Federal Energy Standard Could Put Demand Response Programs in Hot Water

Tom Johnson | July 16, 2012 | Energy & Environment
Industry groups argue that new rules for large-scale thermal storage could slow its adoption for alternative energies

By virtually all accounts, energy efficiency is a win-win situation: It reduces consumer and business electric bills at the same time that it eliminates the need to build capital-intensive new power plants that would drive up energy costs.

But an unusually diverse coalition of industry groups, including the operator of the nation’s largest regional power grid, say a new energy efficiency standard adopted by the federal government could kill one of the more effective programs designed to lower power bills at times of peak demand.

Not only would it adversely affect demand response programs — initiatives aimed at encouraging consumers to use less electricity at times of peak demand, typically hot summer days when prices spike rapidly — but also the new standard could hinder developing renewable energy sources, such as wind and solar, the groups argued in comments filed with the U.S. Department of Energy.

With New Jersey aggressively promoting both solar and wind power, the issue has big implications for achieving its ambitious goals.

The concerns center on a new standard adopted by the agency governing high-volume electric water heaters, which are able to interact with the grid.

The systems operate as thermal energy storage, according to PJM Interconnection, the operator of the regional power grid that serves more than 60 million people, including all of New Jersey.

Grid operators and utilities can store energy in them at night, when energy prices are low and wind generation tends to be higher, and they can turn off the water heaters during times of peak electricity. Besides PJM, the National Rural Electric Cooperative, the American Public Power Association and the Edison Electric Institute joined in filing comments to the federal agency on Friday.

In their comments, the groups said the standard for large-volume water heaters adopted by the agency would make it difficult to replace current units in service, an event that would have a big impact on demand response programs, which have grown to be a crucial tool in recent years for maintaining grid reliability and lowering power prices.

“In short, existing demand response programs providing millions of dollars of value to American consumers will begin to decline and eventually disappear,’’ the groups argued.

“Moreover, the industry is on the cusp of dramatically expanding the value of ‘grid interactive’ water heaters by using them as energy storage devices that can facilitate the integration of renewable resources, such as wind and solar generation.’’

That prospect will only occur when the nation’s power grids become smarter, able to communicate with customers, both small and large, with advanced metering systems.

Meanwhile, demand response has emerged as an important part of PJM’s efforts to meet peak electricity demand.

In the most recent capacity auction held by PJM, the organization cleared more than 14,000 megawatts of demand response with an approximate value of $736 million.

The programs offer savings to customers, too, according to the electric cooperative, a national organization representing not-for-profit, consumer-owned electric cooperatives. Over a 10-year period, the electric water heaters can save a customer $800 in rebates, bill credits, and other discounts, according to the group.

Nationwide, more than 5.6 million customers are enrolled in such programs, according to the North American Electric Reliability Corp., which is based in Princeton.

In their comments, the groups urged the federal agency to establish a new class for large-volume water heaters that would make their replacement easier.