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Demand Response: Embrace It or Get Run Over

Jon Wellinghoff, chairman of the Federal Energy Regulatory Commission, delivered a powerful message to some 3,000 people attending the keynote session last month at POWER-GEN International in Orlando, Fla.

His message to the nation’s power sector was essentially a warning for power generators to adapt to a world of greater efficiency and meager consumption growth.

The growth rate for U.S. electricity consumption has plunged from about 5 percent a year in the 1970s to about 1 percent a year today.

“It’s a low level of growth that utilities in this country aren’t used to,” Wellinghoff said. “They’re used to making money on additional sales. If they don’t see additional sales, it’s going to be very difficult for them to continue.”

Computers, televisions, refrigerators and other household technologies are being designed to use significantly less power and can be controlled with your smart phone or by the system operator. “A desktop computer uses about $25 worth of energy a year,” he said. “My iPad uses $2.50 worth of energy a year. So we’re seeing a distinct trend in energy, and this is backed up with data.”

Meanwhile, new rules from FERC will allow these efficiencies to be built, or bid, into the grid at the wholesale level, Wellinghoff said.

He’s talking about the benefits of “demand response,” which is the business of enabling end-use customers to reduce consumption during times of peak demand. Demand response programs allow the end-user to compete against generators and receive a payment for reducing consumption. Instead of adding more generation to the system, capacity is created by curbing consumption through the use of smart grid technologies on both sides of the meter.

Right now, most demand response programs target large commercial and industrial customers. But the opportunity to participate in demand response programs will eventually be offered to homes and small businesses as more utilities implement advanced metering.

“Ultimately, we’ll be able to bid this into grids everywhere once we have organized markets everywhere,” Wellinghoff said. “We don’t have organized markets in the Southeast or in most of the West, with the exception of California.”

Demand response programs represent a resource that can be dispatched and relied on just like a conventional power plant. And like a generator, demand response providers are paid for the capacity they create.

“We can reduce our peak loads in this country by 20 percent using demand response – using assets on the customer’s side of the meter that can be put in place to control loads and reduce costs,” Wellinghoff said. “It’s happening and it’s coming very quickly.”

But it’s a trend that will cut into the revenues of power producers, Wellinghoff said.

“It’s going to be very disruptive for generators who are used to receiving these payments that are no longer going to receive them,” he said.

New advancements in Demand Response technologies and programs will be thoroughly discussed by leading experts during several conference sessions at POWER-GEN International 2013, scheduled Nov. 12-14, in Orlando, Fla.     

“We have to embrace these trends,” Wellinghoff said. “If we don’t, they’re going to run over us.”