WHITEPAPER. Breathing New Life Into Legacy Demand Response. Gain the Benefits of Two-way Communications

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1 WHITEPAPER Breathing New Life Into Legacy Demand Response Gain the Benefits of Two-way Communications

2 Executive Summary Utilities are increasingly turning to smart grid-based demand response (DR) programs to reduce energy consumption. DR programs, such as direct load control (DLC), have helped throttle back peak demand, but many of these programs rely on legacy communications that fail to deliver the flexibility, forecast accuracy and customer engagement needed to optimize DR programs. With today s smart grid, utilities can expand existing load control programs to virtually all customers, with no changes in program structure or regulatory approval. The smart grid is fundamentally changing how utilities can implement DR. Customers are gaining choice over their participation in load control events, while utilities are getting granular visibility into who participated and how much load each participant shed. Utilities can also use the smart grid to increase customer engagement, offering, for example, pricing incentives to shift usage to off-peak times. These emerging price-based DR programs provide customers with a clear picture of their energy usage and costs and more control over their energy bill. Smart grid-based peak management enables utilities and their customers to benefit from higher grid reliability and increased flexibility, which in turn boosts customer satisfaction and program retention. Built on a unified network, smart grid-enabled DR solutions deliver new opportunities for managing system load, reducing peak consumption and maximizing spare capacity. With continuous two-way communications, utilities can leverage price-based programs, including direct load control, peak time rebates, time-of-use rates and price response. Smart grid-based DR programs have tremendous potential to cut peak energy loads. According to a recent survey of energy industry experts conducted by The Brattle Group, DR programs can be expected to reduce U.S. peak demand for electricity up to 15 percent. Utilities and their customers benefit from higher grid reliability and increased flexibility, which in turn boosts customer satisfaction and program retention. Legacy DR is Reaching End of Life Most DR programs running today use direct load control, in which a utility installs remotely controllable switches on appliances such as air conditioners, hot water heaters, and pool pumps so they can be turned off during periods of peak electricity demand or during emergency supply conditions. The same load control functionality can also be embedded within a thermostat in the customer premise. In exchange for enrolling in the program, a customer receives a one-time or ongoing discount on their energy bill. However, legacy communications are limiting the effectiveness of these DR programs. Specifically, legacy DR programs are often delivered as a turnkey and proprietary solution from a single vendor, including a load control switch, software, and services. These programs typically rely on one-way paging communications to get control signals to remote switches. Because communications is only one way, utilities lack the end-to-end visibility to have a complete and timely picture of the infrastructure from premise-side to the head end. And without two-way connectivity for real-time usage data, customers cannot fully participate in DR programs. 2

3 Single-vendor offerings also restrict device choice for both the utility and customer. This lack of choice is a disincentive to many potential participants and has led to dissatisfaction among some participants who want more device options or more control over when and how their air conditioner, water heater, or pool pump operates. Customer dissatisfaction in turn creates churn, as utilities must continually recruit new customers to replace those who leave the program. A one-way communications system also limits a utility s ability to determine whether a switch is working. The Brattle Group estimates that as many as 40 percent of legacy switches don t work and therefore contribute no load reduction, draining program efficiency and reducing cost effectiveness. Likewise, older legacy systems provide no visibility into individual customer participation patterns or the specific loads shed, making it difficult for utilities to verify actual load reductions and predict future load-shed potential. With legacy programs limited forecast accuracy, utilities lack the ability to customize and support DR programs beyond DLC. Open DR Solutions Deliver Greater Insight and Control Open DR solutions, delivered on a single, unified network, provide utilities and customers with greater insight and control over the grid. Rather than relying on a legacy one-way communications infrastructure for load control, utilities can operate DR programs over the same robust, two-way network that supports smart meters, with no impact on the regulatory approvals for existing programs. With a standards-based smart grid network, utilities can easily expand DR programs to new customers and migrate devices onto the new communications infrastructure as older switches are replaced. Silver Spring Networks, for example, offers load control switches with its innovative Direct-to-Grid communications technology. The Directto-Grid communications technology connects the switch directly to a utility s smart grid network, ensuring that a utility s legacy devices have the same high level of connectivity as advanced metering devices. As a result, utilities have fewer unreachable devices that provide no load reduction. Alternatively, utilities can leverage ZigBee wireless technology for communications between the meter and load control switches, thermostats, and other in-home devices. By supporting Direct-to-Grid as well as ZigBee for communicating with load control switches, Silver Spring gives utilities maximum flexibility to optimize coverage across their entire territory. Increased Efficiency with Two-way Communications Smart grid intelligence combined with continuous two-way communications provides significant benefits to utilities and their customers, including: Real-time visibility: With continuous, two-way communications end to end, a utility can easily check individual device status and reachability, something not possible with one-way legacy communications. With the confidence of two-way communications, utilities can quickly identify and address problems, easing maintenance requirements, increasing reliability, and reducing costs. Deeper insights with granular feedback for load control: With a smart grid solution, utilities get immediate feedback on customer response to events; for example, Silver Spring smart meters track energy use at the premise level, so utilities can readily see which customers participated and how much load each customer shed. This data makes it easier to accurately verify load reductions and more precisely predict future load shedding, which enables utilities to count the DR capacity as operating reserves. 3

4 Multi-vendor energy ecosystem: Smart grid-based solutions rely on key standards, allowing a utility to mix and match in-home devices from one vendor with infrastructure and back-end software from different vendors, eliminating vendor lock in. By choosing best-in-class devices from different third-party vendors, utilities can achieve greater implementation flexibility and lower costs. Single unified network platform: A standards-based IPv6 smart grid platform also ensures a common infrastructure with common program management for DR and other smart grid programs, enabling, for example, AMI and DR to run together. With consistent and real-time measurement and verification (M&V) implemented at the platform level, utilities also gain network-wide efficiencies with flexible load forecasting for all DR programs for both dynamic and static groups. Increased customer engagement: With two-way communications, customers become active participants in management of their energy usage. Opting out of a load control event is as easy as pressing a button on the thermostat. Utilities receive the information about the customer override and can adjust the customer s bill as appropriate. Putting the Customer in Charge with Price-based DR DR programs play a critical role in reducing peak loads. Migrating to smart grid-based DR programs increases the options a utility can offer for DR programs. Industry experts, such as The Brattle Group, predict rapid growth and penetration of price-based programs going forward because they offer increased customer benefit and flexibility. With advanced metering solutions and robust two-way communications, utilities can convey time-varying rates that correspond to the current demand for electricity and send price signals. This information motivates customers to curb usage during peak periods when electricity is expensive but keeps customers in full control over how they want to respond to the price signal, increasing penetration and program retention. Implementing pricebased DR is an ideal way for utilities to more actively engage customers in load reduction and increase program effectiveness. In a typical scenario, utilities or their customers install programmable communicating thermostats, which customers program to shift up or down a few degrees in response to price signals. For example, the thermostat can be pre-programmed to reduce consumption when the price of electricity is high. If it s more important for customers to have maximum cooling during hot summer days, they have the option to pay more for energy at that time. This type of set and forget solution makes it simple for customers to get the most out of new dynamic rate plans while enabling a personalized balance between comfort and savings that aligns with their values and wallets. The availability of smart grid communications standards is fostering an ecosystem of products that consumers can use to create a smart energy home. As a result, in-home appliances will become available that automatically respond to signals to reduce usage or shift usage to times when the price of electricity is low. While future smart appliances will fully automate this behavior, price-based DR can also be used to reduce or shift usage for legacy appliances. For example, a customer participating in a price-based DR program may decide to delay running the dishwasher until evening, when prices are lower. 4

5 Implementing price-based DR is an ideal way for utilities to more actively engage customers in load reduction and increase program effectiveness. To further increase customer participation, utilities can use robust customer engagement solutions, including a web portal, to inform customers how much they are spending on energy at any given time; or text alerts, for DLC and DR events; printed reports, reflecting usage and DR savings; and customer service support, where service reps have the same view into a customer s usage as the customer does. By providing customers with dynamic and timely feedback on their energy choices, utilities empower customers to tailor DR programs to their specific needs. For example, with Silver Spring s CustomerIQ web portal, customers immediately know the savings they are generating each month by participating in a DR program. Customer engagement solutions combined with DLC and price-based DR programs deliver value to customers, increasing overall program penetration and enabling utilities to achieve their demand reduction goals. Oklahoma Gas and Electric Embracing the Changing Nature of DR Utilities in increasing numbers are beginning to empower their customers with smart grid-enabled DR technologies and programs. In 2012, Oklahoma Gas and Electric (OGE) became the first utility in the United States to offer a smart grid-based DR solution to all of its customers. Customers enrolling in this new program received a programmable thermostat and were placed on a variable peak rate plan where electricity costs more during the hottest hours of summer days and is priced lower in off-peak times. Built on Silver Spring s Smart Energy Platform, the solution leverages smart meters to send the current price of electricity to the thermostat, which responds automatically based on how the customer has programmed it. OGE is also using the Silver Spring CustomerIQ TM energy web portal and other customer engagement mechanisms to ensure customers have the information they need to make informed energy choices. OGE has proven the effectiveness of the Silver Spring smart grid technology and consumer acceptance of its DR program, showing an average peak reduction of 33 percent for customers with dynamic rates and a programmable thermostat, when compared to a control group with neither. OGE expects that the deployment of these DR solutions will enable the utility to achieve its goal of avoiding the building of fossil-fueled generation plants until at least An Example of a Report that OG&E s Customers View on the Web Portal 5

6 Smart DR Solutions for a Smarter Grid The smart grid is fundamentally changing the nature of DR by providing two-way communications to intelligent in-home devices. With the right smart grid solution, utilities can cost effectively expand the reach of DR to a wide customer base and pave the way for new and innovative price-based DR programs. Smart grid solutions give utilities much greater insight into customer participation, enabling them to more accurately predict load shedding and maintain grid reliability. For utilities such as OGE, successful DR programs mean a significantly reduced need for new generation capacity. Customers benefit from much greater understanding and control of their energy use and costs. The convenience of set and forget devices such as programmable thermostats make it simple for customers to balance comfort and savings and to get the most out of new dynamic rate plans without constant attention. As one-way legacy programs reach end of life, smart grid-based DR programs are breathing new life into DR, giving utilities opportunities to increase customer engagement and satisfaction. Connecting more than 16.5 million devices worldwide, Silver Spring s proven IPv6-based smart grid platform lets utilities improve grid reliability and efficiency through a range of innovative DR programs, all running on a single network. About Silver Spring Networks Silver Spring Networks is a leading networking platform and solutions provider for smart energy networks. Our pioneering IPv6 networking platform, with 16.5 million Silver Spring enabled devices delivered, is connecting utilities to homes and business throughout the world with the goal of achieving greater energy efficiency for the planet. Silver Spring s innovative solutions enable utilities to gain operational efficiencies, improve grid reliability, and empower consumers to monitor and manage energy consumption. Silver Spring Networks is used by major utilities around the globe including Baltimore Gas & Electric, CitiPower & Powercor, Commonwealth Edison, CPS Energy, Florida Power & Light, Jemena Electricity Networks Limited, Pacific Gas & Electric, Pepco Holdings, Inc., and Progress Energy, among others. For more information please visit silverspringnet.com Copyright 2013 Silver Spring Networks. All Rights Reserved. All trademarks are the properties of their respective owners. REV. 6/19/2013 6