The Brattle Group published a presentation in December 2018 on the future of demand response. It was well done. Check it out here. In the presentation, they argue that, as renewable penetration grows, more battery storage and demand response (DR) will be needed to facilitate the integration of renewable energy into the grid. Batteries and DR can address renewables’ intermittency issues, ramping challenges, and over-generation problems. But, this grid integration support will be need at all hours of the day and traditional demand response and demand response programs are not set up to provide these services. Traditional demand response from the past several decades has relied heavily on load reduction from C&I facilities and some backup generation. Because of this, and because C&I customers need consistent program parameters due to the impact DR has on their operations, it hasn’t been very dynamic. Typically, demand response has been used for reducing the highest peaks (economic DR) and for emergency response for reliability (emergency DR). Residential DR, primarily through smart thermostats or hot water heater control, has picked up over the past few years thanks to Nest and others, but is still a relatively small portion of total demand response and is often predefined with fixed parameters. The Brattle Group says “Once a rapidly growing resource, conventional DR is reaching a saturation point in markets where load growth has stalled.. to support the dynamic grid of the future, more flexibility is needed.” Whether this new, flexible response is called “demand response 2.0” or something else, it requires many more resources participating in a dynamic, continuous way and a robust data infrastructure to support it. In order for this to happen, we’re going to need 1) smart energy devices capable of receiving instructions and responding consistently, 2) a way to track and incentivize the participation of these devices, and 3) the ability to share data transparently but securely.
The smart device revolution (#1) is well underway. Residential and C&I customers have become increasingly sophisticated and interested in energy management and have been purchasing devices that help them control their energy usage. Frequently, the vendors of these devices will sell directly to consumers and then attempt to work with a given utility in an area where many customers have adopted their devices to sell grid services back to the utility. Nest is a perfect example of this. So is Sunrun.
Blockchain technology is particularly well suited to enable #2 and #3. For example, Electron is currently working on projects in the UK to deploy a standard data reference and permissioning service to increase data transparency (#3) , and 2) improving market design to maximize customer engagement and participation (#2). Markets are a key piece to correctly incentivize behavior. The Brattle Group says that the “aggressive pursuit of price-based programs can lead to the largest amount of demand response.” Dynamic price signals are the right approach, but the best way to disseminate those is not through a tariff or rate structure but with a market. This gives you the flexibility to design the participation parameters to meet the needs of the particular region, and allows utilities to procure a variety of grid and ancillary services like demand response, spinning or non-spinning reserves, regulation, etc. As Brattle Group says “DR 2.0 will be used to address a range of power system management challenges, not just to shave the peak.”