Very enlightening and exciting article. As a resident of Ontario near the City of Hamilton, I couldn't help but notice your company EnerNOC is the party contracted by our Ontario Power Authority (OPA) to run its demand response programs for industrial, commercial, and businesses looking to participate. Congratulations as I understand the OPA is very happy with your work and its technology, and the significant uptake of businesses participating in our province. As you say, Ontario has a total power demand capacity of around 27 Gigawatts, comparable to New England's.

I have a keen interest in the future of real-time in-home technologies to help residential consumers adopt demand responses to promote conservation, lower energy bills, and better manage energy uses. However the AMI systems' smart meters being deployed in Ontario are being orphaned because they are not generally being equipped with communications options for customer interactions, like the Zigbee radios for example. Although AMI providers can and do make available radio technologies for in-home equipment to talk directly to an AMI network instead of directly to their meters, I fear most utility companies will not permit this because the AMI networks are not designed with the capacities to handle substantial numbers of in-home devices communicating with them, simultaneously or even randomly in large numbers. Worse, the capacities of the AMI networks will quickly be used up if, as many in the industry predict, these networks will form the backbone for upcoming Smart Grid applications of grid infrastructure asset monitoring, control, and outage management.

Furthermore, who will fund DR programs on a wide scale with consumers? Presently our OPA runs a residential DR program with communicating thermostats (through the old radio pager system) funded entirely by the government paying utility companies to procure, install, and control the thermostats. Can we really expect governments to fund mass expansions of such DR programs to other in-home devices built around Smart Grid?

Any comments on this would be appreciated.

Bob Amorosi, M.Eng. Electronics Design Engineer

Your paragraph “Many of the exciting applications that the Smart Grid will unleash challenge existing paradigms -- one where utilities have financial incentives to build power plants rather than avoid them, and to sell power rather than save it. Will third parties, the drivers of Smart Grid innovation, be placed on an even playing field with utilities when it comes to regulatory matters involving access to information and financial incentives?” is begging for that existence of a market architecture and design paradigm to enable a reform of electric power markets. The answer can be found in the article EWPC as a Timely Basic Innovation.

First, the only reason the notion of demand response exists at all is because we treat electricity differently from other goods and services. When was the last time you heard about a demand response program for gasoline or food or any of life's other necessities. Even when the price of gasoline was soaring because demand was outstripping supply, no one talked about limiting demand, and no one even considered paying motorists not to drive.

Second, the idea that we should pay customers for using less of a good they don't take title to ahead of time to strikes me as a little silly, unless of course one assumes there is an implied entitlement to as much electricity as we can use. A corollary point here is that we can only estimate how much less a consumer uses, which means we're paying for something that cannot be measured directly or terribly accurately. If an estimated load in the absence of any curtailment is accurate to within plus or minus 4 percent and the estimated load reduction amounts to 25% of measured load, then the estimate is in error by as much as 16%. Gaming is also a challenge. One of the most difficult problems faced by regulators and grid operators is how to structure demand response program rules so that customers are only compensated for real performance without also penalizing them when they do perform.

In fact, demand response, especially in the service areas of utilities that are part of an organized market, should really be price response, and it is something we should expect customers to do in the same way they make decisions and tradeoffs regarding the other goods and services they buy. Customers should by default be required to pay the prevailing wholesale price unless they sign up for a fixed-price or other alternative, and preferably one that includes a fixed volume commitment.

At that point firms like EnerNoc can provide enormous value by helping customers identify opportunities to install capital equipment, modify business processes and manage operations around wholesale prices, no matter what kind of supply contract they have, in ways that appropriately balance the benefits of reduced energy consumption against the costs of achieving those reductions. Customers who do respond would benefit by paying less overall for electricity than they otherwise might rather than being paid to do things they should be doing in the first place. Customers who don't or won't or can't will be a little better off because existing demand response subsidies will disappear.

The current "pay for performance" programs also have some perverse incentives built into them. For example, customers with existing thermal storage systems have a difficult choice to make between operating the storage based on time differentiated or dynamic tariffs, and operating storage only in the limited number of instances where the utility calls for response on a hot day or in some other emergency circumstance.

Finally, I think most of the "smarts" in any smart grid scheme needs to be at the periphery of the grid and not in the grid itself. Smarts should start with consumers - Grid Smart consumers - who can choose from a wide variety of products and services to help them more effectively manage their energy use and their energy bills. With the right legal and regulatory framework and properly designed rates, EnerNoc and similar firms will find lots of receptive customers asking for help.

Your last comment paragraph is priceless. Research has revealed in study after study that consumers are interested to the point of paying something for help in better tracking and managing their energy bills.

Electricity has always been a bargain as compared to other forms of energy like gasoline, so it is understandable few value much the concept of paying someone to use less as in demand response programs for electricity, let alone gasoline. However when gasoline prices spike, demand responses really do happen – some people change their habits by driving less. But what would happen if severe shortages developed for gasoline along with price spikes? I'll bet there are some policymakers who shudder at being given the task on how to manage such a crisis, as in what tools the government might use. In electricity, shortages in capacity to meet peak demand in some places, and large increases in rates are both looming large.

The problem in the utility industry is no one trusts consumer changes in behaviour can keep the grid operating reliably, so the utility industry demands control over any consumer demand responses. And of course the industrial and commercial customers have the biggest return, so that's why residential consumers are typically last on their priority list.

It wasn't my intention to disparage EnerNoc's business model. Instead, I wanted to point out that its fundamental basis - paying customers to respond - is likely to disappear in the next few years. This is becoming very clear in California where the California ISO is attempting to bring all DR programs under its wing and require customers to make offers for demand reduction that are comparable to supply offers from generators. Even this change is probably a transition step.

The whole Smart Grid initiative needs more focus and its proponents need to set realistic expectations. Right now Smart Grid is everything to everyone. Smart Grid should be about needed improvements in the high voltage and distribution networks upstream of the customer meter to the extent costs will be socialized in bundled rates. Everything else should be placed in a separate initiative with the expectation that it will have to be sold individually to customers instead of allowing utilities to install equipment where customers agree to allow it and then socialize the costs.

I agree with Bob that energy is relatively cheap as a fraction of household income, household expenditures, or any other reasonable metric. It makes no sense to promote conservation and energy efficiency on the one hand, and keep energy prices unrealistically low on the other. I think current policy has as much to do with limiting supplier earnings as it does keeping rates low for political benefit. Eventually that contradiction has to be resolved.

As for the virtues of the much-touted Vehicle to Grid concept, watch this space. For other than relatively small amounts of energy, it is not practical and at some point I'd like to explain why.

I've been asked by the California ISO to participate in a survey they're conducting to comply with the part of FERC Order 719 that requires them to identify "barriers" to DR. There are 40 questions and I'm preparing a lengthy, brutally honest written response even though this is supposed to be a phone interview.

This mess will eventually get sorted out, but probably not until my next lifetime.

As I mentioned in the article, we firmly believe that getting interoperability and incentives correct is critical as we move ahead with smart grid development. While the combination of these will mitigate the issue of ‘orphaned’ meters (interoperability speaks for itself and the right incentives will motivate utilities to maximize efficiency), it is also important to note that communications between the meter and appliances alone aren’t the answer across all customer classes. While a smart meter connected to a smart dishwasher will deliver load control in the home, more advanced business processes in the C&I space will always require an expert understanding of specific practices and equipment.

If and when the smart grid exposes demand to the underlying wholesales prices of electricity, we will see gains from efficiency beneficial to all constituencies. But, there are a couple of important distinctions I’d like to make that are pertinent to some of the comments on this thread.

First, it was pointed out that we treat electricity differently than other goods such as gas and food. I absolutely agree, we do, but I think the unavoidable challenge when it comes to electricity is storage - today we can’t store electricity the way we can store gas or food. And while storage costs are falling, it remains to be seen if we’ll ever have storage capacity sufficient to prevent supply / demand imbalances. Additionally, from a system planning standpoint, we believe that regardless of dynamic pricing, peaking resources will continue to provide value. Price responsiveness is voluntary in nature, and therefore shouldn’t be counted on like a mandatory, capacity-based resource. On the other hand, aggregated, dispatchable C&I DR programs where 3rd parties takes responsibility for delivery act as a last line of defense in the face of emergency conditions for RTOs and IOUs across the country today.

Second, while opening retail customers up to the fluctuations in wholesale price will deliver significant efficiency benefits, it is important to note that wholesale markets themselves lack true dynamic and unrestricted pricing. In fact, due to price caps in wholesale markets, capacity payments are used to incentivize investment in supply resources in order to ensure capacity availability at times of peak demand. So even in a system where retail prices are allowed to fluctuate in response to wholesale prices, capacity resources will continue to play a role.

Interestingly, we don’t look at the California ISO transition as the elimination of DR. Instead, we believe that with rigorous measurement and verification practices, two-way communication, and the proper alignment of interests, demand response delivers a reliable resource that can and should participate in RTO and IOU territories in a manner much the same as peaking supply. ISO New England’s Forward Capacity Market is an example - just because demand response is integrated into a supply market does not mean it disappears. In fact, demand response capacity is counted on by the ISO to deliver firm capacity in the face of system reliability issues, the same way peaking supply is.

I appreciate the commentary and feedback. There are a number of interesting points on this thread and I look forward to working through these and other challenges as we push forward with development of the smart grid.