Capturing the Full Benefits of Demand Flexibility
Demand flexibility—allowing household devices like HVAC systems and smart appliances to interact with the electric grid in response to real-time price changes—can save customers money and lower the overall cost of electricity. In our recent paper, The Economics of Demand Flexibility, we analyzed the economics of making common household loads controllable and responsive to electricity price signals. We found that making just two devices flexible, smart thermostats that could flex an HVAC system’s output up or down by 2 degrees and smart water heaters that could change the timing of water heating, could lower system-wide peak demand by 8 percent and save $10–15 billion in costs to the grid annually.
Three Opportunities for Demand Flexibility
But these potential savings, as large as they are, are only a hint of what demand flexibility ultimately can provide. When considering how large an opportunity demand flexibility can be, there are three areas to consider:
1. The commercial and industrial sector
Residential loads are less than half of total loads (only 37 percent of total kilowatt-hours sold in 2014). There is ample evidence to believe that commercial and industrial (C&I) loads almost certainly have more flexibility to offer compared with the residential sector (for example, the demand response market today is dominated by the C&I sector). However, C&I devices have a higher diversity of characteristics that makes accessing the full value of demand flexibility more challenging. For example, the speed at which industrial devices can ramp up or down varies a lot, and the capacity they can offer the grid can be quite variable. Additionally, the local constraints they must manage around are more complex.
2. Value beyond retail prices
Retail price signals recognize only a fraction of the value that demand flexibility can capture. Much greater value can come from looking at wholesale prices, ancillary services like frequency regulation, and distribution-level services like congestion-relief that can defer expensive new infrastructure investment. However, responding to these more complex markets requires both a larger resource (which can be realized through aggregation) and a higher level of flexibility than individual residential devices can offer—at least without compromising the customer uses for the device, such as keeping your home at a reasonable temperature.
3. Aggregated loads
Demand flexibility can do more when individual loads aggregate. A single load, similar to what we analyzed, can respond very effectively to price signals. However, to participate in larger markets and to provide a full range of services, it helps if flexible demand can be bundled with other individual loads. Think of what you can do with a single musical instrument, and then think of what you can do with a full symphony. A full symphony can play bigger venues and play music that a single instrument can’t tackle by itself. Aggregated fleets are emerging as an effective way to harness the full value of flexibility inherent in C&I loads, as well as address more complex requirements than those that are presented by retail price signals.
Putting It All Together
To illustrate the market value of these three trends—which create a wider range of loads, allow participation in more lucrative markets, and operate in concert—we can look at a particularly challenging example. Consider the case of a water treatment facility with thousands of pumps of various sizes and characteristics (the equivalent of a full symphony orchestra), participating in a frequency regulation market (one of the more challenging markets, requiring a continuous string of four-second adjustments in both directions), and a software layer to allow full aggregation and coordination across the loads.
Even with very sophisticated price signals, individual devices would have trouble participating in this market. Each device must first serve its primary function flawlessly—in this case pumping a certain amount of water each hour—and only within the boundaries of this constraint can it provide flexibility as a grid resource. Each device has only a small amount of flexibility to offer.
However, aggregated across the thousands of pumps at the facility, a market participant can create a significant amount of flexibility. Critically, the diversity of the pumps becomes an advantage. Some pumps can offer deeper, but less frequent, flexibility, whereas others can modulate frequently but with less capacity to offer. If they can all be operated together, they can be a phenomenal grid resource and a very profitable secondary revenue stream for the owner of the water treatment plant.
Enter the Distributed Energy Resource Management Platform
With recent advances in information technology, this level of coordination is now possible. Modern distributed energy resource management platforms receive continuous signals that are used to forecast the demand-side load needed to maintain a balanced and reliable grid. The platform unobtrusively captures and aggregates available flexible loads from participating customers, along with energy storage and renewable energy sources, to form a network of continuously controlled energy resources. It then dynamically optimizes and dispatches these resources to respond to the minute-to-minute needs of the power system—all without disrupting customer operations.
Watch the video of Symphony by Enbala™ below to see a distributed aggregation and control platform in action.
As more and more loads, batteries, and distributed generation sources like smart appliances and electric vehicles become connected, and our ability to orchestrate them to create less obtrusive but highly valuable energy services increases, demand-side flexibility will continue to grow both as a tool for customers to save money, and as a tool for grid operators to save on infrastructure expenses. As these trends become more powerful and embedded within the power grid, we foresee a future where the electric system does not need to be built to meet occasional peaks, but one in which supply and demand can respond to each other dynamically, benefitting customers, utilities, grid operators, and the environment.
Image courtesy of iStock.