Welcoming the next generation: Residential demand response 3.0
The following is a contributed article by Navigant Research analyst Jessie Mehrhoff.
Residential demand response (RDR) is on the brink of driving deeper energy savings. Thanks to technological developments and evolving use cases, utilities and third-party RDR program administrators are beginning to explore how smarter home energy ecosystems can support grid reliability while earning residential customers a little extra income.
This is not to say that RDR has not enjoyed the limelight in recent years. Exiting the proof-of-concept phase, RDR has advanced from first generation one-way communicating direct load control (DLC) switches to second generation two-way communicating smart thermostat programs in recent years.
Some utilities now pilot natural gas RDR in regions of the U.S. where the fuel is used both for home heating and power generation. Even more, the growth of bring your own device (BYOD) RDR, which allows customers to buy a preapproved thermostat or other devices from a vendor of their choosing, has further sparked interest and enrollment in RDR programs.
Three trends drive global RDR growth
While steady growth in RDR over recent years shows promise, three broader trends are driving RDR growth both in North America and around the world. By 2022 RDR will likely be present at some scale in every region of the world.
Driving global RDR expansion are:
- Technological developments across advanced metering and data analytics, program management software and end-user technologies. Improved precision in advanced meter data is driving stronger customer targeting and allowing program managers to enroll technologically savvy households with excess capacity to shed or shift in North America and Europe. The inclusion of smart technologies (such as EV chargers and water heaters) in programs is also strengthening the use cases for RDR in regions of the world where air conditioning (AC) is less prevalent.
- Necessary load shifting as more intermittent renewables connect to the grid. To avoid the duck curve — a system load shape with a large midday dip created by excess solar capacity — use of economic and automated RDR programs can help to move peak electricity consumption away from early evening hours and toward afternoon hours when solar panels produce greater amounts of clean energy.
- Integration with other demand-side management (DSM) programs as part of the larger energy ecosystem. Not only will collapsing the silos between energy efficiency and DR make space for market players to broaden their service offerings, but the integration of more distributed energy resources (DER) into the grid will move residential energy customers from electricity consumers toward electricity prosumers, who produce and consume energy, and open up new sources of RDR capacity.
Despite new technologies and business models, however, a transition to omnipresent RDR is not expected overnight. As program design becomes more complex, utilities and administrators might shift RDR's scale back toward its initial proof-of-concept phase.
Where aggregators historically secured large capacity volumes through existing DLC technologies, utilities and other program administrators are now often cautiously dipping their toes into these more technology-agnostic RDR. Many program managers are planning roadmaps that include EV supply equipment and water heaters, or are piloting the use of battery storage as an RDR asset, but few have gone all in.
Notable, successful efforts such as Green Mountain Power's widely hailed BYOD program, which allows the utility to draw power out of home batteries, are only now becoming less far-and-few-between.
Pragmatic planning required
While global RDR shows promise as a tool to foster grid stability globally, program providers must remove any rose-colored glasses and pragmatically plan for this market development. Regions of the world without RDR today will probably make up less than 1% of total RDR capacity by 2028.
RDR programs might develop sporadically across the Middle East & Africa and Latin America. As concentrations of residential AC are lower in these regions, programs will likely involve a different suite of technologies, such as water heating and storage, and may also find themselves in the slog of proof-of-concept and piloting.
Technology vendors and aggregators wary of different electric grid structures may prioritize driving deeper savings in mature markets before building business overseas. Following North American and European trends, RDR will likely only follow the proven success of commercial and industrial demand response (CIDR).
Commercial and industrial (C&I) programs require fewer customers to opt-in to secure a cost-effective load. Residential electricity loads pail in comparison to those of C&I customers, even though residential customers make up the bulk of many utilities' service accounts.
If given a chance — and if proven reliable — RDR offers advantages both domestically and overseas.
Technology installation and participation contracts must be developed for large C&I loads; residential programs can take a more one-size-fits-all approach, offering a blanket of identical customer incentives and technologies across the service territory. Therefore, utilities, retail energy suppliers and implementers should pursue RDR alongside CIDR programs where possible.
Software developers and program managers should work to design technology-agnostic programs that maximize the ability to draw electricity load out of each residential unit. Inclusive RDR will also be more readily adaptable across services, territories and utility types. These efforts can then complement other programs as part of an integrated strategy to meet DSM, emissions, or broader targets.
Where regulatory or legislative barriers still prevent RDR from fully integrating with energy efficiency and other DSM, these programs must still be designed with a broader DER strategy in mind if utilities and program administrators wish to stay relevant. By allowing customers to stack value of RDR on top of other, similar initiatives, residential customers will be more willing to opt into programs that remove some of their control over their own home energy consumption.
The typical residential customer is not an energy expert and does not think about the home's electricity bill for more than 10 minutes a year; a value-driven, residentially targeted business case is then key to helping utilities garner more residential behind-the-meter grid assets.
With big-picture framing in mind, utilities, DR aggregators and global technology vendors can position themselves to ride the accelerating wave of RDR. While many programs of the future have yet to be defined, mature markets will likely drive deeper savings while new markets open worldwide.
The next decade will surely bring on the next generation: RDR 3.0.