Partnering with Clients to Create Innovative Growth Strategies U.S. Smart Grid Market A Customer Perspective on Demand Side Management June, 2010 2010 Frost & Sullivan. All rights reserved. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan
Focus Point Understanding Objectives for Utilities Market Definition for Demand Response A Customer Perspective on Smart Grid 2
Primary Objectives for Utilities Increase Power Availability Improve Energy Efficiency by minimizing interruptions in power delivery by reducing waste in power delivery and energy losses Accommodate Renewable Power Preparing for Growing Power Load Prevent congestion on the power lines and interruptions 3
State Level Regulatory Acts Renewable Portfolio Standards Renewable Portfolio Standards (RPS) requires electric utilities to have a certain amount of their electricity come from a renewable source: Wind Solar Biomass Geothermal sources Utilities need to meet this goal as soon as 2015. Market Adoption Overall close to 29 states have a renewable manadate, while an additional six states have renewable goals without a financial penalty. Goals by 2015 Michigan: 10% Montana: 15% Nevada: 20% New York: 24% 4
State Level Regulatory Acts Energy Efficiency Resource Standards Energy efficiency resource standard (EERS) in place is designed to reduce or flatten electric load growth through energy efficiency measures. In some instances, states have expanded their renewable portfolio standard to include energy efficiency. Market Adoption Maryland requires statewide peak demand and electricity reduction of 15 percent by 2015. This includes peak demand reduction of 5 GW and electricity savings of 10.5 GWh. Texas electricity-restructuring laws require electric utilities to offset 10 percent of their demand growth through end-user energy efficiency. In Pennsylvania, the Act 129 of 2008 requires 3 percent electric consumption and 4.5 percent peak demand reduction by 2013. 5
Smart Grid Components The Smart Grid consist of a web of technologies aimed at automating, improving efficiency, and increasing availability of the electric grid ranging from generation, transmission, and distribution levels. Automation also includes tools to conduct predictive, preventative and supply analysis based on data collection that is conducted at the transmission and distribution level. Meter Manufacturers Network & Connectivity Software Smart Grid Web Power Transmission & Distribution Smart Grid Demand & Response Energy Storage & Distributed Generation Consulting & Systems Integration HAN Appliances 6
Core Technologies Advanced Meter Infrastructure AMI supports bi-directional information flow from the smart meter at the customer site back to the utility business system. Through AMI, utilities will be able to record electricity usage on a time differentiated basis. AMI enables information exchange between the electricity supplier and the customer. AMI is also expected to aid the adoption of renewable power. Market Adoption There are approximately 2.7 billion meters worldwide and only 8 percent of these meters are automated. In North America the meter market is expected to generate $950 million by 2010. Europe were early adopters of smart meters with Italy and Sweden taking the lead. In Asia growth is expected to be driven by AMI rollout in South Korea, Australia, New Zealand, and Japan. Australia is expected to replace roughly 10 million meters between 2011 and 2012. 7
Core Technologies Demand Side Management (Demand Response) Peak load power management program. Programs are differentiated by the tools and incentive plans offered for reducing peak power periods. With the advent of smart meters, utilities will be able to offer dynamic pricing programs to residential customers to offset peak power usage. Market Adoption There is evidence that rolling out smart meters without power management programs may result in negative return on utility investment in the programs. AMI and power management programs must be integrated in a utility s smart grid strategy in order to meet some of the expectations placed on it. 8
Demand Side Management Demand Response is a temporary change in electricity consumption by Demand Resources in response to market or reliability concerns National Institute of Standards and Technology Demand Response Market Categories (United States), 2009 Interruptible tariffs Dynamic pricing without enabling technology Demand Response Provides the advance notice that the price rate for electricity will be lower during certain periods of the day, and subsequent manual adjust of power usage Dynamic pricing with enabling technology Could involve a smart thermostat, or a programmable switch that is connected to major home appliances such as air conditioner, heater, etc., that is programmed to automatically lessen power use based on information received directly from the utility company detailing peak and off peak power prices. Incl. capacity and demand bidding Other DR Programs Direct load control The ability, or more importantly, the permission for a utility company to cycle on and off appliances (air conditioners, dryers, etc.) for brief periods during peak usage times in return for lower utility bills. Source: Frost & Sullivan 9
Demand Response Market Participants Typical DR Model: Shared Savings Model Power dispatchers typically monitor electricity usage and alert their customers to reduce their power usage during peak periods to avoid escalation of brownouts or blackouts. In return, grid operators or utilities pay power dispatchers a stream of recurring revenues for managing this demand response capacity, such as on a monthly basis. Power dispatchers make payments to commercial, institutional, and industrial end users of electricity for both contracting to reduce electricity and actually doing so when called upon. Demand Response Market Participants (United States), 2009 Source: Frost & Sullivan 10
Customer Groups Demand Response Market: Percent by Customer Group (United States), 2009 2016 Residential Sector Early commercialization stage. In majority of the places demand response is being pilot tested and is in the evaluation phase C&I Sector Is an established market with set protocols. Majority of C&I consist of medium and large industrial customers. However, more recently hospitals, school districts, high schools, government buildings have been signing on. All figures are rounded; the base year is 2009. Source: Frost & Sullivan 11
Customer Participation Most respondents are willing to participate in the varying demand response programs. However, the price points at which respondents would participate vary considerably. Dynamic Pricing With or Without Enabling Technologies are most popular. Dynamic pricing without enabling technology is a possible aspect of Smart Grid technology. If you were given a day advance notice that the price rate for electricity will be lower during certain periods of the day, would you manually adjust your power usage (i.e., such as running appliances during off peak hours, turning off air conditioning or adjusting the temperature, etc.)? Dynamic pricing with enabling technology (Smart Appliances, Smart Thermostats) is a possible aspect of Smart Grid technology. If you were equipped with a smart thermostat or a programmable switch that is connected to your major home appliances such as air conditioner, heater, etc., would you program it to automatically lessen power use based on information received directly from the utility company detailing peak and off peak power prices (off peak prices are lower than peak prices)? Direct load control (also called demand response appliances that can be cycled on and off by the electricity supplier during times of peak load) is a possible aspect of Smart Grid technology. If your electric utility offered to either cycle central air conditioners off and on for brief periods during peak usage times in return for lower utility bills, would you sign up for such a program? Source: Frost & Sullivan 12
Customer Participation Slight price point variations exist. Yet, Direct Load Control is the least popular option, with 22 percent having no interest. Dynamic pricing without enabling technology is a possible aspect of Smart Grid technology. If you were given a day advance notice that the price rate for electricity will be lower during certain periods of the day, would you manually adjust your power usage (i.e., such as running appliances during off peak hours, turning off air conditioning or adjusting the temperature, etc.)? Dynamic pricing with enabling technology (Smart Appliances, Smart Thermostats) is a possible aspect of Smart Grid technology. If you were equipped with a smart thermostat or a programmable switch that is connected to your major home appliances such as air conditioner, heater, etc., would you program it to automatically lessen power use based on information received directly from the utility company detailing peak and off peak power prices (off peak prices are lower than peak prices)? Direct load control (also called demand response appliances that can be cycled on and off by the electricity supplier during times of peak load) is a possible aspect of Smart Grid technology. If your electric utility offered to either cycle central air conditioners off and on for brief periods during peak usage times in return for lower utility bills, would you sign up for such a program? Source: Frost & Sullivan 13
Motivators and Challenges for Residential Customers Perceived Benefits Smart Grid Technologies (N=600) Reasons for Not Participating in a Smart Grid Technologies (N=600) Upgrades electric grid 14% Reduce electric bill 54% Get more Control of electric bill 38% Too complex 7% Think cost too high 44%% Big Brother concerns 36% Reduces Dependence On foreign oil 16% Motivators More information On energy consumption 23% Don t want to change energy habits 10% Challenges Not Offered In my community 34% Increases reliability of electricity supply 18% Increases efficiency of electric grid 21% Don t see benefit 13% Don t Understand Smart Grid 30% 14
Conclusions Frost & Sullivan projects that sales for the smart grid market will flourish in the coming years. The market is still in very early stages of implementing a true smart grid. Support from the stimulus funding and the drive for utilities to enhance its customer service operations improve energy efficiency increase automation save the environment has and will create growth opportunities for energy as well as non energy industries. 15