Nicely written article to describe in laymen’s terms the principles of electricity grid operation and in particular how LMP is designed to work. The dilemma of how to make demand response commercially viable is a huge problem I have been commenting about to many articles on this website for months now.

Demand responses (DRs) by individual customers requires new technology under the intimate control and, most importantly, individual ownership of a local distribution utility company and the customer. But any one DR on any given day benefits everyone on the grid much more than it will probably ever benefit any particular customer or benefit the utility company. So this begs the questions who should fund the DR technology within the grid and inside customers’ premises, and secondly then how do you get customers to use it and produce repeatable reliable DRs over time.

The key roadblock to implementing DR systems on a widespread basis, especially in a timely manner, is exactly the mandate of regulators cited by another article on this website - "State regulators are required by law to ensure that any new energy programs result in just, reasonable and affordable rates,". This is because the cost of implementing DR on a wide scale would result in draconian rate increases that are at least politically unpalatable, and likely far from affordable, unless of course it is rolled out painfully slowly over many years, perhaps even decades. The answer to this dilemma, in my humble opinion, is widespread regulatory reforms that would allow utility companies to make additional income over and above uniform rate base income. This might entail permitting utilities to become the ‘Home Depots’ of energy efficient appliances and new consumer demand response devices. Alternatively it could be simply offering consumers energy data services for an extra fee on the their utility bills where real-time prices or DR requests are fed through their AMI systems to communicate with consumer Home Automation Networks (HANs). Another scheme might be to reward individual consumers with rebates who regularly practice DRs, where each DR is verified by the technology communicating back through the utility's AMI network or the internet to the utility, e.g. reporting that a load has actually been shed by a customer instead of it simply not being turned on before the DR request was issued.

Another futuristic and revolutionary approach to solving this economic problem could be to adopt some form of the Independent Market for Every Utility Customer (IMEUC) proposed on this website by Len Gould. It would foster a public culture of widespread energy efficiency and conservation by including real-time prices exposed to all consumers, and consumer-controlled demand responses in HAN environments, among other things.

Until there are substantial regulatory reforms, utilities have no easy way to fund the widespread deployment of DR technology within their grids to serve all their customers without applying for unpalatable rate increases. And without the grid technology deployed, customers cannot implement any of the technologies within their premises to use it even if they are made aware of its existence elsewhere.

Bob Amorosi, M.Eng. Resident of Ontario Canada

The internet works for very different reasons than energy supply and demand. For a few energy intensive but capital light manufacturing and service industries, price signals might drive schedules as long as it fits the bottom line. But there is generally a positive correlation between capital intensive and energy intensive industries, just as there is a negative correlation between wind energy's production and humanity's schedule of demand for it. The result: ultra-high subsidy, ultra-high waste and tax dollars being marginalized twice - once by law makers, and then again by wind energy facilities which would sell their product during times of lowest demand, at a negative price. After all, they can still keep some of the subsidt as long as they are the preferred source despite their inability to compete by modern standards of reliability - not to mention free markets.

Slice the bleu cheese any way you'd like. It still isn't that ideal shade of green, and ultimately, it crumbles.

The internet is only a potential near-real-time network communications tool for people to balance supply and demand, the internet itself cannot do so all by itself. In case you haven't noticed, balancing supply with demand already happens because a qualified few people do it in real time already, and probably make use of the internet every minute of the day to email and communicate with each other in neighboring utility jurisdictions.

I hate to disappoint you but the shades of green are not going to change color, like it or not, because governments on a grand scale will not stomach allowing total energy consumption to continue growing into the future nor do they believe the public or the earth's climate can afford to continue building many large central generation plants in coal or nuclear as we have before to meet this demand growth.

If I were you, I would start getting to like the color green because we are all going to see a lot more of it appear in our lifetimes.

Interesting article on demand response. DR could work in both directions, a customer decreasing their demand when there is an excess of demand in the grid or a customer increasing their demand when there is an excess of supply over demand in the grid. End-use energy storage (thermal or electricial) could be used to support DR in both cases.

Michael Winkler Redwood Coast Energy Authority Eureka, CA

Awesone question in your freezer example, I never thought of that coming up in a customer's mind set but it is a very real possibility.

Time-Of-Use billing that is imminent with smart metering is only meant to encourage load shifting, it doesn't actually force it upon anyone, at least not with mild the peak-to-off-peak price ratios being planned. And it appears we will all be exposed to TOU billing long before any DR payment programs ever get implemented, if they ever do. Now if some customers get into a continuous habit of routinely load shifting to off-peak hours under TOU billing, they then would have no significant way to benefit from DR payments in future if DR payments are introduced unless they do precisely what you describe in the freezer example.

A similar dilemma exists for customers who have already invested in conservation and efficiency upgrades because if down the road governments offer (more) financial incentives to consumers to buy into them, there won't be much more that these consumers can do, and will be effectively shut out of the incentives. In fact this is already happening with a minority of consumers. Indeed this may be what government are hoping will happen because it will cost them less money if they can minimize the number of customers who actually get the incentives.

I have a suggestion to encourage strong take-up of DR using some payment scheme while avoiding fostering abuse that would diminish load shifting to off-peak - utilities could continuously use the historical records of customers in setting individual DR payments. In essence if any one customer’s daily consumption patterns over time reveals they are practicing your freezer example, simply lower their DR payments until his patterns reveal sustained load shifting. But then this conjures up the scary notions (to some) of non-uniform billing practices that fly in the face of fair and equal price regulation with the same prices for all customers, and the daunting task of having your utility analyze everyone’s historical consumption patterns.

It’s a tough problem to solve without some sort of regulatory reforms that I have been preaching on this website.

Of course your IMEUC reform proposals would be another suggestion to avoid the problem.

I think its possible that your suggestion, though it works, could be more confusing for (esp. retail) customers than IMEUC, and possibly more complex and costly to implement.

The key issue when evaluating new market tweaks such as the article proposes is to sit down and figure out where are the financial incentive vectors pointed for the customers, the builders, the building owners and the maintenance contractors. In general, tweaking away at a bad market design (TOU metering etc) generally results in a hodge-podge mess of a market "system".

I agree TOU metering is likely not going to generate the amount of load-shifting results that it is widely expected to. It is totally centered around deploying basic TOU smart meters but nothing else in terms of market changes or other technology for consumers.

Some large utilities in California and I believe Texas are mandating that smart meters be deployed with built-in communications interfaces for future in-home DR technology, but it will many years before it is in widespread use. Worse, there are many other places like Ontario that have not or are not planning on doing so.

In general yes I agree there are many ways that government efficiency upgrade incentives can be abused. Even residential home builders put the cheapest least efficient lighting because they want a home buyer to pay them sharply marked-up prices for fixture "upgrades", so as to make huge profits at the expense of consumers.

Also, watch for governments to eventually ban the cheaper inefficient lighting, and many other products, from commercial sale over time as a way to force everyone into efficiency upgrades. In effect they will set much broader market rules than simply altering electricity markets to get the results they want down the road.

Demand Management will continue to generate political pushback as its realities hit home to people. In what other market do suppliers charge some customers to recompense other customers to NOT use their product?

A looming danger is that the rationing system will become even more corrupted by political influences. We already see "alternative energy" production subsidized by both rate payers and by tax payers. It is clear that the key to obtaining such rentseeking is to buy off politicians. That corrupts our government.

The better answer is more base load generation so customers can use what they are willing to pay for.

This is double talk of the "1984" political sort..

"Empowering the customer" describes giving customers tools and more time-sensitive energy price information to manage their energy bills. It also describes allowing the final decisions to rest with individual customers as to whether they want to shed loads in demand responses, or practice load shifting under Time-Of-Use billing. Foisting DR programs and TOU billing on all customers may indeed be involuntary rationing on the whole utility grid, but the choices whether to participate are still left up to each customer.

Be thankful we aren't being FORCED to participate where in a true 1984-type society our utility companies might heaven-forbid directly control customers' loads, as in the communicating thermostats example.