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How demand response cuts wholesale power costs

Chris King, eMeter — Tue, 24 Jul 2012 18:34:19 +0000

In the late 1990′s, U.S. energy regulators began to recognize how the demand side affects wholesale power markets by effectively creating new power resources at far lower costs than building either traditional or renewable generation. Following several years of development, demand response has now started transforming wholesale markets — and reducing costs for ratepayers.

Demand response programs compensate customers for agreeing to reduce their electricity usage for a few hours, usually on summer afternoons. These programs also can include energy efficiency — that is reducing energy use throughout the year, usually by replacing equipment or appliances with more efficient models.

In May PJM (the wholesale market operator for 13 states and the District of Columbia) announced its May capacity auction results. PJM noted price reductions of up to 85 percent — driven largely by demand response resources.

In PJM, as in many wholesale markets, retail energy suppliers (utilities) pay for power supply in two ways:

Capacity: These purchases ensure that sufficient power resources are available to meet the annual peak demand of utility customers. This can be considered a reservation payment: a retailer with a million customers would reserve, say, a 2,000 MW power plant to serve their customers on the peak day of that year.
Energy: Retailers also must pay for the actual energy (kWh) consumed by their customers every day.

This is rather like paying for a car. Your monthly car payment (say, $500) ensures that you have a car available to use. But you also pay separately for all the gasoline you use to drive around. Your monthly payment is “capacity,” the gasoline is “energy.”

In wholesale power markets around the world, capacity typically costs $50-100 per kilowatt-year — which means for that price an energy retailer can reserve one kilowatt’s worth of generation capacity at a power plant. (Remember, 1MW = 1,000 kW). So if a utility needs to reserve 2,000 MW of capacity for a year, that will cost $100-200 million per year.

Back to PJM — which happens to be the world’s largest electricity wholesale market. For 2011/2012, most of PJM’s capacity cost was $40.15 per kW-yr — a little low, but not unusual. However, for 2012/13, that cost plummeted 85 percent to just $6 per kW-yr!

What changed? One reason for market prices to drop is an increase in supply. In this case, the supply of demand response resources bid into the market skyrocketed from 1,597 MW to 10,167 MW. That’s the equivalent of adding eight large coal plants or four major nuclear plants — in a single year! And with no greenhouse gas emissions or nuclear waste involved.

Consequently, our example utility which needs 2,000 MW of capacity would pay only $12 million per year, rather than spending $100-200 million. And these savings can be passed on to ratepayers.

I should point out that this especially low price, while highlighting the importance of demand response, is very unusual. Even with demand response, PJM’s capacity prices are projected to climb back up to $45.98/kW-yr by 2014/15.

But that’s still less than half the cost to build new power plants.

This article originally appeared on eMeter’s Smart Grid Watch blog. Chris King is the Chief Regulatory Officer for eMeter. He is a nationally recognized authority on energy regulation and competitive energy markets, and is widely recruited by regulators and legislators to consult on technology issues in electric restructuring and grid management.

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EU gets closer to new energy efficiency, smart meter requirements

Chris King, eMeter — Tue, 19 Jun 2012 14:18:58 +0000

By September the European Union may have a new energy efficiency strategy in place. On June 14 negotiators struck a provisional deal on the proposed new EU energy efficiency directive (the “Third Energy Efficiency Directive”). Final approval is likely.

For the past year the EU has been working on this amendment to its energy efficiency directive, which sets out the requirements for EU member nations.

Once approved, the updated directive would require EU nations to save energy in specific ways — such as by renovating buildings, and stipulating how much energy savings utilities must deliver.

Currently the EU goal is to improve energy efficiency by 20 percent by 2020, compared to 1990 levels. However, European Commission figures suggest that if these measures were only options, not requirements, the savings would only meet half that goal.

The new amendment also addresses smart meters. EU countries would have to ensure that, to the extent technically possible and financially reasonable, each customer would receive a competitively priced individual smart meter to accurately record how much energy they use and when they use it. This would apply not only to end users of electricity and natural gas, but also to customers receiving district heating/cooling or domestic hot water service.

Final adoption is targeted for September. This requires an EU Energy Committee vote, followed by a full vote of the members.

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Smart meter security: the human element

Chris King, eMeter — Fri, 13 Apr 2012 16:00:18 +0000

This week, several news outlets (such as Network World) have described a new FBI finding that “smart meter hackers” are enabling the theft of millions of dollars’ worth of electricity from a utility in Puerto Rico. In its report, the FBI noted: “This is the first report that criminals have compromised smart grid meters.” The agency added: “This type of fraud is likely to spread.”

So what is this type of fraud?

Upon a closer look, this situation is not so much about smart meters as it is about criminal human behavior. Former Washington Post reporter Brian Krebs explained that it was not actually the smart meters themselves which were “hacked.” The meters’ own security measures were not breached.

Instead, criminals accessed the smart meters by stealing meter passwords as well as some devices used to program the meters. This is more like stealing a key and opening a door, rather than breaking the lock on the door.

These criminals were former employees of the utility involved, and of the vendor who provided the smart meters. These people were paid (bribed) by customers to illegally reprogram the meters so that those meters would record less energy consumption than actually occurred. This is not fundamentally different from bribing human meter readers to under report consumption — which happens often in some developing countries.

How to prevent this type of security risk?

First, utilities and companies that make smart meters and related technology must tighten their “human security measures.” This includes planning for the worst case — rogue employees. Companies already do such contingency planning to safeguard sensitive IT systems.

Also, these companies should use available analytics software that can spot possible incidents of electricity theft. Such software can detect when a meter’s password or programming changed, and automatically initiate a field investigation. Meter data analytics software also can identify unusual changes in the amount of energy used, or in usage patterns. (The EnergyIP and Analytics software from eMeter can handle all of these tasks for electric, gas, and water meters.)

Using analytics for security isn’t anything new. Credit card companies have long used analytics software extensively.

Analytics software solutions are available for all of the smart meters already installed. Consequently, every meter in the field can become a fully reliable tool to prevent energy theft. That is, as long as the meter data analytics are part of a comprehensive security strategy. This means dealing with the human aspect, as well as using software to mine the data and find the problems.

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2012: Questions on the road ahead to the smart grid

Chris King, eMeter — Mon, 16 Jan 2012 18:00:08 +0000

Last week I shared my smart grid predictions for 2012. But also, as the new year turns, I’m pondering these important questions…

1). What will be the biggest driver for cleantech/smart grid in 2012?

I think this year, technology will drive us forward to Smart Grid 2.0. As I mentioned in my predictions, data analytics software will help utilities put to good use the data now pouring in from over 150 million installed smart meters globally.

We’ll also see consumers getting new options for dynamic pricing, detailed usage information options, and prepayment from upgraded utility IT systems. Also, consumers will be able to purchase exciting new energy management devices, especially smart thermostats.

2). How will political events shape the cleantech and sustainability industry in 2012?

The U.S. elections will ensure that no major federal energy policy bills will be passed. However, the Electric Consumer Right to Know Act (S. 1029, which would allow consumers to get free online to their own data) and the White House Green Button Initiative could allow for major progress. Green Button is already live for the three large California utilities, PG&E, SDG&E, and SCE. The bill’s prospects are less certain, but a small chance of passage remains.

The U.S. and many countries will have to deal with the waste of wind energy (huge curtailment orders by market operators) caused by the combination of lack of energy storage, lack of demand response, and intermittency of wind.

The issue of curtailed wind and solar is a potential political time bomb. Both resources have very strong support from the public, and people are unlikely to respond favorably to wind and solar generators being switched off while coal and nuclear plants continue to operate.

3). What did I learn in 2011?

My biggest lesson was that patience, persistence, and hard work do pay off — specifically regarding the recent Siemens purchase of eMeter.

But this lesson also applies to working with all smart grid players: utilities, policymakers, regulators, and partner companies. As an industry, we fell short in not creating a common vision of the smart grid’s consumer benefits — and for not communicating those benefits effectively to consumers.

4). What’s my biggest professional goal for 2012?

I’d like to help correct the shortfall I just noted above. My goal is to work with all of my colleagues in the smart grid industry toward a common vision of smart grid consumer benefits. Used together, energy usage information, time-based pricing options and automated “set and forget” devices help consumers save energy, cut peak demand, save money, reduce emissions, improve reliability, make better use of wind and solar resources, and promote electric vehicle adoption.

…Finally, looking ahead to 2012, I’d offer this timeless sentiment, which is especially appropriate for the renewable energy and smart grid industries:

May the road rise up to meet you.
May the wind always be at your back.
May the sun shine warm upon your face,
and rains fall soft upon your fields. – From an Irish Blessing

Image courtesy of maureen lunn.

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How should home energy management networks be controlled?

Chris King, eMeter — Fri, 09 Dec 2011 17:16:39 +0000

Realizing full benefits from a smart grid ultimately means controlling devices in customers’ homes, businesses, and other facilities. But who should exercise that control, and how?

My esteemed colleague, Harvey Michaels, stays young by examining the questions raised by how technology is transforming the energy industry. He teaches an energy efficiency course to eager students at the Massachusetts Institute of Technology.

A recent paper he co-authored with Kat Donnelly considers these questions:

Should utilities provide dynamic pricing or control customer systems directly?
Should utilities be required to give customers access to their detailed energy usage data?
Should consumers be allowed the option of sending their energy data to web applications, third parties, or community initiatives?

According to Michaels and Donnelly, addressing these issues involves comparing architectural options for controlling home energy networks, also called home area networks (HANs). There are two ends to this spectrum:

Utility control.The intelligence of devices in a home or business is derived from a central control point via a private utility network.
Consumer control. The control system for devices is located on the customer’s premises, or on the Internet. But ultimately it is managed by the customer.

Both of these extremes, as well as blended approaches to control, affect not just how much energy efficiency (conservation) and demand response (peak reduction) can be achieved. Network control choices also can either support or limit innovation in energy management.

Michaels and Donnelly found that architectures which enable innovation and efficiency should include consumer-controlled energy networks. Such networks, they said, create strong benefits from dynamic pricing and energy information derived from smart meter data, web-enabled thermostats, in-home displays and other devices.

They also believe these elements support coordinated consumer-managed systems that can suit individual tastes and objectives, while fostering a more energy efficient society.

Regarding innovation in products and services, they found that sustained innovation is most likely if the utility creates a friendly environment for market-based innovation ecosystem. To accomplish this, utilities, regulators, and policymakers should focus on:

Consumer-centric architectures for appliance control.
Public architectures for smart meter data.
Collaborative architecture for content.

Under this scenario, Michaels and Donnelly conclude that innovative firms would most likely invent strategies that appeal to various consumer needs and tastes — while building value through the efficiency, demand, and environmental effects that they produce.

Perhaps such architectures might pave the way for the Steve Jobs of home energy technology…

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Smart grid standards: a quick guide

Chris King, eMeter — Fri, 11 Nov 2011 13:00:24 +0000

Last month the U.S. National Institute of Standards and Technology (NIST) published the draft of Release 2.0 of its Framework and Roadmap for Smart Grid Interoperability Standards — and they’re accepting comments on this plan.

What are these smart grid standards about? Why do they matter, and how can interoperability help?

As anyone who has worked on standards can attest (and I’ve worked on them for three decades) the process and concepts can be daunting at first glance. That’s because there are literally hundreds of current and potential standards which affect smart meters and the grid. Also, standards development organizations (SDOs) operate around the globe.

Here’s how you can understand this complex situation…

Standards are a journey, not a process. New standards are introduced into the market all the time. There is no “end point.” Smart grid standards get adopted as they become available — and as utilities and other companies decide it is sensible to use them.

Standards are an opportunity, not a requirement. Independently operating SDOs such as IEEE and IEC develop standards. Governments often recognize standards, but only rarely mandate adoption of specific ones.

NIST publishes a smart grid standards catalog. George Arnold, NIST’s National Coordinator for Smart Grid Interoperability, explains: “Entries in the Catalog of Standards constitute the first items in what will be a useful toolkit for anyone involved in the Smart Grid — whether they are utilities that generate and distribute power, companies developing new electronic devices, or consumers who buy and use them.”

In another good example of standards best practice, the Public Utility Commissions of California and Texas have ordered utilities in those states to use an open standard for the home area network (HAN) interface on their smart meters. In both cases, they declined to specify which standard.

Interoperability is the most important goal. Interoperability is what made the Internet possible — not to mention huge leaps and bounds in the functionality of almost every kind of electronics.

For the smart grid, interoperability spurs two important kinds of competition that ultimately benefit consumers, utilities, and the smart grid ecosystem:

Competition in available products. When devices from different manufacturers and vendors can talk to devices from other manufacturers and vendors, those manufacturers and vendors must compete.
Competition among service providers. Interoperability allows data to be exchanged between multiple parties.

In both cases, interfaces use a published, open interface — usually without paying royalties to use the standard.

Which smart grid standards matter most?

Of the hundreds of smart grid standards currently in development and use, two are crucial for the smart grid. These concern two key interfaces (see illustration):

OpenHAN, allowing in-home devices to communicate with each other.
OpenADE, allowing utilities to exchange information with other authorized parties.

OpenHAN (which could be ZigBee, Wi-Fi, or something else) enables low-cost, high-function smart appliances, lighting systems and smart thermostats — such as the Nest thermostat developed by the iPod’s creator.

OpenADE allows third-party service providers to help energy users understand and manage their energy usage. Examples include Tendril, Control4, Comverge and EnerNOC.

Importantly, parts of OpenADE (other standards) will make it easier for utilities to manage smart meter data internally — as well as exchange it between internal systems. One of these elements is used by eMeter: a version of the Common Information Model standard (61968).

Still with me on this? Good — because NIST is taking comments on its draft until November 25, 2011, 5 pm Eastern time.

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