Demand response landscape comprises diverse market.
The various components of the Demand Response (DR) sector collectively constitute a multi-billion dollar market in terms of annual revenue potential. The advanced metering infrastructure (AMI) subset of DR is the largest potential market in this space. Based on the announced plans of the largest 15 to 20 Investor Owned Utilities (IOUs) in the United States, KEMA estimates that about 40 million endpoints will become AMI-enabled over the next few years. At an average, all-inclusive cost of $150 to $250 for each AMI meter, the total range for the AMI market range would be $6 to $10 billion.
To better understand the landscape of DR providers, KEMA recently conducted a market survey and analyzed prevailing trends. Over 40 companies directly involved in DR were examined across numerous DR factors. Direct interviews and surveys were conducted with many of these companies, supplemented by secondary research. Some of the findings are included in this article.
Different types of DR
DR is generally defined as a temporary reduction of peak energy usage for a defined duration, with curtailment events triggered by either reliability concerns or high prices. However, a key conclusion from KEMA’s survey was that beyond this fundamental definition, there are many interpretations of what constitutes DR in the market today. This is based on a myriad of factors including technology, monitoring method, end-use customers, cost and benefits, etc.
Findings from the survey revealed that companies operating in the DR market typically fall into one of the following categories:
ISO/RTO market participants with/without utility contracts, including capacity and energy payments, day-ahead and ancillary services, demand response, and demand-side management.Software producers that enable DR.
AMI technology manufacturers that enable utility DR programs.Commodity purchasers—either providing advice on leveraging demand-side management and DR to improve commodity contracts, or providing software/services to advise clients on how to reduce usage.Providers of overall demand-side management services, including technical assessments and energy audits, incentive optimization, performance engineering, and project management.
Market size/market share
Assuming that peak demand is about 750 GW, and the DR market potential is upwards of 5% to 8% of the peak demand for reliability-based DR programs, the value of DR is somewhere in the range of 37 GW to 60 GW. Today, there about 20 GW of DR resources in North America (including about 8,000 MW that are actually operated), with a forecasted load growth of about 2% to 3% per year. For economic DR (e.g., price response, time of use rates), there is a likely market potential of about 5% of the peak as well. Thus, depending on how the market is defined, the total market potential for DR is somewhere between 30 GW to well over 100 GW.
New Jersey-based Comverge’s recently announced acquisition of Enerwise will likely position the combined company as the largest DR provider in North America. By purchasing Enerwise, which was solely focused on the commercial, industrial, and institutional market, Comverge gains about 950 MW of DR capacity under contract, along with management of renewable resources of more than 1,000 MW. Comverge will control about 1,400 MW of DR capacity, and enable about 6,000 MW of DR to 500 utilities. Perhaps more importantly, Comverge will expand its reach in the C&I market, where it will compete with Boston-based EnerNOC, Inc. As a stand-alone firm, Comverge had an 85%-15% split focus on residential vs. commercial customers, respectively.
After Comverge/Enerwise and EnerNOC, ConsumerPowerline also appears to have a strong customer base. According to information from the company, ConsumerPowerline’s DR clients represent more than 800 MW of peak load. Instead of quoting megawatts saved, Consumer Powerline quotes the dollars that it has paid to clients, which it says is now more than $20 million.
Projections
Based on the number of currently active companies in the space, the DR market is clearly positioned for continued growth. Opportunities for retail companies to participate in the DR value chain should also remain strong, particularly as DR becomes a more active participant in Forward Capacity Markets (FCMs) and AMI technologies continue to advance. Other dynamics that are also likely to drive the DR sector in the near future (in no particular order) include:
Rapid technology advance. The types of technologies associated with DR will continue to change rapidly and offer an ever-growing array of services of interest to retail customers. It is also likely that the market will see more widespread dissemination of the concept of fully automated DR—strategies to shed load in commercial buildings that have shown promise in pilot studies. For mass markets (small commercial and residential customers), a number of utilities that have traditionally offered load-control programs involving simple radio-communicating switches to control specific pieces of equipment (e.g., air conditioners and water heaters) are considering a transition to programmable communicating thermostats. Many see the potential for these thermostats to support dual reliability and price-response functions. A few examples of new products being offered by the DR companies that participated in the KEMA survey include: Interval Data Systems, a facilities manager primarily serving hospitals and colleges, offers its EnergyWitness product that provides a 360 degree view of a facility/campus so that energy managers can monitor and control energy usage more effectively; Webgen Systems’ Intelligent Use of Energy (IUE) software automatically measures, monitors and controls energy use building-by-building, system-by-system, etc; EkaNet, offered by Eka Systems, provides wireless metering, AMI/AMR applications, large scale metering and multi-tenant sub-metering.
Role of retailers likely to expand. The alignment between DR providers and energy retailers, particularly as the latter continue to pursue the C&I sector, will play an increasing role in the expansion of DR. Further, as states that offer retail choice reach the end of their transitional, rate-cap periods, state regulators may follow the lead of about eight states in which utilities have real-time-pricing (RTP) as a default service for C&I customers. Although the primary purpose of RTP pricing is to stimulate retail competition, using RTP as a default tariff could have the added benefit of promoting DR on the retail level. In addition, what is happening in the PJM region—where qualified Curtailment Service Providers (CSPs) aggregate, submit, and handle payments for load among retail customers—is likely to become more common in other regions. Growth in the market for third-party aggregators, particularly if FCM markets develop, is also likely to increase as small to medium-sized commercial and institutional customers are a source of untapped potential and the next likely growth market for DR load aggregation.
Role of controls/facilities likely to increase. Companies such as Johnson Controls, Honeywell, and Emcor are playing an increasingly important role within the DR market. These companies continue to offer an array of desirable services and often have the primary relationship with building/energy managers at C&I facilities. For instance, Honeywell has installed more than 600,000 load management devices impacting over 600 MW of controlled load. Its DR-related services include programmable thermostats with two-way communications that provide real-time assurance of load shed impacts, and in-home gateways tied to AMR solutions.
Evolving business models. Many of the companies that participated in the KEMA survey expressed a commitment to providing a full range of energy management services, in addition to their core business models. Even those companies primarily focused on manufacturing software or delivering reduced energy usage also appear to be expanding service offerings in procurement assistance, building management, consulting services, etc. The convergence of these services is likely to continue, either through consolidation or competitive pressure
Policy momentum/utility initiatives will continue to fuel DR market growth. Recognition by state regulatory commissions that DR is a viable option for meeting peak demand and resource adequacy requirements will help grow the DR sector. State regulators can also play a role in promoting RTP as a default service. Further, the continued success of large scale programs such as the ones found in New England and in PJM, will continue to foster and expand the knowledge base of DR.
[Portions of this article previously appeared in KEMA’s Retail Market Monitor publication.]
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