DR, THE RX FOR EFFICIENCY

Demand Response; Commercial, Industrial, and Residential Applications for Peak Demand Load Management
Jevan Fox and Clint Wheelock, 2Q 2010 (Pike Research)

"The Demand Response (DR) sector is growing quickly and will experience major changes over the next few years…The National Institute of Standards and Technology (NIST) is working to determine industry standards, and the Energy Independence and Security Act of 2007 (EISA 2007) requires both FERC and NIST to have the roadmap for demand response to be defined by June 2010.

"DR reduces the need for energy from expensive peak resources…[A]t its core, DR is a function of peak demand: as peak demand increases, the need for DR increases. There are significant environmental and social benefits from reducing energy demand, yet DR’s primary goal is to decrease capital expenditures (capex) on both sides of the meter. DR cuts costs for utilities so that they will not have to build a coal-fired peaking plant for $2,500 per kWh with a 30-year return-on-investment (ROI)…[T]he utility can implement DR at a fraction of the cost. The rising costs and longer lead times in building additional sources of traditional generation are a key driver for DR…[E]nd-users can curtail energy use, thus saving capital…"

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"Demand response is inherently an energy efficiency application. It strives to shed, curtail, or eliminate energy usage through technologies, solutions, and programs that manage customer demand for electricity in response to price signals, incentives, and directions from grid operators…The U.S. Department of Energy (DOE) segments DR into two motivating programs…Price-based DR such as real-time pricing (RTP), critical-peak pricing (CPP), and time-of use (TOU) tariffs…[an] Incentive-based DR programs are triggered by a grid reliability problem or high electricity prices…

"There are a number of significant DR market growth drivers, the most significant of which is the growing demand for electricity amidst increasing energy costs, especially during periods of peak demand…[S]mart grid technologies, mainly smart meters, are a major driver for DR and will be a catalyst for DR programs…[but] Pike Research does not believe the residential market will gain significant traction in the near term…"

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"The [commercial and industrial (C&I)] sectors are the low hanging fruit of the industry. Our analysis indicates that DR vendors with deep vertical integration will continue to secure an increasing amount of megawatts (MW) under contract…Pure-play DR companies, or Curtailment Service Providers (CSPs), are presently in a good position…[and] legislation will boost revenues for CSPs with commercial and industrial solutions, as the drive to make U.S. commercial buildings more energy efficient…

"Pike Research believes that DR will become an application within a company’s energy efficiency (EE) suite…Energy Service Companies (ESCOs) will be increasingly attracted to DR because it is an energy efficiency measure they can provide in their turnkey building efficiency plan…At its essence, demand response represents a convergence of information technology (IT) with energy management…Pike Research believes that telecommunications and networking companies will increasingly strive to have a play in the energy efficiency industry…DR revenues will grow to almost $3 billion in 2015 in our “average” scenario…"