Demand Response - Quantifying the Impact on the Customer

Peter Noland | Jul 29, 2010

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Demand Response (DR) is already a clear cut winner in category of "killer apps" in the evolving Smart Grid. A key area of opportunity moving forward, and which may help provide a more comprehensive valuation of DR programs, may thus be to give deeper consideration as to DR's impact upon the utility's relationship with its customers.

Standard methodologies for quantifying the benefit of Demand Response always must first consider the impact upon energy price and reliability. There is always an easily quantifiable benefit from curtailing electric load that is of a much lesser value than the price of electricity on the spot market, along with a similarly quantifiable reduction in the capacity needed to meet reserve adequacy requirements. Additional benefits that may be somewhat harder to quantify are usually considered as well in an attempt to arrive at the most comprehensive evaluation possible. (impact of reduced market price volatility, impact of deferred T&D investment, insurance against extreme events).

However policy makers and utility executives may be short-changing themselves by not considering the opportunity to further quantify DR's benefit, in terms of a successful program's ability to positively impact the overall customer experience, and thus the potential for stimulating opportunities for ongoing and increased customer engagement.

Research on utility customer's needs, especially on Commercial and Industrial (C&I) energy user's, and impressions of their overall relationship with a utility, often indicates the customer is influenced by three primary drivers: 1) The need to reduce energy costs, 2) the need for reliable and quality power service, and 3) the need for accurate and/or flexible billing and service options. The complexities of energy management, the lack of sufficient industry knowledge or resources, the need for more personalized advice on various energy savings options, and the need for enabling technologies to facilitate the delivery of new service options are various obstacles to satisfying these customer objectives.

Demand Response and Smart Grid enabling technologies are fast evolving to address these issues and help meet these customer needs and today can provide: (1) An Integrated Framework for delivering both Demand Response & Energy Efficiency information and savings opportunities (2) a "proactive" response-oriented customer communications mechanism (DR) for establishing a more active connection with the customer, and (3) an underlying communications medium (new "Smart" meters) that allows for more personalized dialogue and pricing with the customer. All of this can be combined deliver a dramatically different level of perceived service for a utility's customer.

The opportunity therefore is now to also use software and analytics to capture and measure this customer experience, so as to quantify and better understand DR's impact on customer satisfaction and behavior. Thus a measurable and structured framework should be considered for collecting and analyzing data regarding customer interactions from DR programs, in addition to the energy usage and load profile data that is captured.

Data on customer interactions with DR programs may soon include analysis of areas such as the following:

  • Does the proactive savings communication element of DR provide a driver for increased customer responsiveness?
  • By initiating proactive savings dialogue with the customer does the utility generate a "connection" with the customer, that can be used to stimulate on-going involvement and thus increase the likelihood of buying into future programs and services offered?
  • Does the experience of participating in DR programs link to increased customer satisfaction scores?
  • Which program attributes and profiles of customers & participants are linked to the highest customer service ratings?
  • What types of DR notifications, enabling technologies, pricing plans and customer segmentation led to highest take rates & customer service scores?
  • What is the value to the utility over an investment-term consideration (5 years), i.e., what is the "Lifetime Customer Value" of a more involved relationship with the customer from the utility's perspective
  • By analyzing data on customer interactions, there may also be opportunities to identify service delivery efficiencies with Utility C&I Account Organizations, efficiencies in outreach and enrollment efforts conducted via 3rd parties such as Curtailment Service Providers (CSP's), and easier identification of opportunities for fully automated DR scenarios and customer self-support programs in the future.

    A broader consideration and analysis of the data regarding the DR customer experience will thus provide better insight into understanding customer behavior, including the "why" and "how" of customer behavior. Analysis of the "Customer Service ROI" with Demand Response in the mind of both the customer and the utility, may also in time help lead to an even more comprehensive evaluation of DR, a more comprehensive and accelerated business case for adoption of smart-meters and faster adoption & buy-in by customers to future utility programs and service offerings.

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    Comments

    Very interesting article.. To properly "quantify" many of the issues and parameters the article raises requires detailed data collection at the consumer residential level, particularly for any savings in energy costs and any behavioral changes the consumer experiences. To get meaningful statistics will also require large numbers of consumers to be equipped with smart meters, communications from a smart grid into their homes, DR technology in their homes, and monitoring software to collect detailed financial and behavioral data. The big question is who will pay for all this hardware and software in large numbers of homes before all the parameters in this article can be quantified?

    Bob, Who do you think? - the electricity consumer of course. There is only one source of cash here and those are the poor schmucks who they have over a barrel.

    However I am beginning to think that being connected to the smart grid (that I did not want, did not ask for and did not vote for) is becoming too expensive and not so smart any more.

    I did an interesting exercise a few weeks ago Bob. I divided my TOTAL electricity bill (ie the sum of the smart meter charge, debt repayment charge Harmonised Sales Tax, Connection charge, uplift charge and yes buried in there was the actual charge for the number of Kw hours used) by the ACTUAL Kw hours I consumed that month. The result - a STAGGERING 18.7 cents per kilowatt hour.

    I have been looking into buying a natural gas generator and disconnecting from the smart grid altogether. At just 40% efficiency I can produce electricity for about 7 cents per kilowatt hour and if I use a water cooled generator to supply my HW tank I can get the efficiency up above 58%.

    The point that Mr Noland misses completely is that most of the "Smart" electricity bill that I receive is made up of fixed components which stay the same whether I use 1 Kw-hr or 1000 Kw-hr. So curbing my demand has almost no effect on my overall bill - so why would I put up with the inconvenience of doing my laundry at night (when I am trying to sleep) when I can operate my own generator and do it whenever I want.

    This article has persuaded me that a natural gas generator is the most economic way of curbing my demand. Unfortunately it will cause the demise of all those who make their living off the smart grid - I suspect Mr. Noland is one such person.

    I think it will be a good idea to start a business offering this generator installation service. The smart grid is rapidly pricing itself off the market.

    Malcolm

    Malcolm,

    Wow, 18.7 cents per kwhr! I didn't realize it was so high compared to the rate portion we're paying for just the energy (at something under 10 cents under TOU billing). I agree curbing consumption is not going to save as much as many of us would like it to UNLESS basic energy rates go much higher in the future relative to all the other charges. The latter is what I am afraid of when we start paying for all the renewable energy sources coming on line the province has contracted for the grid at massively lucrative feed-in tarrifs.

    As long as energy rates are less than half of our total utility bills, I am even more convinced that TOU billing and all the smart meters now deployed in Ontario will remain somewhat of a white elephant if they are expected to motivate consumers to save anything on their bills. I am also predicting that Ontario, and many other jurisdictions, will not see much more functionality than TOU billing used with smart meters. The added costs, read extra charges necessary on all ratepayers’ bills, to implement any more widespread smart grid functionality under our current regulatory framework will be too much to bear for the public.

    Maybe you're right Malcolm, consumers should start considering their own generator to get themselves off the grid.

    One of the greatest advantages of a real smart grid system is that it properly prices distributed generation. A lot more besides Malcolm would discover the advantages, especially when affordable long-term-reliable low-noise generation units become available (create a market and ingenuity will fill it.)

    Malcolm: Start generating your own power and you'll immediately discover how rational it is to run your dishwasher and laundry at night ;<)

    Mr Rawlingson:

    Thanks for your comment. Just to clarify, the point of my article wasn't to help further justify the cost effectives of smart meter installations. Nor was it to promote the economics of Demand Response versus other options like on-site generation that you mention. Given the rapid pace of adoption by utilties, the business case for both Smart Meters & Demand Response seem to be moving forward fine without me, which is why I said DR appears to be a "clear cut winner"

    My point was a different one entirely. That is, if all these utilities are going to be investing billions of dollars in the Smart Grid, in additon to the energy and billing data that is being collected that data should also be captured regarding customers' interaction with these new technologies and service offerings. It just seems logical to take the opportunity to capture more data regarding the customer experience. It would seem this would greatly increase the likelihood of maximizing the return on Smart Grid investment for both the utility and their customer, by providing insight on future opportunities to design service offerings that are more individually tailored to address different customer segments.

    As a side note, i think your idea on having a natural gas generator is a great one. However, like the Smart Grid, that option is not without risk as well. During the last 5 years we've seen the price of the fuel source (Natural Gas) gyrate up and down between $4-13 MMBtu at different points in that timeline, so there are definitely risk issues to consider here as well. Also, as an aside, given that most all retail natural gas suppliers charge significant penalities to customers for being outside tolerance bands in retail contracts due to erroneous forecasting of natural gas usage, wouldn't a smart meter actually be helpful to someone like yourself operating your own generator?

    Last point is a minor one. I actually don't make my living off the smart grid per se, but it just seems logical that if utiltiies are going to be investing billions in the Smart Grid, that capturing data on specifically how customers interact with these new technologies should somehow be part of the plan.

    Thank you Peter.I do understand your point of view. If having spent billions of electricity rate payer money why not use the data collected or collect even more data. One small point. Did anyone ask ME whether I wanted my information collected? I don't. Did anyone ask ME whether I wanted to pay $5 bucks a month for ever for a smart meter. I don't recall that conversation and my answer would have been no. But I have one stuck on my wall anyway.If the utilities think smart meters are such a great idea - they can pay for them. Why should I.

    I find the whole idea intrusive in the extreme. Utilities have completely lost sight of their job which is to make electricity NOT regulate it's use. Oil companies do not tell me when or where or at what time I can drive my car. Why should utilities be given the right to price-force peoples use of electricity? They say it is to keep prices down - all I have seen is the price going UP.

    The purpose of the gas generator - whatever the price - is to ensure there is no data collection from my house and so that I do not have to pay for a meter I did not request. The utility can remove it and give it to some other deserving soul.

    As regards the price volatility of natural gas - the massive gas shale discoveries in the US in the Barnett and Marcellus shale deposits as well as coal bed methane and the Alaska Gas pipeline will ensure plentiful gas supplies at stable prices for many years to come. I fully expect recent price volatility to subside as those supplies come on stream.

    If they don't then the additional cost will be well worth it or I'll buy a diesel and run it on biofuel.

    But part of this crackpot expense scheme I will not be.

    Malcolm

    "“They say it is to keep prices down - all I have seen is the price going UP. "

    I sympathize with you Malcolm. Smart meters and the extra charge on our monthly bills were forced on all of us (in Ontario) by the Ministry of Energy, whether we want them or not, and indeed overall energy rates continue to go UP, even under TOU billing schemes now enabled by smart meters.

    I'm sure you can remember how it all started too. Ontario's growth in peak demand was gradually overtaking growth in supply (and also grid capacities in some bottleneck areas) during summer months, and if something wasn't done about it, we would sooner or later start experiencing rolling brown outs, or worse.

    Our utilities said they were helpless because they couldn’t regulate or control peak demand for the majority of their customers, since among other things rates were their only way to have any affect on consumption. And flat billing rates were their only option using the old electromechanical service meters. Furthermore, they were not interested in footing the cost to replace them with smart meters. Ontario’s government then forced them to replace them, and gave them permission to recover their costs by adding a charge to every customer’s bill, and of course implement TOU billing on all Ontario customers according to regulated TOU rates.

    So here we are. But in the meantime, rates are going up for many other reasons besides, like conservation programs, replacing aging generation, expanding grid bottlenecks, adding new long distance transmission lines, and especially to cover their lucrative feed-in tariffs that are being guaranteed to all the new solar and wind farms coming on line soon. What you are being told when we can somehow expect to save on energy bills under smart meters and TOU billing, is that your wonderful smart meter allows you to load shift to off-peak billing hours. If you do enough of this, your bills will be lower than if you did nothing. Simple isn’t it?

    Too bad most customers have no simple way of doing this in any automated fashion, or have any real-time feedback to tell them how much each and every load shift they perform is going to save them.

    You echo my thoughts exactly Bob.

    The real cost of my electricity has gone from about 4c/Kwh to 18.7 c/Kwh . I have deployed about every reasonable savings measure possible (that are economic that is) and it appeared to be having no effect. When I took a really close look at my bill it suddenly dawned on me that significant part of it was completely unaffected by the amount of electricity I use.So even if I dropped my electricity usage to zero I would still have quite a sizeable bill to pay. Hence my conclusion that it would be better to shift my energy use entirely from electricity to natural gas and only have one bill. The natural gas bill is (more or less) proportional to the gas consumed - probably because the industry has had far less government meddling.

    So I have been studying the marketplace and decided on a water cooled, natural gas machine. Rather than run it all the time as I originally planned I will use batteries through an inverter and only charge as required much like a PHEV except stationary. That way the power plant will last longer. I have even considered a small diesel but that will be subject to oil price whereas gas will not be.

    I must say I am very amazed at the latest inverter technology. For about $300 you can buy a solid state inverter that produces a perfect AC sine wave from any 12V DC source.

    To reduce the maximum load I am making some other changes such as buying a gas range and oven to replace the electric one I have now. The furnace is already gas fired as is the water heater so my system demand is very manageable with about 10 to 20 batteries and may be less.

    So some expenses but at least it is all under my control and I don't have to do my laundry at 3am.

    Thanks for your support Bob. Here's to electrical independence.

    Malcolm

    One of the "Wonderful" things about the "Wonder Full" deregulation scheme implemented here in Ontario is the very questionable market scheme, where every kwh sold to the grid in a period gets paid at the rate of the highest-cost bid. It's a scheme which only works if every participant in the market has complete information (see economics theory 101). A very smart grid and a very smart forward option market (IMEUC) is the only way to implement it fairly.

    (forgot to put in above "only works if every participant in the market has complete information, but at present, customers, who are the largest participant group in the market, have no information."

    Most of the politicized planning of the electric system is based on knowledge that energy prices have no where to go but up. Way up. Funny thing is that once again, as in the 1980s, these forecasts have proven wrong. Natural gas generation sets the price of electric energy and natural gas prices are becoming benign. It seems engineers working in energy supply have aced the policy set. Malcolm may experience the bruises of a pioneer, but some of us in Ontario and California will be happy to join him when it gets a bit easier. Just think, the policy people may have finally found a way to jump start DG, run up the fixed costs of the grid and price it out of the market. Quite an accomplishment.

    Malcolm, have you thought about sharing your generator with a neighbor or two? You could probably get some nice economies of scale with a little non-grid grid (named after the non-bank banks of the 1970s).

    Messrs Amorosi and Rawingson,

    Clearly, this and other topics of conversation concerning numerous, ever-rising costs of living are going to be emotionally charged and in many cases, down-right maddening. I am a 3rd generation electric utility guy, I left right around the time California was shoved into that sausage-grinder some people referred to as deregulation. I left under very favorable conditions, but felt that under the circumstances I needed to learn my way in the real world vs. the world of a guaranteed rate of return. I only write the preceding to establish (at least) a little credibility and understanding relative to what I am going to attempt to communicate.

    Throughout the nearly 20 years since I jumped from the utility, I have been a contractor / vendor providing a variety of services either directly to a utility or their customers. My entire career at the utility and most of the time since was spent in various electric transmission and distribution functions. I can communicate with absolute conviction that maintaining a complex network of equipment, wires and cables, meters, vehicles, buildings and people for over 100 years is no small task. When outside influences (fossil fuel prices, regulators and politicians) control as much or more of a company's destiny it's no small wonder that our electric grid works at all. I am certain that if our utilities were allowed to operate with minimal yet reasonable regulatory oversight, significant advances in things like distributed generation and renewables would today be a ubiquitous as streetlights or stop-signs.

    The utilities have however, been allowed to promote a few creative cost and reliability containment solutions and in my humble opinion Demand Response sits in on the pole position as the odds on favorite for delivering benefits to all stakeholders equitably. I jumped from the supply-side to the demand-side almost solely due to the impact DR had on me in 2005 when Automated Demand Response entered onto the scene. Early estimates (that have held-up since) were that DR programs would be a significantly cheaper means to manage the stresses on the "grid" than continuing to build generating plants used only to satisfy peak demands and rebuilding millions of miles of conductors that would be under utilized all but a few weeks a year. Very, very costly for all. I've read studies indicating that even the most generous DR programs cost less than 30% of the the "build for the peak" strategies. In California, the I.O.U.s are doing an amazing job offering and administering numerous DR participation programs to their customers. Including, Automated DR wherein the utility customer is provided with engineering support and generous project related incentives for integrating technologies that enable that customer to curtail our cut-back their consumption of electricity reliably when the need is highest or in response to pricing signals. Everybody comes out way ahead of where they started.

    I absolutely do not want to impune nor challenge your rights to concern and anger for the points you both communicated. I do however respectfully request that you take the time to research DR programs and the feedback the programs are garnering. I believe you will both be relieved to learn that with DR, everybody got it right.

    Respectfully,