Proxy Demand Response (DR) is a creative program that can be used to offset the need to build expensive peaker plants and help with the management of renewable sources of energy that are intermittent in nature, like wind and solar.  While the wholesale market has been operating in other states and later this year in California, the retail market has barely been accessed, due to several factors.  First, it represents a smaller chunk of electricity consumption than Commercial and Industrial (C&I), and naturally utilities and third party aggregators focused on the low-hanging fruit.  Second, the recent arrival of Smart Grid technologies only now offers opportunities for utilities to consider mass residential deployment and participation.  Smart Grid technologies such as robust Home Area Networks (HANs) and Home Energy Management Systems (HEMS) come into play here to communicate information about DR events as well as dynamic pricing programs for residential responses.  Third, the vast majority of residential consumers or ratepayers are completely unaware of these programs, their processes, or their benefits.  And it’s difficult to communicate anything about DR in a sound bite, much less a Proxy DR program. 

There have been some limited residential DR programs here in California aimed at air conditioning (AC) cycling, but these involved targeted groups of ratepayers and required special equipment to remotely control residential AC units.  Utilities are now looking at much more ambitious programs that impact most ratepayers – in the form of new pricing programs that more accurately reflect the time component of electricity generation.  The average Joe or Jane Ratepayer would be surprised to learn that generation of electricity has different costs at different times since this is not typically reflected in their current bills. 

Education is one of the three big challenges to implementing wide spread DR programs for residential use.  It will take time to communicate carefully developed messages that build the foundation of knowledge for residential ratepayers to appreciate the price variations in generation and the benefits of DR and dynamic pricing.  They will need exposure to messages like this one offered by CAISO in their December 2007 eGrid Technologies Help Achieve Environmental Goals report, “Demand reduction is just as effective, and often less expensive, than adding megawatts onto the grid and it doesn’t add a single pollutant.”

The second challenge focuses on the business model.  Proxy DR for residential participation requires new business entities called Demand Response Providers (DRPs) – enterprises that can aggregate enough consumers to represent the amount of electricity that can be bid into the retail market.  There are a few businesses operating in this market, but they are relatively new to the space, and there is much to learn about how to set up the most efficient and profitable model. 

The third challenge is technological.  Consumers will need robust and reliable HANS and easy-to-use HEMS applications to participate in DRP programs.  Their HANs must reliably communicate price signals and/or DR alerts to “enrolled” devices that can either automatically shut off or reduce their electricity use.  The HEMS applications must be simple to use to achieve the widest possible consumer adoption. 

One of the most interesting HAN technologies that promises that robustness and reliability is the Open Source Home Area Network or OSHAN.  Stay tuned next week for some more information about it.