There is good and bad news for homeowners: Your water heater will need to be replaced some day. Same with your home's HVAC, your lights, thermostat — all of it. Appliances don't last forever.
But the good news is that today's generation of appliances is significantly more efficient and many are arriving with network connectivity built in. That may mean customers can turn up the air conditioning without getting off the couch, but it also means utilities can develop programs around those appliances to harness demand flexibility.
The ability to harness that demand, in a more complicated version of traditional demand response, can create enormous value for utilities by helping reduce expensive peaks and move demand to times when more renewable energy is available. It can engage customers and save them money, and it can help encourage more renewable development.
Seems like a lot to ask of a water heater.
Many utilities are working with customers to install efficient and connected devices. Manufacturers are making more of them, because customers want them. But the replacement process takes time. After all, there are about 50 million water heaters installed in the United States. We can't all go to Sears at the same time.
A renewable-powered grid
Recently, however, Rocky Mountain Institute tried to peek into the future. Analysts modeled an hourly simulation of a Texas grid mostly powered by renewable energy, to illustrate how demand flexibility across eight end-use loads in both the residential and commercial sector could be put to work.
The results are impressive, but the research comes with caveats. The Texas grid isn't going to work like this next week, next year, and maybe not in the next decade. It is a futuristic scenario, but right now RMI's research can help utilities understand just how significant a resource this flexibility can be.
RMI Principal Mark Dyson calls the the report, Demand Flexibility: The Key to Enabling a Low-Cost, Low-Carbon Grid, "a futuristic view of what could be possible if we continue to see the trend in investment in low cost renewable energy."
"Water heaters are really attractive to utilities. As long as the water is hot, nobody cares. There's a lot of room to play, so long as you don't accidentally give someone a cold shower."
Principal, Rocky Mountain Institute
The cost of renewable energy is declining, and for wind energy, the industry has witnessed some eye-popping low bids. Texas already has a strong wind resource, and RMI modeled its scenario there because ERCOT is a closed system.
“We began to wonder what a system looks like that can rely on those provably low-cost technologies for the majority of its energy," Dyson said. "If you push more and more variable renewables onto today's grid, which is powered large part by relatively inflexible thermal generation, you see pretty quickly what issues exist."
The benefit to renewables
In some ways, renewable growth is a victim of its own success. It tends to generate a lot of energy at off-peak times, leading to curtailments and a declining benefit in added capacity.
The cost of wind energy has been declining for years, but recently there have been proposals that have surprised observers.
Last year, in a report on its solicitation process for renewable energy to replace coal generation, Xcel Energy’s Colorado utility subsidiary said it received more than 400 proposals. The median bid price for wind-plus-storage was $21/MWh and for solar-plus-storage, $36/MWh. The median price for a standalone wind project in the Xcel report was $18.10/MWh. For a standalone solar project, the median price was $29.50/MWh.
The low prices are helping grow the resource, but paradoxically are also limiting renewables' own success.
Low operating costs for wind and solar mean renewable energy can displace pricier generation, lowering wholesale clearing prices. And the higher volumes are also mismatched with demand. The growth of cheap renewables can create a scenario where lower revenues slow project growth. RMI's research notes that in California and in the Midwest, renewables revenues are declining and curtailments are not uncommon.
But utilizing demand flexibility can boost the value of renewables, and, in turn, raise revenues and project growth. RMI says flexibility could help reduce curtailment and increase the value of renewable energy by more than 30%.
The group's report concludes, "flexible demand of this magnitude could reduce renewable curtailment by 40%, lower peak demand net of renewables by 24%, and lower the average magnitude of multihour ramps (e.g., the “duck curve”) by 56%."
RMI modeled eight technologies, including commercial and residential water heaters, space heating and cooling, residential plug loads and electric vehicle chargers, that can be used to move demand to different times of the day in order to utilize larger amounts of clean energy.
Dyson said grid-connected water heaters are probably the farthest along the adoption curve, though the numbers are tiny. There are about 50 million electric water heaters in the United States, and maybe a few hundred thousand are equipped to be controllable.
However, here is where the replacement cycle comes in. "More technologies are coming from the factory with low-cost options to install internet connectivity," he said. "If that continues, and we turn over the existing stock of thermostats and water heaters over the next couple of decades, it is an incredibly low-cost way to access the flexibility of those loads."
RMI modeled the incremental cost to replace a water heater at $5 — the difference between the cost of the water heater you will buy in the future, minus one without connectivity hardware. Plug loads could be accessed via smart-plugs at a cost of about $10 per home.
The incremental costs for electric vehicle charging technology, and heating and cooling, are higher as they are based on changing technologies or purchasing new equipment, as opposed to upgrades. RMI's research considered ceramic block heating and ice cooling for residential and commercial buildings.
Utilities have taken note of water heaters' load-shifting capabilities in recent years, and the kinds of rebates offered are indicative of how much of that demand they can harness. In 2015, Minnesota's Steele-Waseca Cooperative Electric was giving them away. Customers were saving about $1,000 and the co-op got control over up to 20% of its peak load.
"Water heaters are really attractive to utilities," Dyson said. "As long as the water is hot, nobody cares. There's a lot of room to play, so long as you don't accidentally give someone a cold shower.
Heating and cooling also represents a lot of potential for utilities to shift load. And this is an area where customer preference strongly aligns with utility benefit.
Smart thermostats didn't necessarily take off because utilities were asking for them. There was a customer value proposition that manufacturers saw and leveraged ... but their adoption can be greatly accelerated through utility portals and rebates."
Principal, Rocky Mountain Institute
"People like the energy savings but people also really like being able to adjust the air conditioner from their phone," Dyson said. "It's a selling point unrelated to people thinking about energy." And utilities are seeing a similar dynamic play out with electric vehicles: People want them, but it's not to help out the utility.
How to encourage adoption
With EVs and smart thermostats, customer demand is helping to drive adoption. But Dyson said utilities can accelerate that.
"There is clearly a role for the utilities to play," he said. "Smart thermostats didn't necessarily take off because utilities were asking for them. There was a customer value proposition that manufacturers saw and leveraged ... but their adoption can be greatly accelerated through utility portals and rebates."
RMI Associate Cara Goldenberg said another key to accelerating the use of demand flexibility will be in utilizing it as a reliable resource.
"You really have to see utilities and system planners integrating [demand] flexibility as a resource at all levels of grid planning, so the level of renewables can be pushed upwards," Goldenberg said. And state regulators will need to ensure utilities are considering distributed resources and non-wires alternatives in addition to more traditional investments.
A particular example is the debate over California's proposed Puente gas power plant. Last year, NRG Energy asked the California Energy Commission to suspend its application for a 262 MW plant as it considered whether alternative resources could fill the need.
"Utilities are realizing they have resources all over that can be leveraged to make a world of difference," Goldenberg said.
And in order to bring more low-cost renewables onto the grid, utilities will need to continue searching for and utilizing that flexibility. But Dyson said the industry must address ideas of "value deflation," where there is a point at which each megawatt of renewable energy added is less valuable.
"The big takeaway from this paper is that the limit is a moving target," he said. "If you look at the whole equation, if you look at demand, you can significantly reduce curtailment and you can significantly improve the prices paid to renewable energy generators. And all at a net savings to consumers, versus balancing renewables with natural gas."
This post has been updated.