When Negawatts Equal Megawatts, Demand Response Blooms


Is a negawatt worth the same amount of money as a megawatt? The Federal Energy Regulatory Commission has said yes, at least tentatively, and this could spell big new opportunities in the demand response industry. At the same time, it could give technologies that enable turning down energy use new and interesting ways to pay for themselves.

FERC’s March 18 proposal would require all Regional Transmission Operators (RTOs) and Independent System Operators (ISOs) “to pay demand response providers the market price for energy for reducing consumption below their expected levels.” In other words, those entities producing a negawatt should get paid the same as those producing a megawatt.

The proposal may seem obvious, but it could be a necessary change to stimulate growth in the demand response market. “The inefficiency of our current markets are so embedded, they strike us as “normal,’” said David Brewster, president of demand response company EnerNOC (s ENOC). “Without this move by FERC, the demand side of the market would remain underdeveloped everywhere.”

In some RTOs and ISOs — including, for the last several years, big demand response buyer PJM— the more lucrative energy markets have been paying less for negawatts than megawatts. That is, they pay a price that the same number of megawatts would have been worth, minus some portion of the power’s retail price if the customer had used it.

Power generators have supported these arrangements, arguing that giving full market price to negawatts constitutes double dipping — not only are utility customers saving money on power bills, they’re also getting to earn money by bidding that energy savings into the market. FERC’s proposal overrules that argument.

Demand response companies, from publicly traded players EnerNOC and Comverge to private companies like CPower and Energy Connect, are predictably supportive of FERC’s proposal. The idea, from both FERC (which hopes to expand the use of demand response) and from DR companies (who want to do more business) is that opening new markets at predictably higher prices could boost investment in demand response systems — both those from utilities and established aggregators like EnerNOC, as well as new models.

As I describe in a GigaOM Pro article today, FERC’s proposal could expand demand response’s market into:

  • Microgrids: Instead of controlling a multitude of end points, utilities look at microgrids as single entities. Viridity is one company working on ways to market that power production and reduction capacity on energy markets, and the company said FERC’s proposal could open the door to that kind of activity.
  • Smart Meters: Aggregating residential demand for demand response programs has been too complicated (and expensive) for most companies to undertake. FERC’s proposal could open up new revenue streams for home energy management players and smart meter makers.
  • Expanding C&I Operations: On the commercial and industrial (C&I) side, where changing power rates, sophisticated building control systems and some level of energy market participation already exist, the opportunities for selling demand response will likely grow if FERC’s proposed rules are adopted.

Read the full article at GigaOM Pro.

Image courtesy of shoothead’s photostream


Jeff St. John

I agree, Beavsco – that’s what makes the whole thing interesting. What’s the difference between demand response and energy efficiency? Answer: something that’s been proven to turn down when you “demand” it, not when someone feels like it. Making that leap is what pays the bigger bucks.


The ability to “generate” negawatts isn’t limited to the demand response players. While companies like EnerNOC and CPower are controlling Demand (the total energy required at a given moment measured in kW), several energy management firms focus on reducing consumption (the amount of energy required over time measured in kWh). Companies like Prenova (www.prenova.com), Phoenix ET, and others can proactively control a customer’s energy consumption by managing the operation of HVAC, lighting, and refrigeration systems. Today, the ROI from these services comes from reducing energy spend, but given an accepted measurement standard, customers might also receive payment from the utility for reducing consumption as well as demand. EnerNOC seems to be moving into this area by acquiring building management and measurement companies.

Jeff St. John

That’s interesting, Cliff — what kind of derivatives games do you envision?


now that’s a very interesting thing.

I can sense a great opportunity for derivatives games though…

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