Demand Response – Is it Pavlovian?

You’ve probably heard about Pavlov’s famous conditioned reflex experiment in the early part of the last century. Pavlov, a Russian scientist documented the response of dogs to various external stimuli. In this famous experiment, Pavlov offered dogs food while at the same time rang a bell. He then measured the dogs saliva discharge in response to the food. Over time, Pavlov would just ring the bell and not offer the dogs the food. The dogs would associate the ringing of the bell with food and salivate. Pavlov termed this phenomenon conditioned reflex. And in 1904, Pavlov was awarded the Nobel prize for physiology for his seminal work.

Now, what’s that got to do with Demand-Response? And, what is Demand-Response, BTW?’

Pavlov’s experiment has nothing do with demand-response – it was merely my way of getting your interest. Just a silly way of tying in these concepts and illustrating the fact that stimuli can evince a response from not only animals or humans, but also from systems. The system I refer to is the smart-grid. Demand Response or DR is a terminology that is used in the energy industry in the context of a smart-grid to denote the response of the grid and its end-points to energy demand. Further, it is a phenom that at least for now, is more prevalent in the commercial markets rather than in the residential markets.

I have been meaning to write about this for a while as I wanted to focus on energy related topics in this blog. While I worked in the financial services industry, trying to build up the capital markets arm of a boutique investment firm, I was introduced a several such companies and I actually ended up making an investment in one of these companies. Sadly, my investment did not go anywhere but down – full disclosure.

Smart grids are everywhere these days. At a very high level, a smart-grid dynamically intermediates between energy production and consumption. Physically, the grid is nothing but a bunch of transmission lines that crisscross the country to transmit power. The smart aspect of the grid comes into play when demand modulates energy production. So, in essence this a closed feedback system that can be highly efficient. DR technology is an overlay on the smart grid that helps aggregate demand from the end points in addition to performing other functions. DR in effect helps in energy management at the demand level that feeds in to the smart-grid to help regulate production.

If you work in an office and if you are observant, you will see that energy is wasted in office buildings. That’s for sure. For example, many offices have a well lit rest rooms and the lights are on even when nobody uses them. Many offices leave their lights on after work, when there is nobody in the office. Also, offices around the US function for an average of about 10 hours each day – Monday thru Friday. Yet, on the weekend or after hours, the HVAC is going on full blast. That’s pure wastage.

During work hours the energy use profile is quite interesting. As the day wears on, commercial energy consumption increases – peaking at around 2pm. And then consumption begins to fall tapering off slowly as 5pm approaches. While that happens, in the background power grids need to gear up for this trend and utility companies often move power to hot-spots based on the demand. In other words, they are responding to demand – hence the term ‘demand-response’.

Furthermore, in the commercial markets, power is being purchased either in advance (energy futures) or on the spot market. Broadly, the energy market consists of wholesale and retail pricing which tend to fluctuate in response to demand.  Quite simply, when demand is high, prices tend to creep higher as well. And that does not bode well for our energy bills, especially those on time-of-use plans. DR helps to mitigate such pricing risk by reducing demand during peak hours when pricing tends to be higher.

DR companies such as EnerNOC help deploy technologies in buildings allowing building managers to control demand in a more efficient manner. For example, if the forecast called for an unusually hot week, they have the tools to forecast excess demand and correspondingly made early requests to their energy companies for energy allocations. This not only helps the building mangers but it also helps the utility companies forecast demand more accurately allowing them to purchase additional capacity in advance at a more productive rate. As a side effect, this helps residential power as well – since it will prevent rolling blackouts in the event of excess demand. The DR tools also allows building managers to shut of power or reduce power to areas that do not have any human presence. This allows the manager to save energy and reduce operating costs quite significantly. DR also allows for each office in the building to be equipped with their own thermostat that can be remotely controlled. The building manager can either manually or automatically control areas/regions/offices of the building.

And perhaps the coolest feature of DR is the ability to sell back unused power back to the grid. This can often result in energy credit or a reduction in energy bills. This is possible when buildings don’t utilize their allocation and are willing to trade their excess capacity.

Apparently, DR has been around for more than 40 years. But the progress in DR has been rather slow. But with heightened awareness towards energy, the DR market is seeing an uptick. While the commercial DR market is quite mature, the residential DR market is quite nascent and there has been a lot of focus in this market in recent times. There are many companies trying to take control of your thermostat at home and allow you to regulate power consumption in a more effective manner. But progress has been slow, due to regulations that can differ from state to state. Regardless, in the energy industry this is the market to keep an eye on.

Interesting eh? What’s your response?

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