Demand response services are set for stormy growth as the amount of variable renewables in the electricity system increases, writes energy expert Fereidoon Sioshansi, publisher of the newsletter EEnergy Informer. Technology is no longer the obstacle, writes Sioshansi, regulation may be. He spoke with Pierre Bavis, founder of Voltalis, a successful Paris-based demand response provider.
Originally published in EEnergy Informer.
By Fereidoon Sioshansi
While there may be many disagreements about the future transformation of the electricity sector, there is universal agreement that most future networks will have increasing amounts of variable renewable generation. And as the percentage of renewables rises above some threshold, say above 50%, the grid operator will be challenged to manage stability and reliability on the network.
In the case of California, it is the well known California Duck Curve issue – referring to the rapid rise of solar generation when the sun rises in the morning and the equally rapid drop of solar generation at sunset. In this case, the grid operator must quickly ramp down all dispatchable thermal generation to make room for solar output in the morning, while reversing the process in the evening once the sun sets.
In other countries, notably Denmark and Germany, variable wind tends to play havoc as wind generation rises and falls and cannot always be accurately predicted.
Historically, grid operators maintained a sufficient number of flexible resources, mostly gas-fired peakers, to fill in the voids in the variable renewable generation. These resources are expensive to maintain, are polluting when utilized, and cannot perfectly make up for the fluctuations in variable generation. Batteries do a much better job of this but are not currently available in large scale on most networks.
This has created an opportunity for new players who can offer fast response to signals from the grid operator to ramp up or down flexible demand. It is nothing new, the essence of demand response (DR) or price-responsive demand – it goes by different names in different places.
But while the basics are well known and have been tried in many parts of the world, DR has not reached the state of maturity to contribute significantly to stabilize the grid or to substitute for polluting peaking generation. This, however, may be changing for several reasons:
- First, grid operators increasingly need more flexible generation and/or flexible demand as the percentage of renewables on their networks continues to rise.
- Second, the technology to monitor and manage customer demand continues to improve and the cost of doing this continues to fall.
- Third, regulators in more countries are beginning to realize that to maintain the reliability of future networks, new incentives are needed to enable flexible demand, distributed storage, and electric vehicles to more proactively participate in the market.
Voltalis is among the newcomers to fill this void. The Paris-based company, founded in 2006, aggregates and manages behind-the-meter customer assets. It monitors electrical appliances in homes and offices and delivers reliable, dependable, low-cost demand response (DR) services to the grid operator and/or to the wholesale market, as well as in the specific capacity mechanism. The company has attracted roughly 100,000 customers amounting to 300 MW of inexpensive capacity aggregated from roughly a million electrical appliances mainly in homes, but also in commercial premises, offices and various public and municipal buildings.
Describing the company’s business model, its founder, Pierre Bivas, says participating consumers essentially get free monitoring services and save energy, which reduces their monthly energy bill by up to 15%.
Voltalis installs the monitoring devices and manages them free of charge. Customers share the flexibility of their consumption – which Voltalis aggregates and operates at scale without inconveniencing them. It sells these services to the grid operator and/or in the wholesale market, which provides a revenue stream. It is a win-win-win with benefits for all three.
Initially, the French network operator, Réseau de Transport d’Électricité (RTE), agreed to test the scheme’s proof of concept in a trial. After a successful pilot project, where Voltalis demonstrated that it could effectively and reliably deliver capacity on demand, it gained confidence in the business model and the underlying technology. Voltalis’ distributed demand response accounted for more than 80% of the DR volume in the French market last year.
Moreover, Bivas explains that the scheme does not disadvantage non-participating customers, since Voltalis’ intervention reduces electricity costs for everyone. Offering DR is far less expensive than paying generators to provide peaking capacity or flexibility services to the grid — there is less need for polluting generation and/or for grid reinforcements.
So what’s the catch? As it turns out, the generators, especially those with expensive and inefficient peaking plants, end up losing revenues since their services will not be needed as often or won’t get paid as much as they used to before DR services became practical and affordable.
Despite occasional skirmishes with the generators who stand to lose as aggregated DR business models proliferate, Bivas is optimistic that his company and others offering similar services will eventually prevail. After all, they offer a superior service at lower cost. What is there not to like?
According to Bivas, after years of opposition from the traditional generators, the French Parliament ruled in favor of the scheme followed, more recently, by supportive directives from the European Commission, which is eager to support the rapid growth of renewables.
Now regulators across Europe are receptive to similar business models. Likewise, since 2008 the Federal Energy Regulatory Commission (FERC) has moved in the same direction in the US, forcing organized market operators to acknowledge the growing role of DR and – more recently – storage by allowing them to actively participate in the ancillary services as well as in wholesale markets.
FERC says demand-side resources should be allowed to participate in markets as an alternative to traditional forms of generation – on their merits and without undue discrimination – based on their net benefits to all consumers.
DR and storage, both newcomers to the electricity business, are slowly finding useful niches in which to operate and developing viable revenue streams. With supportive regulations, far more can be expected in the years to come.