Constellation Energy, a large, diversified power producer, bought demand response provider CPower. CPower is often seen as one of the big three, behind Comverge and EnerNOC, when it comes to total megawatts under management. Like its competitors, the company has steadily been shifting towards wider offerings outside of traditional demand response services.
It doubled its management load in 2009 and was the largest aggregator on the Texas grid, a market that is at the top of the DR list. Despite being a startup, CPower boasts some big-name clients, including Walmart.
So what does this mean for the rest of the industry? Probably that this is just the beginning of a spate of larger acquisitions. For large building management companies, the appeal and need for DR in one’s portfolio is growing by leaps and bounds.
Comverge Focuses on C+I
Although Comverge is one of the few companies poised to take advantage of residential markets -- nearly 25 percent of its services were provided to residential customers in 2009 -- it is concentrating on commercial industries because of their sheer size advantage.
Comverge was awarded about 1 gigawatt in demand response by PJM Interconnection, which coordinates and directs the operation of a large section of the mid-Atlantic region's transmission grid. However, don’t expect Comverge to ditch the home sector completely. Its program with TXU has been very successful, and some states like Pennsylvania are requiring that a portion of demand response come from the residential sector.
However, the Norcross, GA-based company saw 120 percent growth in revenue in the commercial and industrial market side in 2010. "There's not an end in sight [in the commercial market]," said Savastano. "But there's also still a lot of opportunity and headroom with the mid-tier and smaller-class customers." Expect Comverge to keep residential in its back pocket as it continues to gun for the commercial sector in 2011.
PJM Interconnection Drives Demand Reponse
It is simply impossible to talk about demand response without talking about the effect of the PJM Interconnection. Service providers continue to name PJM territory at the top of their list, with Texas and California usually close behind.
The 2010 capacity auction yielded more than 9,000 MW of demand response capacity, a 32 percent increase over last year. While the largest DR companies snagged a solid portion of that, Comverge said it received about 1,000 MW at this year’s auction -- there is still a lot up for grabs.
PJM Interconnection also includes Pennsylvania, which is leading the way with its Act 129. The legislation deserves praise for its call to cut peak demand by 4.5 percent by 2013. The reductions coincide with an elimination of caps on utility rates, which, ideally, could drive even more conservation through the threat of high prices. More than half of that is meant to come from the residential sector, so expect the PJM Interconnection to help lead the way in breaking into that nascent market.
Take It to the Auction Block
When World Energy first announced its DR Auction, EnerNOC’s CEO questioned whether the model would really work for the industry. But the auctions are not just blindly selling off demand response contracts. Instead, World Energy engages a company to find out what they need, then invites different players in the market -- generally six to eight DR providers -- to come bid on how much DR revenue they'll share with customers.
Also, by the time customers come to World Energy, it’s not their first time at the rodeo. They’ve often done DR before and are looking for a better return or a company more tailored to their needs.
The auction’s largest customer to date, Alban Engine, has 1,500 MW across its various subsidiaries, which is hardly a paltry amount of energy.
Customers are seeing about 80 percent of the demand response payout using World Energy, according to Andrew Thomas, the senior vice president of wholesale operations for World Energy -- about 20 percent more than customers typically see when they go straight to a DR provider.
Besides the money, customers like the thrill of watching bids come in -- it's just plain fun.
Anything that makes demand response a little more fun, not to mention profitable, is very likely to catch on as DR becomes more and more mainstream for companies.
Customer Choice and Demand Response 2.0
It’s tough to write about the next wave of demand response without acknowledging that many of the refinements and expansions are about creating a more thorough and tailored offering to the customer.
Don’t want to turn off your HVAC in the middle of summer for two hours? That’s not a problem. Companies are now offering programs that shave bits of load off of everything from lighting to fans, to keep business up and running smoothly.
Powerit Solutions, for example, is focusing on one industry at a time (currently focusing on the food services building) in order to get to know their customers' needs and then adapt their OpenADR system to be able to maximize efficiency without any disturbance to the workflow. The larger companies are moving that way, as well. Mike D’Amour, CEO of Lumenergi, which has a lighting networking system for fluorescents, said his company is in talks with both EnerNOC and Comverge.
The range of offerings is certainly a response to companies that were unhappy with their initial DR services, which often was just an email or call for a single event happening the following day. Companies such as EnergyConnect and BuildingIQ have also found that empowering the customer every day, instead of just on 15 peak days annually, yields far more attractive savings.
My iPhone Does Demand Response
Making DR accessible, for both building managers and homeowners, means bringing the decision-making to their fingertips. For every thermostat company or home energy management portal that provides demand response, there’s an iPhone app.
It’s tough to say that everyone will walk around with their iPhones in hand on hot summer days waiting for alerts from their utilities, but the fact that companies and utilities are tailoring how they reach and engage customers to take part, and stick with, the programs, is a shift in the marketplace.
Residential DR is Here -- Or Is It?
Make no doubt about it; residential demand response is a murkier proposition than it is in the commercial and industrial sector. The conversation has moved this year from if residential demand response is going to happen to how it’s going to happen.
Greentech Media’s Eric Wesoff moderated a panel this past fall on the very topic, and the opinions on how high the barriers were to get consumers interested varied significantly.
The value proposition for folks at home is not nearly as strong as it is for a large factory. However, the PowerCents DC program found that people did like saving, even if it was only a few dollars a month. Furthermore, if you can bring down the price on DR-enabled thermostats (TXU is giving away iThermostats for free, and Radio Thermostat is retailing their Wi-Fi thermostat for under $100), then the savings could be there for consumers just by controlling their heat and cooling, and then demand response is less of a leap of faith.
The largest motivator, however, will be time-of-use pricing. Based on the backlash after Baltimore Gas & Electric’s first proposal (which included TOU pricing) was rejected, it is unlikely that mandatory residential TOU pricing is coming in 2011 or 2012 in the U.S.
However, volunteer TOU programs are popping up across the country and will likely expand. Pennsylvania has mandated that 70 percent of its 4.5 percent reduction in peak demand by 2013 has to come from the residential side, so at least in Pennsylvania, home DR is going to be a reality.