Utilities look inside the home to fuel the grid

WASHINGTON--As utilities seek out future energy sources on the grid, tapping thousands of home water heaters is becoming an increasingly attractive choice over building new power plants.

Efficiency, long considered the cheapest way to meet energy demand, is becoming one of the most important "fuels" for grid operators, according to utility executives. Whether driven by regulators or rising energy costs, shaving electricity use of appliances or plug-in electric vehicles through smart-grid technologies is a key piece of the industry's long-term game plan, they said at the Kema Utility of the Future conference here last week.

Companies as varied as Google and Duke Energy touted the potential of demand-side management, or demand response, where energy efficiency is used at specific times. In essence, scaling down electricity consumption, or demand, of large appliances or electric vehicles at certain times can make them act like virtual storage devices.

"The water heaters that are already connected electrically, but not with communications and controls, [store] about 25 gigawatts," said Terry Boston, chief executive of PJM. "So there is already connected to our system storage equivalent to what we built out already. All we need is the cost of the controls [to access] that storage."

In typical demand-response programs, a consumer or business customer volunteers for a program in which the utility can curtail demand on the grid during peak time in exchange for a rebate of some kind.

For example, an air conditioner equipped with a controller will cycle down to half power for a few hours during the hottest days of the year. In tests, Chattanooga Electric Power found that consumers didn't notice that their air conditioners were being adjusted, said David Wade, executive vice president and chief operating officer of the municipal utility. The goal is to have a programmable system so the customers don't need to know that there is demand-response event, and the actions can be manually overridden, executives said.

Aggregating hundreds or thousands of demand reductions can have a significant impact on the operation of the grid in a region. Often, utilities fire up costly and polluting auxiliary plants only a few times a year. In Massachusetts, for example, 15 percent of the power generation capacity is used only 1 percent of the time, or 88 hours a year. By using demand response, utilities can avoid building new power plants and transmission lines to meet peak demand.

Grid operator PJM already counts on-demand management as a virtual energy source capable of supplying about 7 percent of the electricity. Ratcheting down demand, rather than turning up the supply of electricity on the grid, is already being done at large scale, Boston said.

"Putting 2,000 megawatts on the market is enough to supply 5 million people, or half the state of Michigan," he said. "In one year, we had enough to cover the city of Pittsburgh."

Boston said that now is the best time to shore up demand-response commitments, either from consumers or businesses, rather than a time when the economy is booming, and people are less concerned with reducing costs.

Payoff for consumers
For demand response to move beyond the commercial and industrial area requires smart-grid technologies, which can create a two-way link between utilities and consumers. But how the installation of new technology, such as smart meters and home automation tools, gets financed is not clear in every case.

A consumer could install a two-way thermostat, smart appliances, and an in-home energy dashboard to program appliances or electric vehicles to take advantage of off-peak rates or demand-response programs. But consumers aren't always willing to pay more up front for goods, even if they will get savings over time and even if there is an environmental benefit, executives said.

"Once you scratch the surface, most consumers tend to default to cost-conscious mode," said Stephen Hirsch, manager of demand response programs at Consumers Energy. How much of a green premium are they willing to pay? "If it's more than 5 percent, then nobody wants to do it."

One possible model for installing energy efficiency-related gear is to have the utility own and operate the equipment, said Michael Morris, chief executive of utility American Electric Power.

Utilities have an incentive to shave peak time energy use, since it lowers their operating costs by lowering power purchase costs, Hirsh said. Those savings can get passed down to its customers, he said.

But Duke Energy CEO Jim Rogers said the regulations that govern utilities need to be changed so that utilities can make as much money reducing demand as they do now in building new power plants, which is the historical model.

"If we can get a change in the paradigm and allow us to make as much money investing beyond the meter as if we can making investing in a power plant, (then) energy efficiency can be another source of earnings for us," he said.

There are still questions as to how many consumers are willing to participate in demand-response programs and how large a role efficiency can play either to curtail peak load or to maintain a steady frequency. But if 25 percent of customers participated in demand-response programs, it could represent a significant change in how the grid is run, PJM's Boston said.

One of the keys to scaling up demand management is preparing service with compelling benefits to consumers, executives said.

"If we allow options that are best for the consumer and provide many options, then we incent consumers to operate in a way that's beneficial to the whole grid," Wade of Chattanooga Electric Power said. "Then that's the best of all worlds."