The Houston Chronicle featured AEMA in a story about a call for additional demand response to benefit consumers and the electric grid in Texas. The full story can be found here and below.
BUSINESS
Group urges more rewards for power savers
The approach, called demand response, is limited in Texas
By Ryan Holeywell
January 17, 2015
Providers of a service that arranges payments to electric customers who agree to reduce their power use when demand strains the grid are pushing lawmakers to promote the business in Texas.
The approach, called demand response, is used widely in other parts of the country, but is more limited in Texas, said Frank Lacey, chairman of the Advanced Energy Management Alliance, the consortium of companies behind the effort.
“We want them to create a market,” Lacey said.
Supporters say demand response can help improve the reliability of the grid and makes it more economically competitive for power consumers.
Participants enroll with a demand response provider and agree to reduce or suspend power consumption at particular times – usually during peak periods when demand is at its highest and electricity costs the most. In exchange, customers receive payments, as do the providers that aggregate customers.
Residential consumers might power down air conditioners or pool pumps during peak times, while businesses could cut power to lighting or industrial equipment. The idea is that businesses could then shift their operations to times when demand for power isn’t as high. The power reductions can occur manually or automatically, depending on the type of business affected.
While demand response exists in Texas, the alliance says, it’s underused. It cites a 2012 study by the Brattle Group that said demand response shaves about 4 percent of power demand from the Texas grid during peak periods, but it has the potential to reduce 8 percent to 15 percent of demand.
As it stands, the Electric Reliability Council of Texas, which manages most of the state grid, has a pair of programs that allow for demand response, including its Emergency Response Service that pays power customers to cut back on electricity during some peak periods. That program’s budget, however, is capped at a $50 million.
ERCOT’s equivalent in the Northeast, the PJM market that covers most of Pennsylvania, Maryland and Virginia, spends 10 times that amount annually on demand response, Lacey said.
Lacey says ERCOT’s demand response programs are designed to ensure grid reliability. But the state lacks a mechanism that would allow demand response providers to operate in the competitive power market rather than taking payments from ERCOT under Emergency Response Service and other programs.
An ERCOT spokeswoman said its demand response programs are operating well, and it is taking steps to open the door to more demand response opportunities.
Among the members of the alliance are Georgia-based Comverge and Boston-based EnerNOC, which bundle together power users and would stand to profit from wider use of demand response in Texas. Retailer Wal-Mart and aluminum manufacturer Alcoa, which are huge power consumers, also are members.
Theoretically, demand response companies can participate in the state’s power markets under rules ERCOT put into effect last year. But the system essentially requires these aggregators and their customers to respond to grid needs as quickly as power generators can, and none has qualified.
Lacey said technical requirements are part of the reason demand response has been slow to take off in Texas. His group is urging state lawmakers to pass legislation “that promotes the widespread deployment of demand response in Texas and eliminates constraints that impede its growth.”
The alliance declined to detail the legislation it is pushing or to identify lawmakers lined up to sponsor it.
Environmental benefits
In addition to pressing the business case for demand response, the alliance is pitching its environmental benefits, arguing that it maximizes the use of existing power plants and has the potential to help the state comply with proposed rules from the U.S. Environmental Protection Agency that call for lower carbon dioxide emissions from power plants.
A criticism of demand response, however, is that it doesn’t reduce electricity-related emissions if participants simply switch to backup generators running on fossil fuels when demand response programs require them to dial down the power they draw from grid.
“People tend to think of DR as a clean alternative to fossil-fueled generation when, in fact, a significant amount of DR is provided by emergency backup diesel-fueled generators that operate without air emissions controls,” Houston-based power generator Calpine said in a 2012 statement.
But the Natural Resources Defense Council, a New York-based environmental group that supports demand response, argues that only a small percentage of participants switch to diesel.
“The oldest, least efficient and often dirtiest plants are also the most expensive to run, and so only ramp up during highest demand periods,” the council wrote last year. “Demand response functions to shift demand over time, avoiding the height of peak periods and ensuring that the most expensive, dirtiest plants that spew the most carbon pollution run less, or not at all.”
Powerful opposition
Lacey said the most powerful opposition to demand response comes from generators, which could see demand for their product diminish in the wake of more broadly adopted demand response. “They’re pretty universally opposed,” Lacey said.
Brett Kerr, director of communications and government affairs at Calpine, said the company doesn’t oppose demand response on its face. “But as with all types of market mechanisms, they should have to follow the same rules, regulations and restrictions as anybody else,” Kerr said.
NRG Energy, based in Houston and New Jersey, said demand response has potential upsides for generators. NRG has both power generation and retail electric businesses, and it recently purchased a demand response company. It expects demand response to complement its retail electric business.
Demand response can also help provide more accurate pricing for generators by helping pinpoint exactly how much electricity is worth to customers, said Mark Walker, NRG’s vice president for regulatory affairs. “In a backwards way, it helps achieve the right price,” Walker said.