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Maximizing Value from DERs Through Value Stacking

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Donald Mcphail's picture
Senior Manager, Product Marketing Uplight

Donald McPhail is a leader and senior specialist with a passion for strategy development and driving transformational change with experience in Australia, US, UK and Netherlands. He has the rare...

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It is unsurprising to utility professionals that the uptake of distributed energy resources (DERs) – such as smart thermostats, electric vehicles, solar PV, and batteries – is continuing to surge. Over the next five years, Guidehouse estimates utilities in North America will spend around $1B on residential DER programs, which Wood Mackenzie expects could unlock an additional 50GW of flexibility in the U.S. power system. While promising, can utilities combine the use of these resources to further maximize the benefits?

Behind the meter flexibility

Many standalone DER use cases exist (see figure 2), but tend to only leverage the potential of DERs for a small period of time. However, when multiple use cases are satisfied concurrently, the associated “value stacking” can significantly improve the economics and return on investment.

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Value stacking is defined as the bundling of grid applications, creating multiple value streams, which can improve the economics for distributed energy resources. Bundling grid applications to stack multiple values can improve the economics for DER technology investments by improving the return on investment and reducing the payback period. (Source: Smart Electric Power Alliance, 2017)

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DER Use Cases

Realizing value stacking today

One of the biggest challenges for utilities is integrating the value of DER programs with existing business models. Examples can include separate funding sources, out of sync timelines to realize funds, differing capitalization eligibility, competing resource constraints, and disconnected internal teams. That said, the industry is evolving, and programs like New York’s Reforming the Energy Vision (NY-REV) are helping take the concept of value stacking from pilots to full deployments.

Utility-run smart thermostat programs, which deliver demand response (DR) and energy efficiency (EE) benefits, offer an illustrative example of value stacking. While DR events supply meaningful value to the utility by shifting load from peak periods, they only occur approximately 10-12 times over a typical summer. However, optimizing HVAC operation on non-DR event days unlocks additional value for both utilities and customers via reduced energy consumption. For instance, in Spring 2019 the Peak Load Management Alliance recognized AEP Indiana Michigan Power for their ability to provide 80% load shed during DR events and up to 50% runtime reduction of HVAC on EE days, without sacrificing customer comfort.

Co-optimizing DER with TOU

Through time-of-use (TOU) rates for residential customers, utilities can orchestrate DERs to deliver a combination of DR capability, rate optimization (and cost savings), and increased customer satisfaction. TOU rates optimize the operating schedule of resources via an adjusted price signal; for instance, pre-cooling homes during off-peak periods, or charging electric vehicles in the late evening after the peak window ends. Similar to the AEP Indiana Michigan Power example, coordinating multiple DERs at a household can compound benefits by co-optimizing schedules to avoid coincident operation and subsequent peaks. This also unlocks a DR resource for the days it’s needed.

EV charging with thermostat

Leveraging analytics to unlock greater value

Utilities can create additional value by disaggregating household load into end-uses and appliances using smart meter/AMI interval data. By providing visibility into the times non-controlled appliances are operating – such as pool pumps, dishwashers or dryers – an intelligent home energy management system can limit coincident peaks by curtailing or pausing the appliances it can control.

Importantly, utilities don’t have to control every load in a household. Controlling the significant discretionary loads, such as HVAC, water heaters, and electric vehicles is enough to effectively co-optimize.

Disaggregation of Household Appliances

While the focus during the design phase of any demand side management program is on a single use case to achieve a specific operational outcome, this is an important time to identify parallel opportunities for value stacking. The launch of a new program is a critical time for utilities to engage with customers and improve satisfaction and digital engagement. In order to bundle uses cases in a single demand side management program, utilities need a comprehensive plan that uses effective customer engagement, activation and orchestration tools.

Despite the challenges of DER value stacking, a growing number of innovative utilities are realizing the benefits and are moving beyond pilots into full implementations. Ultimately, the ongoing surge in DER deployment will require DER value stacking for planning and operating a modern grid.

This article was originally published on the Smart Electic Power Association blog.

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Matt Chester's picture
Matt Chester on May 6, 2020

Really interesting, and such a holistic view of DERs seems highly necessary. Are customers keen to look at DER sticking as well? Or will that perhaps overwhelm them beyond doing the one or maybe two DER-related activities they may be comfortable with?

Donald Mcphail's picture
Donald Mcphail on May 7, 2020

There are certainly the early adopter group that want to see the value stacking and are interested in it - which is where solutions like Reposit Power or OhmConnect has historically succeeded. However when you cross over the 70% or so of customers that represent the middle of the normal distribution bell curve, they don't care about all the nuances of value stacked. Just how much that value is worth to them (e.g. $10 a month in aggregate) and what that costs them in terms of convenience, comfort or perceived loss of control.

That's a broad statement I'm making across all regions and programs, but outside some minor differences here and there it generally holds.

Matt Chester's picture
Matt Chester on May 7, 2020

Makes sense-- shows how much value there is in the utility-run program who will minimize the lift on customers and allow them to opt in and get those dollar savings they want.

Also as a plug since you mention OhmConnect, I'd recommend you/others to check out when the co-founder of OhmConnect was on Energy Central's Power Perspective Podcast: https://energycentral.com/c/em/energy-central-power-perspectives%E2%84%A2-podcast-episode-8-%E2%80%98demand-response-and

Karen Marcus's picture
Karen Marcus on May 7, 2020

The launch of a new program is a critical time for utilities to engage with customers and improve satisfaction and digital engagement. In order to bundle uses cases in a single demand side management program, utilities need a comprehensive plan that uses effective customer engagement, activation and orchestration tools.

Very interesting, Donald, thank you for this information. Do you have a sense of customer response to these efforts so far? Can you identify what effective customer engagement should look like? 

Donald Mcphail's picture
Donald Mcphail on May 7, 2020

Thank you for your comment Karen. Glad you found it interesting.

That is a really good question, and here are some principles I find are good to consider in applying to customer engagement for demand side management programs broadly:

  • Comfort - combination of acknowledge and putting their mind at ease

  • Cost - what it costs to participate, both financial (e.g. buying hardware, accessing a subscription or joining a new rate)  and time

  • Consistency - disconnected journeys are the worse 

  • Control - establishing peace of mind that the customer has ultimate control (even if they are unlikely to ever exercise it)

  • Predictability - This goes hand-in-hand with control and ensuring there are no unwanted surprises (think of the impact of those horrible hidden bank fees on satisfaction/trust)

  • Community - that they are contributing to some greater good, which green elements also fall in to

  • Simplification - people are busy, so don't waste their time or require them to have a degree to understand the message 

Rami Reshef's picture
Rami Reshef on May 13, 2020

Hi Donald,

Thanks for your very interesting post. In this post you mainly talk about residential customers but I wonder what insights you have for business and industrial customers that can leverage stacking of DERs?  Obviously very large customers have energy and facility managers who are responsible for energy efficiency and better tools for measuring behind the meter. But even smaller businesses may invest in DERs for different uses such as EVs for transportation and generators, batteries and fuel cells for energy backup and storage that they could optimally leverage by activating them in peak demand times and during high TOU rates. This could improve the ROI on the DER assets as well as be a win-win for the customers and the utilities. Would be interested to hear your take on this.

Rami Reshef, GenCell Energy

Donald Mcphail's picture
Donald Mcphail on May 13, 2020

Thank you for your reply and question Rami. I agree. 

While I focussed on residential, I definitely believe that value stacking of DER applies well in C&I. In fact C&I potentially has more depth of relevant past experience to draw from when you consider investments made over past 2 decades in industrial controls or energy management systems to respond time varying rates or demand charges, participating in ISO markets via traditional aggregators, and leveraging local generation (e.g. diesel backup gensets or solar installations) for on-site needs and grid exports. C&I customers, like you say, generally can afford the time to look at a more holistic & financially driven business case for DER - whether by themselves, or more likely via a partnering vendor/consultant. As EVs and other emergent DER solutions (e.g. batteries) come on the market, this opportunity will only grow - particularly in the smaller end of the diverse C&I group.

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