Demand Response, Energy Efficiency & the Environment: What’s the Relationship?

1. Demand Response, Energy Efficiency & the Environment:What’s the Relationship? David Nemtzow U.S. DRCC Webinar November 17, 2006

2. Today’s Presentation • Does DR decrease, increase or not affect overall electricity usage and energy efficiency? What factors are most relevant? • How does DR affect electricity’s environmental footprint? What factors are most relevant? • How well can the above be quantified? • What are potential next steps regarding DR’s contribution to Efficiency and Environment?

3. Key Distinctions of DR and EE

4. Basic DR Approaches Alter cycling regime Examples: • HVAC, especially air conditioning • Metal melting • Other thermal (e.g. hot water, refrigeration) Shift to off-peak hours Examples: • Appliances, equipment • Water pumping (swimming pools, agricultural, municipal) Shut off completely or dim Examples: • Lighting • Fans

5. n = 1,037 Typical Commercial Building DR California, multi-site building owners, source: ICF 2004

6. Rebound/ Payback Pre-cooling/ “Prebound” Schematic of Typical DR Source: Chris King, eMeter Corporation

7. Questions and Latest Answers • Are time-varying pricing and DR programs conceptually sound from the standpoint of economic theory? • Yes, they are • What kind of benefits can they deliver to the utility and its customers? • When properly designed and implemented, they can deliver benefits both to the utility’s customers and to shareholders Source: U.S. EPA Study performed by Energy & Environmental Economics, July 2006 http://www.epa.gov/cleanenergy/pdf/surveyoftou_july06.pdf

8. Questions and Latest Answers • What are these programs’ likely load shifting and conservation effects? • While time-varying pricing and DR programs can reduce peak load and induce load shifting, their conservation effect is mild • Do they offer load relief that can resolve system and/or local capacity constraints? • Yes, they do • What real-world applications of these rates and programs are found in the electricity industry? • Real-world applications of some types of time-varying pricing and DR programs are numerous, indicating that they are not excessively costly or difficult to implement Source: U.S. EPA Study performed by Energy & Environmental Economics, July 2006 http://www.epa.gov/cleanenergy/pdf/surveyoftou_july06.pdf

9. DR Impact on Consumption and EE Positives • Not just load shifts but often complete cuts • Awareness and feedback • “Double duty” of technologies and practices • Contributions to supply-side efficiency • Enhanced attractiveness of DSM to consumers (dual benefit stream) Negatives • Performance erosion if thermal • Newly lowered prices can lead to greater consumption • Competition between DR and EE for money, attention or other resources Bottom Line • Usually DR cuts overall energy consumption  data suggest 4+% average cut • DR and Energy Efficiency are siblings  is it a “family business”? Is “counseling” needed?

10. DR & Consumption: Positives • Not just load shift but often complete, non-rebounding cuts • Lighting – with DR it’s dimmed or partially turned off, not shifted to off-peak hours • Air conditioning in office buildings – it may be turned down near end of work day and not fully re-cooled • Energy awareness and feedback provided by DR, and vice versa • Audits – often make EE discoveries • Advanced meters and In-home displays – “Prius effect” • Web-based information systems – engages decision makers

11. Positives (2) • “Double duty” of DR technologies and practices, and vice versa • EMCS, lighting controls and other remote and automated controls • Behavior • High efficiency lighting and air conditioning • UK and EU using advanced metering as climate strategy • Contributions to supply-side efficiency by lessening use of marginal generation, T+D • Last-dispatched plant/s typically high heat rate • Marginal I2R effect on T+D

12. Positives (3) • Enhanced attractiveness of DSM to consumers due to the now-dual revenue and benefit stream • Most customers don’t care about DR-EE distinction, they just want to save money/energy/environment with minimum of any downside(s) • Special role for 3rd party providers, esp. ESCOs and DR aggregators • Opportunity for utilities, government, DSM advocates to successfully reach more consumers (in general and in policy settings such as PUC proceedings on EPACT 1252, Nat’l Action Plan for EE)

13. DR & Consumption: Negatives • If affected application is thermal there may be thermal erosion • HVAC, hot water, comm’l refrigeration, etc. • Can be mitigated (e.g. better insulation) and even eliminated (e.g. alternative technologies or regimes) • Newly lowered average prices will lead to higher consumption (“snapback”) • Depends on customers’ price elasticities • Theoretically valid but not documented

14. Negatives (2) • DR and EE may compete for money, attention or other resources (at utility companies, with government/regulators, even customers) • Public benefit funds or other zero-sum resources • Energy management time • Other side of the DR-EE synergies described earlier

15. OK, Now how about the Real World? • Experience to date indicates clearly that DR reduces total electricity consumption. Savings are predominately during peaks. • Meta-study of >100 DR programs found they cut energy consumption from >20% to -5%(King and Delurey, 2005) • Dynamic Pricing programs: average 4% total energy savings • Customer Feedback programs: ave.11% savings (EPRI Solutions: 4-15% savings in most programs studied) • Reliability programs: ~0.2% (est.)

16. Conservation Effect of Feedback programs Source: King and Delurey, Public Utilities Fortnightly, March 2005

17. Real World (2) Real-Time Pricing(“Energy-Smart Pricing Plan”, 1,400 Chicago residences, 2003-05)3-4% savings • Surveys indicated that participants were consistently buying EnergyStar when replacing appliances more often than the control group • Automated Demand Response System(California residences, 2004-05)several% (summer months) • Critical Peak Pricing(Gulf Power Good Cents Select) 3.8% savings • Real-Time Feedback(Hydro One, 500 homes, 2003-2006, in-home display but non-differentiated tariffs)6.5% savings • Feedback/Smart Metering/RTP(Country Energy/Bayard Group, 200 homes in NSW, 2004-present)~5% savings

18. Rebound/ Payback Pre-cooling/ “Prebound” Schematic of Typical DR Source: Chris King, eMeter Corporation

19. Experience Resembles Theory California ADRS Data R E “Are Smart Homes More Efficient? Energy Impact of California’s Residential Automated Demand Response Program” Katherine Wang, Joel Swisher, Rocky Mountain Institute

20. California ADRS Data (con’t.) (same source data as previous slide)

21. DR impact on the Environment • Conservation effect described earlier lessens environmental impacts • Load flattening defers and/or avoids need for some transmission lines, powerplants • DR fits well with intermittent renewables • DR alters generation/resource/unit mix

22. Supply Curve for all PJM Firms (4/1/99) Source: Stephen Holland and Erin Mansur, The Energy Journal, 2006

23. DR & Environment (2) • Alters generation mix, by fuel and by unit, as • On-peak units down; off-peak units up or flat • Fuel types (often oil and gas decrease; coal increases) • Older, marginal units • Emissions footprint • CO2 • Ambient: SOx, NO2, particulates, toxics • Time of pollution and smog/ozone formation • Ozone Transport Commission activity • Localized impacts  Will be utility/system/time-of-use specific

24. “Modeling Demand Response and Air Emissions in New England” Synapse Energy Economics DR will lessen emissions in certain cases EE will lessen emissions in more cases (N.B. these are modeled results, not data)

25. Potential Options regardingDR & Efficiency/Environment • Examine the impact of DR programs/tariffs/ incentives on efficiency and environment, and vice versa • Time-of-use and value of savings • System-specific environmental impact estimates • “Double duty” and synergies of feedback/awareness/ communications, including advertising, metering, displays, web-based, other • “Double duty” policies, including: • Building codes, and related (e.g. California updated Title 24) • Smart appliance market transformation • Time-of-use pricing • Reliability measures

26. Potential Options (con’t.) • Examine DR’s (and EE’s) potential impact on: • load growth and deferral of supply-side resources • dispatch and emissions profiles • Explore EE and DR contributions to pollution implementation plans • Examine DG’s place in pollution trading schemes • Utilities and government work with manufacturers, vendors, ESCOs, aggregators, etc. provide both DR and EE • Review “silo-ing” within utilities and governmental agencies • DR and EE together are more attractive than either alone: • ensure customers know that • ditto re: regulators, policymakers, utility management, and everyone else who needs to know

27. Questions, Comments, Observations, Suggestions? David Nemtzow david@nemtzow.com 310-622-2981