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Biofuels: The Promise of the Next Generations

Feb 10 2010 - 1:00 PM Eastern - Your location

The second wave of biofuels such as cellulosic ethanol, algae and others bypass the food vs. fuel controversy and are on the cusp of commercialization. This webinar will review the latest developments in the advanced biofuel space with leading companies more...

Conducting a distributed chorus

Feb 17 2010 - 12:00 Eastern - Your City

Join Intelligent Utility managing editor Kate Rowland, along with a panel from PHI including Rob Stewart, manager of technology evaluation and implementation, and Todd McGregor, AMI director, for an interactive discussion about this company's work to build a more intelligent more...

21st Century T&D: Building the Transmission Piece of Smart Grid

Feb 18 2010 - 12:00 Eastern - Your City

Join industry leaders and Marty Rosenberg, Editor-in-Chief of EnergyBiz magazine, for an interactive discussion about the critical relationship between transmission and distribution (T&D) investment and smart grid success. As the energy enterprise gets smarter toward the consumer end with smart more...

Transforming the Electrical Grid: Addressing Transformation Strategies to Implementing A Smart Grid

Feb 25 2010 - 3:00-4:00pm Eastern - Your City

This webcast should be attended by those individuals that are responsible for identifying, planning and evaluating Smart Grid solutions, including those that empower and engage consumers and are easily assimilated with existing or new technology and business processes. more...

Smart Grid Revolution

Feb 18 2010 - Feb 19 2010 - AUSTIN, TX - USA

ACI's Smart Grid Revolution February 18-19, 2010 A two day strategic event bringing together utility professionals, government & state officials & consultants involved in deployment of the smart grid. To learn strategies which will improve energy efficiency programs & operations, more...

EnergyBiz Leadership Forum 2010: Energy's Emerging Architecture

Feb 28 2010 - Mar 2 2010 - Washington, DC

In 2009, a global economic meltdown collided with an energy crisis to turn the world on its ear. In the United States we've witnessed an unprecedented spending on energy resource development and infrastructure. As a result, a new energy architecture more...

CERAWeek 2010

Mar 8 2010 - Mar 12 2010 - Houston, TX - USA

CERAWeek, IHS CERA's 29th Executive Conference, is recognized as a leading forum offering insight into the energy future. Each year senior policymakers, energy and power executives, and financial and technology leaders from over 55 countries engage with CERA experts in more...

2nd Annual Thin Film Solar Summit Europe

Mar 17 2010 - Mar 18 2010 - Berlin Germany

The conference will provide a comprehensive analysis of the thin film industry and its key challenges in an interactive manner. Leading companies will share their experiences through panel debates and high-level presentations. A great opportunity to network with the whole more...

Gas and Electric Business Understanding Seminar

Feb 24 2010 - Feb 25 2010 - New York, NY - USA

Gas and Electric Business Understanding provides a comprehensive overview of the natural gas and electric industries. Position yourself for career success by gaining a solid understanding of how each business works, including key physical, market and regulatory aspects, as well more...

Gas Business Understanding Seminar

Mar 1 2010 - Mar 2 2010 - Houston, TX - USA

Gas Business Understanding provides a comprehensive overview of the natural gas industry. Position yourself for career advancement by gaining a solid understanding of how the gas business works including key physical, market, and regulatory aspects and how market participants navigate more...

Electric Business Understanding Seminar

Mar 3 2010 - Mar 4 2010 - Houston, TX - USA

Electric Business Understanding provides a comprehensive overview of the electric industry. Position yourself for career advancement by gaining a solid understanding of how the electric business works including key physical, market, and regulatory aspects and how market participants navigate this more...

Gas Market Dynamics Seminar

Mar 3 2010 - Mar 4 2010 - Houston, TX - USA

Gas Market Dynamics offers participants an in-depth understanding of North American natural gas markets and how they function. Enhance your career by furthering your knowledge of market structure, supply and demand, services offered in gas markets, and how various participants more...

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Demand Response


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Who Is Not Responding To Demand?
4.14.09   Amatsia Kashti, CEO, Oxford Data Management

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    While the price of crude oil slumped to a five-year low this winter, energy costs for the home are likely to remain high and many households will have made painful decisions regarding their heating budgets.

    It is tempting, therefore, to call for the extension of the energy market functions -- already enjoyed by medium and large enterprises -- to small businesses and private homes. This competition model managed to reduce energy bills for large users by nearly 50 percent since the 1990s, and a similar move towards the rest of the market could, on the face of it, offer a positive outcome.

    However, there is an inherent conflict between energy competition and energy conservation: a meaningful competition will inevitably reduce prices, which will in turn increase the propensity to consume more. This conflict needs to be addressed prior to any reformation of energy markets.

    This article reviews the conceptual and practical aspects of widening demand response systems to small users.

    Energy demand is currently analyzed almost uniquely from the suppliers' side. Demand response, in this context, is considered to be the reduction of customer energy usage at times of peak in order to allow smoother generating operations.

    The reverse process, where suppliers respond to real-time market conditions by altering prices, is never even considered. Price of energy is determined by stock exchanges based on production alone. Our demand for energy is assumed to be infinite and completely elastic.

    Events of the summer 2008 seemed to have reinforced this hypothesis. Prices doubled within months not because the demand suddenly doubled but because the perceived inability of suppliers to provide for existing and long-term forecasted demand. Responding to this change, according to the definition above, should have reduced consumers' demand by half and allowed the market to readjust. In practice however, energy demand and prices collapsed in the autumn due to malpractices of the global financial sector and the inflated prices of U.S. properties.

    Having established that oil prices alone did not affect demand during that period, it would be reasonable to assume that demand is unlikely to change now that energy prices coming down. Consumers are not about to overheat their homes or workplaces, drive or fly farther or operate their air-conditioning or machinery for longer.

    A different scenario is difficult to sketch under the current market structure, but it is tempting to hypothesize a demand response where consumers respond to demand rather than forecast production.

    One of the reasons demand for energy is not reflected in its price structure could be argued to be the result of market architecture. When a multitude of micro-units (in this scenario, households) form a substantial part of it, their ability to form a coherent trend is limited. Each unit consumes different energy at different times and in different proportions.

    While a large proportion of homes' profiles would probably fit a general pattern, e.g., less demand at night and peaks in the evenings, etc., it is the reiteration of the slight variations between the multitudes that could affect price. A few single kilowatts in a million homes could affect demand. However, these changes remain irrelevant to the overall pricing system because of its inability, so far, to aggregate it and translate it into a coherent meaningful demand structure at a speed that would fit the energy market.

    This ability has existed in the commercial sector for nearly 20 years. It does not affect the overall structure of the household energy market -- hence the inexistence of a real-price demand response. Suppliers can compensate their tighter margins on sales to larger users with the generous and uncontrolled yields resulting from their sales to non-responsive home consumers.

    In this context, Home Area Networking (HAN) plays a crucial role by using metering technology and communication infrastructure for accurate and timely aggregation. It is the first time that aggregating home users through their HAN becomes a real demand response tool. The ability of local networks to gather micro-information and communicate in real time to energy brokers opens new horizons.

    However, such development has its drawbacks. One of the most notable would be the inability of some suppliers to readjust themselves to the changing conditions, or face severe, if not fatal, consequences. Considering that many energy suppliers form some of the largest corporations in any state economy, such instability would have serious consequences on any financial system.

    Equally important, however, is the impact of such move on domestic energy consumption. Homes that are able to flex their demand muscles will, as described above, enjoy advantageous tariffs that can lead to increased demand. While commercial users calculate their energy demand as part of their operational cost and try to keep it to the minimum, research suggests that home energy consumption is rarely rationalized: most of us consume energy as much as we want to and when we want it, regardless of its cost.

    At a time of growing concern over finite energy resources and the effect of energy usage on climate change, it is difficult to advocate a change towards a system that may have at its core the encouragement of increased home energy consumption. While the savings to domestic budgets at a time of economic crisis may appear a positive relief, the long-term effects of such move are too complex to risk.

    The solution must consist of a combination of technology with new operational concepts. One example would be to tie all homes that are billed through their HANs into a voluntary agreement whereby their tariffs would only be traded as long as they maintain a certain consumption level.

    Alternatively, the information transmitted through the network should be used adjust tariffs to consumption levels. Government agencies could reward consumers who maintain low demand while allowing "wasteful" users' tariffs to be aggregated with less favorable customers.

    The deployment of HAN as a mean of introducing homes to the energy market, therefore, has political implications. The issue would have to be placed at the top of the energy agenda of any government for it to have the will to fight for it, and incoming administrations, such as the one now settling into power in the U.S., are particularly well-positioned to implement such a task.

    Such a scheme may prove politically challenging to promote, but beyond its obvious consequences it may also harbour unforeseen economic benefits. The failure of any government to act on it now will come to haunt us all in the future.

    For information on purchasing reprints of this article, contact Tim Tobeck ttobeck@energycentral.com.
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    Readers Comments

    Date Comment
    Len Gould
    4.15.09
    I strongly disagree with your unsupported assumption that small customers can only particpate in a demand management system through an aggregator. We should put that idea in fossil beds where it belongs. I now purchase mre computer power in a cheap camera than was available to the entire Apollo Moon mission. The world has changed dramatically as a result, but electric utilities think it is still the 1960's.

    Regarding your lament:

    "the inability of some suppliers to readjust themselves to the changing conditions, or face severe, if not fatal, consequences." -- And how much longer do you predict this "inability" roadblock to progress to last? Would you agree with my hazarded guess "As long as possible"?

    Amatsia Kashti
    4.16.09
    Len,

    I am not sure what you strongly disagree with – the fact that your individual power demand cannot influence prices, or that your monthly read meter is insufficient to allow you access to the energy market?

    As for the lament, it is not a lament, but a simple assertion that in a real competition, some of the less efficient suppliers who currently survive by charging you too high tariffs because you have no access to the market, will go under.

    Jack Ellis
    4.21.09
    Mr. Kashta,

    If your point is that a single residential (domestic) consumer acting alone can't influence market prices, I would agree. However, independent action by large numbers of individual consumers can and has influenced prices.

    The reason demand response has not been more successful is that is is based on the false premise that consumers can be persuaded to curtail their consumption by being paid to do so. As I have pointed out several times in recent Reader Comments, this won't work. Although the aggregate demand for electricity is believed to be inelastic, consumers will respond when prices rise to extraordinary levels, or when customers expect their bills will rise due to large increases in wholesale prices (SDG&E customers, fall of 2001).

    Customers won't respond until a) they have a way of monitoring their consumption, b) the price they pay, and therefore the cost they avoid by reducing consumption, is tied to the wholesale price of electricity. It's that simple, even though regulators and policymakers are doing their best to find other means that are allegedly less painful.

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