The future of in distribution The growing importance and role of demand-side management, user participation and demand flexibility in the era of the digitally enabled grid The historical context of demand response…

The use of demand response in the world’s electricity systems is not a new concept. Its earliest manifestations date back several decades, to the radio and ripple control systems that could be used to manage high-consumption components such as and water heating systems in the 1970s.

At that time, demand response was (DER). Other devices including storage primarily used to maintain the integrity batteries, modern demand response and function of the transmission grid by could be a very different concept. Today’s providing load reductions during periods of sophisticated programs are potentially extreme load, and by curtailing demand on capable of providing a wide array of overstretched power generation capacity. closely targeted services providing direct benefits to the distribution network, However, in the era of the smart, digitally reflecting the transformation of demand enabled grid, connected to a growing response from a way to shave peak amount of solar photovoltaics (PV) demand to an increasingly valuable and other distributed energy resources tool to manage the modern grid.

2 What is demand response? According to the of America’s Federal Energy Regulatory Commission, demand response (DR) is defined as: “Changes in electric usage by demand- side resources from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.”

Source: http://www.ferc.gov/

3 …is giving way to a growing future role for distribution utilities

In playing this new role, While demand response is already an the distribution network load shape and established tool for supporting optimization manage local distribution constraints. demand response is essentially of grid-based generation or transmission, it about leveraging customer has not been used to any significant extent As this trend continues, demand response in distribution networks. tools and demand usage incentives such as flexibility to help optimize (EV) charging schemes will distribution networks by This is set to change. The usage of become a key tool for electricity distributors demand response by distributors is to manage peak load and maintain matching supply and demand expected to grow significantly, as the reliability of supply. Accenture modeling faster, more responsively, combination of increased energy efficiency, indicates that demand-response solutions deployment and could provide meaningful changes to peak more effectively and above all, economic drivers takes hold. As Figure demand through programs that incentivize more locally. 1 illustrates, utility executives surveyed action on very few hours per month (see in Accenture’s 2016 Digitally Enabled Figure 2). Targeted reductions in peak load Grid research program expect the could potentially save a utility millions of next 10 years to bring growing use of dollars in deferred reinforcement costs. customer demand flexibility to optimize

Figure 1. How do you expect the distribution network to evolve Figure 2. Number of peak hours a month covered by the demand in the next 10 years (i.e., between now and 2025) with regard to response program, and corresponding change in peak load. these factors? 42% Europe 15% Europe 20%* NA 5% 11% 4%* NA 27% 4%

3% 61% 48% 2%

1% Change in peak load (%)

Changing incentives Customer (demand) 0% (timing and load) participation to manage 0246810 for electric vehicles local distribution constraints Number of peak hours a month covered by the demand response program

Significant growth Moderate growth Source: Accenture’s Digitally Enabled Grid research program, Accenture analysis. Base: All respondents; *please note: due to limited North America sample, results for this region are to be interpreted with caution and within context. Source: Accenture’s Digitally Enabled Grid research program, Accenture analysis.

4 From smoothing out the “duck curve”…

However, as the sophistication The rising prevalence of distributed energy The duck curve can put traditional resources—especially solar generation—has generation sources under significant and role of demand response reshaped the daily profile of electricity stress, especially if their output has been evolves, the GTE traditional demand by creating the “duck curve.” This curtailed significantly in the middle of the curve reflects reduced net demand mid-day, day when solar generation is at its peak. function of energy balancing followed by a period in the late afternoon Consequently, there is a valuable potential remains extremely relevant. during which demand picks up sharply as role for demand response to play in solar generation tails off, and household flattening out the duck curve by moderating demand increases, requiring other generation the increase in demand at those times. to ramp up quickly to cover the increase.

…to enabling localized responses— down to the individual meter level

Alongside its role in balancing In contrast to the relatively blunt, To address this issue, two things might be old-fashioned tool of controlling demand needed: smart charging capabilities where EV supply and demand and from air conditioning systems through radio charge cycles are driven by the grid’s needs managing load at the signals, localized demand management on and shifted to times of lower load, or control the modern grid requires an understanding of individual loads at the customer level. An wholesale level, the need of the network topology and connections active EV charging approach would allow to optimize the modern between devices and specific meters, so the charging cycle to be flexed slightly if the control signals can be pinpointed to the the distribution network is under significant distribution grid also calls precise location on the grid. stress. Air conditioning is another demand for demand response to be factor where tighter control through demand A classic illustration of this challenge is a response could make a big contribution. applied in a more localized grid environment with a high penetration manner to influence the of EV charging stations. In many cases, customers charge their EVs at times of peak utilization of grid resources. load. The draw on the grid for each EV is roughly equivalent to an entire household. So if a feeder has 1,000 homes on it, and 200 of those households decide to charge their EVs at the same time at peak load, then peak load rises by 20 percent.

5 6 The big opportunity for distribution utilities: The localized view

The big opportunity in demand These insights open the way to a range of demand-response programs to achieve response for distribution specific goals. utilities going forward is These programs could range from traditional having a localized, highly rebate-type programs in which customers granular view of the utilities’ receive a rebate on their bill for enabling the utility to control their air conditioning assets and contracts in or water heating systems for a few place, and of which areas hours each month, to more sophisticated schemes involving multiple devices, sensors of demand are flexible. and metrics. The key factor in shaping future programs will be the granularity of the view available to the utility—and this is continuously increasing as smart technologies roll out.

Moving to a cost-to-serve charging model…

The rise of digitally enabled In traditional electricity billing, most of the This model has had an interesting effect on network costs borne by customers are for the energy demand curve. In most developed power grids also opens the grid capacity rather than the total amount markets, demand peaks have stayed fairly way to another advance of energy flow. But tariffs, particularly for flat while total demand has decreased. residential consumers, are dominantly based Conversely, in Spain the peaks have fallen linked to demand-response on kWh demand. significantly, while overall consumption has mechanisms: pricing based on held steady. This indicates that consumers However, in a number of markets there has in Spain are responding to demand-based cost-to-serve. been a move toward more capacity-based pricing by shifting their consumption to pricing, which can even be built into the off-peak time periods. meter. For example, when customers in Spain sign up for a supply contract, they specify how much capacity they want, which is programmed into the meter. If that capacity limit is exceeded, the meter will trip, providing a strong incentive to the customer to manage their energy usage.

7 …will further boost the importance of demand response

In light of such experiences, As this move gains momentum, the focus on demand response as an economic driver utilities in other markets are for both utilities and their customers will looking at basing pricing more continue to increase. It is no coincidence that utilities regard tighter collaboration closely on cost-to-serve. with regulators as particularly necessary in areas such as new tariffication models and mandates to use demand response, as our 2016 Digitally Enabled Grid research shows (see Figure 3).

Figure 3. Which of the following regulatory changes do you believe will be necessary in the next 10 years (i.e., between now and 2025)?

2% 7% 9% 11% 12% 13% 15% 19%

57%

56% 55% 44% 66% 64% 56% 84%

41% 41% 35% 34% 22% 23% 25% 9%

New Greater role for the Incentives for Mandate to Mandate to use Locational Mandate to apply The tariff/pricing distribution business the deployment invest in demand pricing for new operational implementation model in the permitting and of innovative distributed response to distributed controls on of an authorization of technologies in generation and/or optimize the generation third-party outcome-based/ distributed energy the network storage to be network/manag (medium- or distributed competitive resource connections used for network e constraints low-voltage generation and/or revenue model optimization connection) storage

No Yes Already in place Base: All respondents. Source: Accenture’s Digitally Enabled Grid research program, 2016 executive survey.

8 An additional factor in the future In Accenture’s view, the potential to link development of demand response will be to the financial metrics in the rising deployment of end-user storage. demand-response programs could position The presence of consumer-owned storage storage as a significant element in utilities’ significantly increases the potential range overall demand-response strategies. of network optimization services that a distribution business could purchase from both residential and commercial customers. As Figure 4 illustrates, utility executives increasingly expect storage to impact demand and revenues.

Figure 4. What impact will the following network assets have on your organization by 2030?

Moderate to significant revenue reduction Distributed generation (e.g., PV, fuel cells)

Microgrids

Energy storage solutions

PEVs and charging stations 61% 58%

51%

44% 43%

36% 32% 29% 30% 23% 19%

6%

Anticipated revenue reduction 2013 2014 2016 2013 2014 2016 2013 2014 2016 2013 2014 2016

Base: All respondents; excludes “Not applicable” answers. Source: Accenture’s Digitally Enabled Grid research program, 2016 executive survey.

9 Conclusion: Mapping out the complex new landscape of demand response

The evolution of the digitally enabled grid is increasingly transforming the demand-response environment, creating very different dynamics around how to manage demand and encourage customers to change their behavior.

From the distribution utility’s point of view, prioritize outcomes, whether balancing the ability to control air conditioning and bulk generation or controlling distribution water heaters could offer a high degree of congestion at the local level. Whatever the certainty about what the response will be, objectives being pursued, there is a need for since such control is relatively direct measurement and verification to validate and reliable. that customers have curtailed their load and should be compensated in return. But a digitally enabled grid also brings with it more complexity. The utility potentially The message is clear: the move toward has a blend of mechanisms to influence or localized demand response in the modern control demand through a range of pricing distribution grid takes the degree of signals and responses targeted at specific complexity to a whole new level. If a utility users in their homes, possibly including is put off by such complexity, it is important cost-to-serve parameters. And when to remember that the potential significant customers have the ability to manage the benefits in terms of deferred capital scale and timing of consumption by devices, spend and improved quality outweigh the their responses need to be verified. challenges. As the digitally enabled grid continues to evolve, it will become easier to All of this points to a rising degree of incorporate customer flexibility into a more granularity and localization in demand- optimized distribution system. response initiatives, and some important decisions for utilities around how to

10 11 About Accenture’s Digitally About Accenture Smart Enabled Grid research program Grid Services Accenture’s Digitally Enabled Grid research Accenture Services focuses on program provides actionable insights and delivering innovative business solutions recommendations around the challenges and supporting the modernization of electric, opportunities utilities face along the path gas and water network infrastructures to to a smarter grid. Drawing upon primary improve capital efficiency and effectiveness, research insights from utilities executives increase crew safety and productivity, around the world as well as Accenture optimize the operations of the grid and analysis, the Digitally Enabled Grid research achieve the full value from advanced program examines how utilities executives metering infrastructure data and expect smart grid technologies and solutions capabilities. It includes four offering areas: to contribute to their future networks. Digital Asset Management, Digital Field Worker, Intelligent Grid Operations and About Accenture Advanced Metering Operations. Accenture is a leading global professional Executive sponsorship services company, providing a broad range of services and solutions in Stephanie Jamison strategy, consulting, digital, technology Managing Director and operations. Combining unmatched Accenture Smart Grid Services experience and specialized skills across Please contact: [email protected] more than 40 industries and all business functions—underpinned by the world’s Follow us largest delivery network—Accenture @Accenture_Util works at the intersection of business and technology to help clients improve their Accenture Utilities performance and create sustainable value for their stakeholders. With more than Visit us 375,000 people serving clients in more than 120 countries, Accenture drives innovation For more information on the Accenture to improve the way the world works and utilities, visit Accenture Utilities at lives. Visit us at www.accenture.com. http://www.accenture.com/utilities.

References Accenture’s Digitally Enabled Grid research program

Reports on Demand Response & Advanced Metering, http://www.ferc.gov

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