Transform Every Customer into a Demand Response Resource: How Utilities Can Unlock the Full Potential of Residential Demand Response

Transcription

1 Transform Every Customer into a Demand Response Resource: How Utilities Can Unlock the Full Potential of Residential Demand Response Today, the majority of DR comes from large commercial and industrial customers. However, it is the residential class that represents most untapped potential for DR. FERC 3 Introduction More and more, utilities are choosing demand response (DR) as a way to balance grid operations, lower energy prices for consumers, and integrate renewable resources like solar power. Utilities have traditionally relied on large commercial customers to achieve those results. Yet residential customers represent a huge, untapped DR resource. The Federal Energy Regulatory Commission (FERC) estimates that utilities can deliver 65GW of peak reduction in the residential sector equivalent to $3 billion worth of annual capacity. 1 But, despite heavy investment, current residential DR programs engage less than 10% of homes 2 and fall far short of FERC s estimates of achievable potential Scenario 1: Business As Usual DR Opportunity Scenario 2: Achievable Participation FIGURE 1. RESIDENTIAL DR PROGRAMS REACH ONLY 10% OF THE ACHIEVABLE CAPACITY POTENTIAL BY 2019 AS IDENTIFIED BY FERC 3 (FIGURE IN GIGAWATTS)

2 2 It s not an either/or, it s both. Customers are unique. switches and thermostats can be enablers for [some] customers but other customers will choose to do the behavioral work. I think you will see growth in both areas. RUTH KISELEWICH, DIRECTOR OF DEMAND SIDE MANAGEMENT, BGE 4 How can utilities reach deeper into their service territories, engage the other 90% of homes, and unlock DR s full potential? Leaders in the space are looking beyond existing models and employing solutions that take advantage of new customer-facing technologies, regulatory support for dynamic rates, and consumer adoption of connected devices. To reach deeper into their service territory and get the most out of their DR programs, utilities need to employ a comprehensive approach based on three key strategies: 1. Unlock the base through behavior: Engage up to 100% of customers through highly personalized real-time communications 2. Scale dynamic pricing programs: Drive participation in dynamic pricing with simplified rate structures and engaging customer communications 3. Engage each customer with the right device: Target the right customers with the right device offer to maximize demand reduction RIGHT CUSTOMER, RIGHT DEVICE Opower's platform targets the right customer with the right device to maximize demand reduction value, and then engages them to increase satisfaction $ $ $ DYNAMIC RATES IMPLEMENTATION BDR drives customer participation above 80% in the largest dynamic rates program in the country. BEHAVIORAL DEMAND RESPONSE Implement BDR to reach 100% of your customer base and achieve up to 5% demand reduction at 1/3 the cost all without prices or devices. FIGURE 2. DR ENGAGEMENT PYRAMID: EXPANDING DEMAND RESPONSE TO EVERY SINGLE CUSTOMER This white paper will explore how leading utilities are reaching across their entire service territories to realize the full potential of their residential DR programs.

3 3 1. Unlock the Base Through Behavior Engage up to 100% of customers through highly personalized real-time communications A well-thoughtout customer education program is needed to sustain customerresponse. AHMAD FARUQUI, THE BRATTLE GROUP Outside the utility world, almost no one thinks about peak energy usage. Less than 10% of residential customers in the United States participate in a DR program. 5 Just half are even aware whether their utilities offer one. 6 This is a huge opportunity for utilities and not just from an operational perspective. Behavioral DR programs are powerful tools to activate historically unengaged customers. They use billing and energy data, behavioral science, and near-real-time multi-channel customer communication to drive up to 5% peak reduction across the entire customer base without the use of a device at one-third the cost of traditional device-based demand response. Furthermore, because customers find this personal information useful, they are 10% more likely to trust their utility. And they like these programs 85% of customers at one utility reported satisfaction with BDR. This positive customer experience opens the door to the wider world of DR programs, like dynamic pricing and connected thermostats. Over time, utilities can move customers up the engagement pyramid by using rich analytics to promote programs to those who are most likely to benefit deepening the utilitycustomer relationship and unlocking greater savings for both. PEAK DAY NOTIFICATIONS PERSONALIZED ADJUSTMENT POST-EVENT FEEDBACK FIGURE 3. BEHAVIORAL FEEDBACK PROVIDED TO CUSTOMERS AFTER A PEAK EVENT CASE STUDY Drive up to 5% peak savings and 85% customer satisfaction at one-third the cost without installing a device. In the summer of 2014, utilities in California, Michigan, and Vermont engaged 150,000 of their customers with BDR during 10 different peak events. Average savings across these 10 events was 3%. When temperature peaked, so did savings to 5% during the hottest hour of a California heat wave. Customers who participated in these programs reported 74 85% satisfaction, and were 6 10% more likely to express trust in their utility partner. Because all of this was achieved without installing a device, these peak reductions were achieved at one-third the cost of traditional device-based demand response. As a reliable form of demand response, these programs are ready to scale to 100% of customers at any utility with advanced metering.

4 4 $ $ $ 2. Scale dynamic pricing programs Drive participation in dynamic pricing through simplified rate structures and up-front education Personalized communications, customized home energy reports, and demand response are some of the many tools we offer customers to help them better manage their energy use. As we deploy smart meters across northern Illinois, we are unlocking even more value through resources like Opower s behavioral demand response platform. VAL JENSEN ComEd Nationwide, regulators are increasingly supporting time-based rates for residential customers to align retail price with wholesale cost. The Massachusetts Department of Public Utilities recently announced that they will require time-of-use rates for every customer in the state. 7 The California Public Utilities Commission is considering a similar transition to time-of-use rates. Utilities in Michigan and Illinois are scaling rates with advanced metering investment. And, in the Mid-Atlantic, utilities have started rolling out large, opt-out, peak-time rebate programs for many of their customers. These programs are expected to grow as the adoption of new technologies like solar and electric vehicles increases variation in energy use among customers. However, many customers haven t bought into dynamic pricing yet. It s largely a consequence of education these programs have often asked consumers to interpret complicated pricing tiers without much direction. As a result, less than 2% of U.S. residential customers are currently enrolled in any form of dynamic rate program. 8 FIGURE 4. A SIMPLE TOOL FOR CUSTOMERS TO NAVIGATE THEIR DYNAMIC RATE OPTIONS As new pricing schemes increase in size and scope, utilities should focus on simplifying programs and helping customers understand and benefit from them. Providing up-front education, 9 using customerfacing tools that model the bill impact of different rates, and delivering comprehensive messaging related to peak events are important strategies for maximizing the effectiveness and reach of dynamic rates.

5 5 CASE STUDY Baltimore Gas & Electric Scales Cost-Effective Demand Response Without Devices In 2013, Baltimore Gas & Electric (BGE) partnered with Opower to launch the largest dynamic rate program in the United States. The program, Smart Energy Rewards, is a core part of BGE s DR strategy, and will reach all BGE customers by end of summer, During four peak events in the summer of 2013, BGE used Opower s Delivery Engine to send 3.2 million highly personalized pre- and post-event communications to BGE customers via phone, , and text message. Opower delivered these notifications within tight timeframes, providing customers individualized event performance feedback. BGE used Opower s Segmentation Engine to test multiple combinations of content and channel across key customer segments, thus optimizing communications and improving savings over time. The results from the first year of the program were striking: Smart Energy Rewards achieved 5% average peak reduction (0.2 kw) across over 200,000 customers. On top of that, participants who chose to receive text message alerts during peak events saved an average of 15% (0.6 kw). The key difference between this and other programs was personalized engagement, which drove high levels of awareness and participation. To put this in perspective, the load reduction from Smart Energy Rewards was 5x greater than a similar program deployed to over 1 million customers in California, that failed to leverage similar engagement software. 5.0% FIGURE 5. COMPARISON OF BGE S PTR PEAK REDUCTION RESULTS TO A SIMILAR EFFORT IN CALIFORNIA 10 <1% California Baltimore Gas & Electric FIGURE 6. BGE CUSTOMERS REACT POSITIVELY TO THE PEAK TIME REBATE PROGRAM ON TWITTER - -

6 6 3. Engage each customer with the right device Targeted engagement will ensure customers who stand to benefit the most will adopt the right device Traditionally, utilities have built their residential DR programs around load control switches and thermostats that shut off air conditioning as temperatures skyrocket. In exchange for installing these devices, customers see little benefit beyond small, annual incentive payments. The result is discomfort, and, sometimes, un-enrollment from the program. There is hope that advanced connected thermostats will turn this trend on its head. Equipped with a better customer experience and software automation (like pre-cooling), these devices offer hope for happier DR customers. But, with fewer than 5% of homes having installed a connected thermostat, we are a long way from realizing this dream. To bridge this gap, we must accelerate customer adoption and, in the meantime, create a more engaging experience with the 95% of customers who still have traditional thermostats. On both fronts, utilities have a critical role to play. Studies show that people are 4x more likely to consider buying a connected thermostat (or other energy management services) from their utilities than from third parties. 11 Rather than getting cut out of the equation by new entrants, utilities should seize this moment and get the most out of their residential DR programs. By engaging customers with solutions like Behavioral Demand Response, they can raise awareness of peak energy needs and, in turn, increase the likelihood that customers will participate in device-based DR programs. And Opower s Customer Engagement Platform can complement these targeted BDR communications with tools to identify and enroll the right customers in the right programs. Further, it is time to reconsider the policy of keeping customers in the dark on direct load control. Customers who are educated about peak energy use report 85% satisfaction. By coupling these Behavioral Demand Response solutions with device-based DR, you can increase customer satisfaction and reduce the likelihood of customer program opt-outs and overrides. CASE STUDY California Utility invests in BDR for device engagement In the summer of 2015, a California Utility will deliver BDR pre- and post-event communications to its customers who participate in their direct load control program. By increasing awareness of peak events through personalized engagement, this utility expects to increase satisfaction and reduce likelihood of event override and program opt-out rates.

7 7 Moving Forward This is a watershed moment for demand response. With the arrival of dynamic pricing, smart thermostats, and real-time analytics, utilities finally have the tools they need to get 100% of their customers thinking about peak demand. Additionally, the push for time-based rates and connected devices signals new opportunities for utilities to provide customers increased benefits through DR programs and strengthen customer relationships. Per kw-year BDR DLC PEAKING PLANTS $26 $79 $94 FIGURE 7. BDR HAS THE POTENTIAL TO DOUBLE NATIONAL INVESTMENT IN DR AT ONE-THIRD THE COST The untapped potential is huge. Opower ran a national potential analysis that shows BDR alone would generate nearly 5,000 MW of capacity savings - double the DR currently realized by utility programs. 12 And these MW are delivered at one-third the cost of alternate options for meeting peak demand whether power plants or device-based demand response. 13 With demand response, utilities are poised to unlock the cheapest, cleanest, most abundant energy resource of all: their customers. And there has never been a better time to act. To learn more, contact us at DR@opower.com

8 8 Endnotes 1. The Brattle Group, May 16, 2007, The Power of Five Percent, How Dynamic Pricing Can Save $35 Billion in Electricity Costs. Available at: 65GW x $52/kW-year = $3 billion. 2. Federal Energy Regulatory Commission, December 2012, Assessment of Demand Response and Advanced Metering Staff Report, pg Available at: 6 million customers on Direct Load Control. Roughly 115 million households per 3. Federal Energy Regulatory Commission, June 2009, A National Assessment of Demand Response Potential, pg. 29. Available at: 4. Opower, Webinar, February 2014, Solving the Dynamic Pricing Puzzle. Available at: 5. Parago, Infographic, June 16, 2014, Turn up demand response: education and incent energy consumers. Available at: 6. Energy Central, April 3, 2013, Where are those time-of-use electricity rates? Available at: com/p/ /2013/04/03/where-are-those-time-of-use-electricity-rates. 7. Massachusetts Department of Public Utilities, June 12, Anticipated policy framework for time varying rates. Available at: 8. Faruqui, Ahmad; Intelligent Utility, April 1, 2014, Study Ontario for TOU lessons. Available at: article/14/04/study-ontario-tou-lessons. 9. Faruqui, Ahmad; Hledik, Ryan; Public Utilities Fortnightly, March 2009, Transition to Dynamic Pricing, A step-by-step approach to intelligent rate design. Available at: (1) Sempra Energy; August 19, 2013, Final Report Peak Time Rebate Program Process Evaluation, pp Available at: (2) Baltimore Gas & Electric; November 15, 2013, Quarterly Smart Grid Report, Available at: erfilepath=c:%5ccasenum%5c %5c9208%5c%5c253.pdf. (3) Braithwait, Stephen; Hansen, Daniel; Hilbrink, Maria; San Diego Gas & Electric, April 1, 2013, 2012 Load Impact of San Diego Gas & Electric s Peak Time Rebate Program, pg. 12. Available at: Residential Peak Time Rebate Evaluation Program Year 2012.doc. 11. Gohn, Bob; Strother, Neil; Pike Research, 2012, Home Energy Management. Available at: wp-content/uploads/2012/05/hem-12-final-executive-summary.pdf