Demand response … and who?

Compos Mentis

By Compos Mentis

What do you do to earn a living? Are you employed by a utility or a vendor or a consulting firm that is working in the “smart metering” field? If so, is some of what you are working on in advanced metering systems to support time-of-use or peak sensitive pricing? In other words, is “demand response” part of what justifies your new metering project? Probably. For many utilities, enabling demand response is the dominant driver behind smart metering. Other features are important, too, but it is demand response that may propel your AMI project. For many regulatory bodies, demand response justifies the regulatory mandate and the imperative to deploy smart metering. For some governmental agencies, it is demand response that primarily supports the enabling legislation, the improved tax treatment, the accelerated depreciation and a strong imperative to move toward a “smart grid”.

Most of us who believe we are the experts in metering and AMI will admit we are not experts in human behaviour, customer response to alternative rate structures or the economic nuances of rate design. These areas are left to others … the consulting economists, the rate designers, systems planners, customer service people, the marketers and the behavioural psychologists. That “soft side” of demand response is usually left to other experts with other backgrounds. Yet consider how crucially important it is to us that these other experts are making accurate projections and the right decisions! If they get it wrong, and customers don’t act the way they hope the customers will act, then a lot of the projected demand response benefits now shown in the business case will not materialise. Our utility or client will then have made a huge investment in a system whose costs are greater than the benefits.

Take the business case justification for any AMI system. Sometimes the operational benefits exceed costs. Great! A positive business case! Great, because then we don’t have to rely on demand response benefits to create a positive business case. But many times it doesn’t work out that way. Therefore, we do need a healthy dose of demand response benefits added to the operational benefits if we have any chance of making a positive business case. Some of the largest AMI systems now being installed are justified by the belief that half of the overall installed cost will be supported by demand response benefits. That means that a large number of customers must behave, over a period of many years, as we expect them to, by shifting some percentage of their load to an off-peak period. Some customers will want a display device so they can monitor their energy consumption and its cost, even hour by hour. Many will buy programmable communicating thermostats and load control devices, installing them as “tools” to take better advantage of the price signals now enabled by the smart metering system that we have so expertly designed and deployed. Let’s hope these other experts are right! Let’s hope that customers behave the way we hope they will.

For all the reasonable projections from experts, focus groups, pilot programmes, and extrapolations from experiments on customer behaviour, the acceptance of optional rates, the willingness of customers to purchase and install displays and “tools” on the customer’s side of the meter, the persistence of participation in demand response programmes is a wide-open frontier compared with methods for capturing the operational benefits of a smart metering system. We are still a few years away from the time at which some of the large deployments of AMI systems with aggressive demand response objectives and with customer-side Home Area Networks are substantially up and running.

Hats off to these other experts, the demand response gurus, because in many ways their job is tougher than ours, and the consequences of their failure will be more evident. Consider the vagaries of consumer activity in these stressful times of economic uncertainty. Consider how you will behave as a utility customer, a customer who is far better informed of these matters than most customers. What will your neighbour do? What will you do?

We are approaching a new frontier in demand response. Success means that lots of experts, including each of us, must get it right! The cost of failure is too high.

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