Last week’s experience in California shows the impact of aggregated residential demand and the need to pay residential customers to reduce demand. California heat wave means high air conditioner usage leading to strain on the electric grid. Most state electricity policymakers focus on building more capacity or transmission to deliver that capacity but don’t pay enough attention to the demand side of the equation to reduce that strain. Heat waves should drive policymakers to include aggregated residential demand in wholesale market design discussions.
Unlike the warning from the North American Electric Reliability Corporation before summer, “heat events coupled with drought can lead to higher than expected peak electricity demand,” heat waves need not lead to an “elevated risk” of running into emergency procedures if utilities pay residential customers to reduce their demand during grid emergencies.
We should look beyond the traditional demand response programs, such as the AC saver switch program. In a saver switch program, the utility increases the cycling of the compressor in the air conditioner from 15-20 minute intervals to help with electricity demand while keeping the residential homeowner comfortable because the fans continue to circulate the air. Others include utilities paying industrial and commercial customers to reduce consumption via interruptible and direct control load programs. Only some of these industrial customers participate in wholesale markets.
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Unfortunately, some Midwest states have chosen their retail demand response programs to opt out of wholesale markets. As Illinois (which didn’t opt out) Congressman Sean Casten-led proposed Responsive Energy Demand Unlocks Clean Energy (REDUCE) Act legislation points out, the following 13 states have opted out – “Arkansas, Iowa, Indiana, Kentucky, Louisiana, Michigan, Minnesota, Missouri, Mississippi, North Carolina, North Dakota, South Dakota, and Wisconsin.”
There is an immediate need to engage residential customers now more than ever because customers have new home gadgets like smart programmable thermostats, grid-interactive electric water heaters, rooftop solar, and batteries sitting in their garage that can interact with the utility or an aggregator. These technologies yield energy savings on the retail side. So, why not allow the participation of aggregated residential consumers on the wholesale side to reduce wholesale energy prices? An additional benefit is reduced emissions.
Traditionally, PUCs have approved capital-intensive generating plants to reduce wholesale prices. But, now, with more consumers producing their own energy, if PUCs allowed distributed generation to participate in the market, those residential consumers can reduce wholesale energy prices and carbon emissions.
One individual residential owner with a 10-kW load can hardly make a difference. But hundred of them in a residential neighborhood provide the electric utility with 1000 kW load flexibility, which is now significant for the utility during grid emergencies. When we “aggregate” tens of these neighborhoods, we suddenly benefit from multiples of 10 MWs of demand.
That aggregation benefit is why in California, Pacific Gas & Electric (PG&E) partnered with Tesla’s 2,500 batteries in a Virtual Power Plant (VPP) to deliver 16.5 MW of solar energy during the recent grid emergency. The Public Utility Commission of Texas (PUCT) also approved a pilot project that allows aggregated residential customers with batteries to provide relief on the transmission grid. Aggregating residential customers is not unique to states that have grid managers. In Arizona, where there is no wholesale energy market, Arizona Public Service is partnering with Generac Grid Services to aggregate residential batteries starting January 2023.
In conclusion, it is not enough for state electricity policymakers to focus on the supply side or transmission to reduce the risk of blackouts when the grid is stressed due to heat waves. They should change focus from traditional demand response programs such as AC saver switch to bring residential consumers into the wholesale market. Since an individual residential owner’s demand is small, we need to aggregate residential neighborhoods to keep the lights on. And we need to remove state opt-out in those 13 states to manage heat waves without widespread blackouts.
