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Demand Response Rebound
Harts Energy Markets    April, 2004
by Ed Finamore, Valutech Solutions

Human nature being what it is, it is not surprising that many so-called industry pundits are rushing to drive the final nail in the demand response coffin. It has even been cynically suggested in some quarters that the August 2003 Northeast blackout was a plot by demand response aspirants to re-invigorate the industry and regain lost credibility. This absurd suggestion is not only wrong; its timing also is a bit off.

In fact, a review of the Northeastern and mid-Atlantic grid operators' 2003 demand response programs reveals that more than 3,800 MW of demand was involved, which represents, a 25% increase over 2002, says Larry Barrett, president of management consulting firm Barrett Associates, a demand response specialist. "The PJM ISO lead the way in 2003 with a 64% increase to nearly 1,400 MW of demand response capacity, representing about 2% of PJM's peak load. Impressive customer participation was also seen in the New York and New England ISOs, though the mix of programs and prices varies."

Remaining conspiracy enthusiasts may nonetheless assert that Comverge Inc. must have had a crystal ball when they announced the first Virtual Peaking Capacity program in June 2003, two months before the Northeast blackout. This program was implemented to provide long-term peak load relief to PacifiCorp in lieu of adding additional generation or off-system purchases. Even more significantly, the program was crafted to provide localized load relief to specific regions of the service area where transmission and distribution congestion was most likely. Several months later, Comverge announced that an agreement was signed with Sempra Energy for a similar program for commercial customers.

Comverge is not alone. Earlier in 2003, Invensys Home Control Systems announced it had begun testing its GoodWatts program at PECO Energy as a prelude to plans for a broader launch in the residential market. And Cannon Technologies, with the introduction of its virtual energy management system, has begun offering the utility industry web-based, real-time monitoring and control benefits that provide flexible options for utility and customer control of demand. Its partnerships with Honeywell and GoodCents Solutions could pay dividends as Cannon continues to expand a technology base that supports a range of demand response alternatives. Recently, LG&E Energy announced an expansion of its residential load management program that uses the Cannon/Honeywell-developed ExpressCom solution.

Problems Remain
However, despite these notable successes, proponents of demand response programs are not out of the woods. While it is true that system load made available for demand response programs increased in 2003, the New York ISO also experienced a 14% drop in the number of emergency load response participants, according to Barrett. Mild weather and a slow economy meant that few triggering events actually occurred in 2003, the August blackout being a notable exception. So the jury is still out concerning the reaction and willingness of remaining participants to stay with these programs if repeated instances of short-notice load curtailment should ensue.

Before long, this theory could be severely tested. With more than 2,000 MW of curtailable load currently available in the New York ISO alone, customers are already playing a significant and important role in the New York region. Yet by some estimates, only half of the required near-term generating capacity could actually be built, leaving a potentially significant gap in the state's future power capacity requirements to be made up through other means, including demand response initiatives.

Technology Advances Continue
Some good news is that creative load management solutions are emerging that could provide the necessary technology platforms to support these programs. Advances in metering and communications are beginning to provide the necessary real-time data transmission infrastructure. The future may lie with these types of programs that encourage voluntary customer participation rather than the more heavy-handed mandatory load curtailment alternatives.

Market characteristics of price response programs will undoubtedly continue to evolve and redefine the risk-reward formula that governs market-based energy use decision-making. And who knows, maybe even the state utility regulators will get into the act and start taking a more favorable view of demand side benefits by allowing the cost of advanced metering to be included in utility rates. Some forward looking utility regulators, such as the Idaho Public Utilities Commission, have actually begun seriously examining the benefits of automated meter reading to support peak demand shifting. Some believe that deployment of AMR systems could delay the need for additional generating facilities.

Reports of demand response's demise have been greatly exaggerated. Advances in metering technology, energy demand growth, environmental issues and the unsettled cost-benefit landscape of new generation are signaling that demand response could be the way to balance energy supply and demand for the foreseeable future.

Ed Finamore is founder and president of ValuTech Solutions, a management consulting firm specializing in utility automation systems and applications, including demand response and AMR. He can be reached at (412) 299-5684.


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