Postcard from the Future: PJM

Demand response: A kilowatt saved is a kilowatt earned


When demand for something rises and its price spikes, you might choose to buy less of it. When it’s on sale, you might stock up. It’s the kind of calculation people do all the time, while buying groceries or clothing or putting gas in the trunk. But historically, it has been hard to apply that kind of thinking to electricity.

Now, new information technologies are enabling customers to reduce demand in response to high power prices, making efficiency a resource that can compete toe-to-toe with power plants. This is cutting costs, improving reliability, and cleaning the air.

Nowhere is this more true than in the PJM Interconnection, the largest single power market in the world.  PJM serves over 60 million people in 13 states from the Mid-Atlantic out to Chicago.

In the traditional setup, customers pay an average price for power all the time.  Whether market prices are high or low, customers don’t know.  With no incentive to cut back during times of peak power demand, they buy the most expensive power. This drives up total costs for everyone — and threatens reliability.

When demand is so high as to cause an emergency, utilities send out press releases asking customers to voluntarily reduce demand. Some utilities have installed remote-controlled cut-off switches on air conditioners and water heaters, in exchange for lower rates.

Now, thanks to the Internet and automated controls, customers can sign up to respond to the market price of electricity in real time. Controls can automatically change the temperature of thermostats, dim lights, briefly turn off water heaters and refrigerators, and otherwise give the grid a break.

This “demand response” now is reliable enough that utilities use it for long term planning and day-to-day operations. It is replacing the need to build new power plants, saving money, fuel, and pollution. While mostly used by factories and office buildings, it is making inroads to the residential sector.

PJM holds annual auctions to buy new capacity three years ahead of time.  Starting in 2009, PJM allowed efficiency and demand response to compete in the auctions with new power plants. This May, PJM signed up a total of 169,000 MW of capacity for the year 2016. Most of this was existing power plants, but for new resources, demand response was the biggest winner, with 12,400 MW accepted. This was 7 percent of the total peak demand, or about 40 average power plants. PJM also signed up 7400 MW of imported power, 5400 MW of new power plants, and 1100 MW of energy efficiency.  PJM expects to see at least 9000 MW of old coal plants retire, with no impact on reliability.

Demand response is especially valuable because it displaces power at peak times, when electricity prices can be two or three times the average. Just in August 2012, PJM customers saved $650 million due to demand response, including $230 million on August 2 alone.

Because demand response works so well, PJM is now looking at embedding it in the market for all customers. With “price responsive demand” all customers would see prices that reflect actual market prices, and react accordingly. PJM uses the example of a working couple with a smart meter on their house. “The couple could set the thermostat to allow the temperature in the house to rise slightly – instead of running the air conditioning – when electricity prices are high on hot summer afternoons, saving them money.”

Nest, with their trademark “smart thermostat,” has a pilot project doing just that.  Their customers have reduced air conditioning demand by 50 percent on hot afternoons. The thermostat pre-cools the homes so customers barely notice the temperature creeping back up during the late afternoon.

Other regions of the US are looking at demand response as a way to reduce costs, improve reliability, and create greater flexibility. It is an especially hot topic in Texas, where the grid operator has faced power supply shortages in recent summers. As Navigant Consulting put it, “If the state experiences another extreme heat wave like the summer of 2011, [it] would most likely face a challenge to meet peak demand. In Texas, demand response is seen as the first line of defense to beat the heat.”