New
Technologies
Advance
Consumer
Control
The Path to Perfect Power:
New Technologies Advance
Consumer Control
January 2007
Galvin Electricity Initiative
3412 Hillview Avenue
Palo Alto, CA 94304
(650) 855-2400
The Galvin Electricity Initiative seeks to identify opportunities for technological
innovation in the electric power system (broadly defined) that will best serve the
changing needs of consumers and businesses over at least the next 20 years. Of
paramount importance will be ensuring that the electricity system provides absolutely
reliable and robust electric energy service in the context of changing consumer needs.
The Path to Perfect Power: New Technologies Advance Consumer Control is a report in a
series produced under Phase Two, Task 3 of the Galvin Electricity Initiative. Phase Two
of the Initiative is focused on developing the implementation roadmap, systemic
blueprints, quality management plans and commercial business models for achieving and
maintaining unqualified perfection in 21st century electric energy supply and service.
Task 3 of the Initiative focuses on evaluating and enabling new demand-side leadership
opportunities for implementation of the Perfect Power System. Consumer demandfocused leadership is both essential to prompt system performance transformation, and to
the commercial application of many of the innovations on which perfection ultimately
depends.
For more information about this publication or the Galvin Electricity Initiative, please
visit www.galvinelectricity.org or call 650-855-2400.
Table of Contents
Preface ............................................................................................................. 4
Executive Summary ......................................................................................... 6
Introduction ....................................................................................................10
Purpose of Report ......................................................................................... 11
Underlying Assumption ................................................................................ 12
Section 1: Customer-Centric Drivers..............................................................15
1.1 Customer-Centric Drivers ....................................................................... 15
1.2 Economic Drivers ................................................................................... 20
1.3 Dynamic Pricing ..................................................................................... 21
1.4 How Enabling Technology and Pricing Interact ..................................... 22
1.5 Why Dynamic Pricing Is Important for the Pursuit of the Perfect
Power System ......................................................................................... 23
1.6 Estimates of the Value of Active Demand and Dynamic Pricing ............ 27
1.7 Conclusion.............................................................................................. 36
Section 2: Business Opportunity Templates and Deployment Scenarios ........37
2.1 Potential Business Opportunity Templates ............................................. 37
2.2 The Role and Impact of New Entrants .................................................... 45
2.3 Four Deployment Scenarios.................................................................... 48
2.4 Roll-out and Potential Benefits ............................................................... 66
Section 3: The Potential in the Residential Market ........................................71
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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3.1 Potential Opportunities ........................................................................... 74
3.2 Emerging Business Opportunity Templates (BOTs) ............................... 93
3.3 Potential Deployment and Benefits......................................................... 96
Section 4: The Potential in the Commercial Market ......................................98
4.1 The Commercial Sector ........................................................................ 104
4.2 Current Developments .......................................................................... 107
4.3 Emerging Business Opportunity Templates (BOTs) ............................. 132
4.4 Potential Deployment and Benefits....................................................... 136
Section 5: The Potential for Improved Network Infrastructure ................... 138
5.1 Potential in Advanced Metering Infrastructure ..................................... 141
5.2 Potential in Smart-grid Investments...................................................... 148
5.3 Potential New Business Opportunity Templates ................................... 151
5.4 Overall Deployment and Benefits ......................................................... 153
Section 6: Constraints to Deployment........................................................... 154
6.1 Customer Behavior ............................................................................... 154
6.2 Utility Attitudes and Regulatory Constraints ........................................ 158
6.3 Barriers Against New Entrants ............................................................. 163
6.4 Implications .......................................................................................... 164
Section 7: Deployment Priorities .................................................................. 166
7.1 Overall Deployment Roadmap.............................................................. 166
7.2 Potential Benefits ................................................................................. 167
7.3 Technology and Deployment/Demonstration Priorities ........................ 168
7.4 Regulatory Priorities............................................................................. 168
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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7.5 Outreach Priorities................................................................................ 169
7.6 Quality Management Implications and Priorities .................................. 170
Appendix A: Data Sources ............................................................................ 172
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Preface
Preface
Until now, if you ask the average home or business owner if they are satisfied with
their electric service, chances are you will be answered in the affirmative. The fact is,
the lights usually come on and electric power is still affordable to most Americans.
But just as we are becoming more dependent on electricity to power our realtime online lives, the U.S. electric power system is increasingly inefficient,
unreliable and insecure. Built with technology from the 1950s, it cannot meet the
demands of the digital age, nor process the surge of transactions sparked by the
advent of competition in the wholesale electricity market. The centralized structure
that has characterized most of the U.S. electricity industry to date, leaves the power
system vulnerable to attack and slow to repair in many natural disasters.
As a result, customers are now less convinced that they are getting what they are
paying for. Much higher electricity prices, and the rapidly growing reliance on
electricity for home entertainment and other comforts, are making customers more
aware of the importance of reliable electricity and they are more receptive to
managing their demand.
Used to being overwhelmed by information from all of their other service providers,
the scarcity of information about electricity, the absence of instant information, and
the fact that there is virtually nothing on the Internet about electricity use and
options, is raising concerns about where the electric power industry is in this age of
real-time digital interaction. Today’s month old, snail mail, difficult-to-decipher
electricity bill just doesn’t cut it.
This report uncovers the emergence of new, cheap, easy-to-use, pervasive Webbased technologies that will finally allow electricity customers to have more
control over how they use electricity and know how much they are paying for
their creature comforts. The report also details how these technologies will break
through and thrive in the marketplace, becoming as integral a part of the average
home or commercial space as the remote control or the cell phone. They will reduce
demand, manage prices and put less stress on the environment.
The report also looks at how that pervasive technology will change the energy
marketplace and eventually lead to a wholesale quality transformation of the electric
power system which is the ultimate goal of the Galvin Electricity Initiative. The end
vision is of a system that provides no less than Perfect Power. The definition of
perfection will be determined in its details by the end consumer but the general
outlines of such a system are clear. A Perfect Power System will provide electricity
service that is perfectly reliable, under any condition. For some consumers that will
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Preface
simply mean that it is always possible to turn the lights on. For others who rely on
digital equipment that is sensitive to even a fraction of a second power surge or
voltage sag, perfectly reliable will mean power delivered in a never-ending stream of
high-quality smart electrons.
The Perfect Power System will be efficient, providing power in a manner that uses
the fewest possible resources and has the least possible impact on our natural
environment. The Perfect Power System will deliver service that is affordable for all
consumers and will serve as a springboard for economic growth and opportunity.
The unrolling of the new technologies captured in this report will take off over the
next few years with massive levels of penetration within a decade. This path to the
Perfect Power System paves the way for the next phase of change, which will lead to
the Perfect Power System that is the primary goal of the Galvin Electricity Initiative.
The report has been researched and written by GF Energy, LLC. Roger W. Gale,
president and CEO of GF Energy (rgale@gfenergy.com (202) 236-8198) and JeanLouis Poirier, senior strategist (jlpoirier@gfenergy.com (202) 413-9098) managed
this project with support from Lynne Kiesling and David Bodde.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Executive Summary
Executive Summary
The actual price of electricity fluctuates in response to supply and demand. But in
today’s regulated utility system, few consumers have access to the actual, real-time
price of the electricity they are using. Only a small number of large customers get
advanced information such as hour-ahead or day-ahead prices. Instead most
electricity consumers, certainly the residential ones, pay the utility power provider
bill that amounts to an average of the price of the electricity they actually used during
a given period. A month later they get an opaque bill that provides little guidance on
how to use electricity more efficiently.
Numerous demonstration projects and commercial applications have shown that
changing this equation results in substantial consumer behavior change, with
measurable effect on their electric bill. Simply put, consumers who know what they
are paying for, and when, both use less and pay less for what they do use than do
those who are not informed. The report draws on numerous studies showing that the
reduction in peak and overall demand energy use has larger, societal and
environmental benefits as well.
Several factors have kept this transparent pricing structure from being made widely
available. Much of the technology that exists today to understand and manage energy
use is cumbersome and expensive, though there are major exceptions. While some
commercial markets might be willing to invest more time and money into these
technologies, the products have not yet evolved to meet the need.
Additionally, our research has found that many utilities are reluctant to offer this
price structure or technology to their customers for fear that it will lead to reduced
electricity sales overall and, therefore, hurt the bottom line. So, while most utilities
will be replacing today’s mechanical electric meters with smart meters, which are
capable of providing the customer with regular electronic flows of information,
nearly all utilities are beginning to use advanced meters only to reduce their cost of
collecting billing data and in some cases enabling them to remotely disconnect
customers who do not pay their bills or as a way of managing load.
New and emerging technology will change that unbalanced equation over the next
decade. In researching this report, we found that many of the major players in the
technology world are engaged in commercializing tools in the communications and
sensor space that are aimed at the comfort, security and entertainment markets in both
the residential and commercial sector. Large and small innovative companies are
entering the market almost daily.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Executive Summary
The shape these systems will take are limited only by the imagination. Already,
companies are marketing systems that allow the owner to control various facets of
their homes or businesses through the television or through Internet-based software.
These range from complex systems that run HVAC technologies for large commercial
spaces, to residential products such as programmable home entertainment systems
and thermostats that can be set via Web-based software.
As these technologies become ubiquitous, our research suggests that the ventures
behind them will begin to look for incremental services to enhance their value.
Trends toward rising fuel prices, increasing concern about resource depletion and
climate change, suggest more efficient energy management will be the next obvious
step. The combination of ubiquitous low-cost communications (wireless and
wired), standardization of Internet Protocols (IPs), low-cost mesh sensors and
modules will make precise, real-time and on-demand electricity management a
low-cost increment to investments already being made to serve other needs.
Widespread adoption of these technologies for energy management will create a
“customer pull” toward investment in technologies to upgrade the existing
electric grid, making it capable of responding in real-time to shifts in demand. It
also will encourage the commercialization of microgrids allowing communities,
institutions and commercial complexes to share electricity systems that include
local generation.
This, in turn, will allow for much more efficient decisions on where electricity is
generated and how it is distributed and allow the system to operate with less need for
large spinning reserves. This will be more economical and will improve the
environment. It also will encourage investments in distributed generation, including
microgrids.
That is the optimistic scenario and one we believe is born out by our research.
However, it is important to note that the barriers to change remain high and most
utilities are still driven by the desire to sell as many kilowatt hours of electricity as
possible. Consumer-end electricity management does not advance that cause.
The biggest challenge will be to assure that the electric company meter hanging
on the outside wall of buildings will be linked real-time with the customer-owned
building management system inside the wall. The ubiquitous IP-based
commonality now becoming standard will make that easy to achieve at the right time.
The immediate challenge is to make sure that the utility industry moves away from
small-scale proprietary systems and embraces broader, interoperable IP-based
protocols and approaches.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Executive Summary
Even with these hurdles, our research suggests that the utility industry recognizes the
need to evolve and adapt dramatically if it is to remain viable. That evolution will
involve no less than ceding control to consumers. The transformation is underway.
Key findings:
The electricity industry is in transition toward a demand-driven
business similar to most other industries that are driven by customer
preference and this transition could mean a substantial reduction in
energy demand.
If only 40 percent of residential customers begin managing their
energy load (about the same percentage as those who have cell
phones), we will see a major reduction in electricity demand.
This transition is driven by emerging technologies now focused
mostly in the comfort, security and entertainment space.
These technologies include low-cost communications (wireless and
wired), IP-standardization and low-cost mesh sensors and modules
using emerging protocols like Z-Wave and Zigbee.
In the commercial markets, there are enormous changes underway
that allow building owners to manage their electricity loads in single
buildings and in multiple locations intelligently and cost-effectively.
Combined with an expanded focus on green building design, new
HVAC technologies, enhanced energy storage technologies for
energy-intensive building applications and higher performance
decentralized generation and heat and power applications, we expect
to see that 40 percent of the sector could become fully Web-enabled,
consumer-controlled by the mid-2010s.
As these technologies become ubiquitous in residential and
commercial settings, the businesses involved will be looking for a
new way to add value to the product. The obvious value-add will be
real-time electricity management capabilities that will become a lowcost increment to home and building automation investments already
being made to serve other security, entertainment and comfort needs.
Research has shown that consumers, both residential and commercial,
want to manage their energy spending and use, as long as it is
relatively convenient.
A number of residential and commercial “killer applications” are
emerging in device remote monitoring, Web-enabled energy
management, building sensor intelligence, smart storage, advanced
metering infrastructure and distributed generation. They will allow
new entrants to offer new business templates. (We have identified
more than a dozen.)
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Executive Summary
New players are entering and will continue to enter the marketplace,
including Information technology (IT) network companies,
telecommunication corporations, software system integrators,
intelligence device manufacturers and private infrastructure
developers. These new players are often working through a new web
of flexible alliances and joint ventures to implement new business
models, many aimed at capitalizing on future demand response
opportunities. We have identified more than 400 active players.
In the next decade, the widespread adaptation of these technologies
will lead to more efficient use of the grid, lower demand, and less
stress on the environment.
The advent of these technologies will have a profound effect on the
utility industry. It will force utilities to change their business model
and regulators to approve more favorable regulatory regimes. So,
more utilities will end up investing in advanced metering
infrastructure (AMI) and microgrid technologies. The result will be a
better network backbone, with far fewer failures, better restoration
capability when needed and, moreover, fully able to emulate the
decentralized intelligence deployed in homes and commercial
buildings.
In addition, we are moving into a cellular power world, which
involves battery cells, photovoltaic cells and fuel cells, all being lowpolluting, quiet and modular. Many new power storage technologies
can be expected to emerge in coordination with an increased usage of
distributed generation at the home, building and microgrid levels.
Once we are able to manage electricity in real-time, it will be more
evident where to invest in decentralized power storage and distributed
generation (i.e., fuel cells, microgrids and grid-supporting power
storage systems). Whether in individual buildings and homes, in
neighborhoods or office parks or in sub-stations, local generation and
storage will be the next plug in the perfect electricity system equation
of the future.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Introduction
Introduction
GF Energy’s 2006 Electricity Outlook, which surveys U.S. and Canadian utility
CEOs and senior executives, identified a picture of a future where climate change,
real-time energy management and far more customer intimacy will rule. A decade
from now, demand response will flow as fast as electricity does today. And if the
industry is right, today’s utilities will be leading digital players. The changes that the
industry itself pictures are more transformational than in any year since we began
surveying the industry in 1992. Ninety-six percent of CEOs and other senior
executives expect billing and demand measurement to be IP-based in a decade, 84
percent believe demand response will be widely used and 81 percent believe real-time
pricing will be in effect.
In the long-term, new technology will change electricity
consumption and management
GF
ENERGY
LLC
Long-Term Technological
Innovations Expected
Internet Billing &
Demand Measurement
96%
Demand-Response
Systems for End User
84%
Plug-In Hybrid
Vehicles
83%
81%
Real-Time Pricing
Sensors on Most
Consuming Devices
62%
Microgrids
Storage
32%
21%
Q41: In the next 10 years, which of the following trends do you think will have begun to be implemented?
S
GF E
These changes in attitude signal one of the most transformational shifts in electric
utility thinking. The regulatory and financial incentives are not yet in alignment, but
there are more consensuses on the shape of demand response than on almost any
other issue.
In this report, we identify more than a dozen Business Opportunity Templates (BOTs)
that pull together the various new developments in technology focusing on specific
technology enablers and new entrants, while taking into account the likely evolving
role of incumbent utilities and legacy suppliers. Many new entrants are eyeing these
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 10
Introduction
BOTs, investing venture capital and announcing the release of new products every
month. Our goal is to provide a framework identifying the incentives and dynamics
that will lead to the transformation of the existing electricity industry into a real-time,
customer-driven business served by a new breed of technology and service providers.
We have identified four scenarios on which we focus our attention:
Residential retrofits
Residential new homes
Office buildings
Office microgrids
In addition to these four scenarios, there is technology transformation occurring in
the large industrial customer space and in some niche areas like hospitals and
emergency preparedness. But the four scenarios we have identified in this report have
high implementation and penetration promise over the next decade and are already in
their take-off stage.
Purpose of Report
The purpose of this report is to provide a compelling picture of a better electricity
world. One driven by real-time management of electricity in a system that assures
the highest levels of reliability, efficiency and environmental performance. It is a
system that is managed increasingly by customer demand response and is eventually
built on a combination of a robust, real-time central grid linked with more
decentralized microgrids. In this new world, customers and electricity suppliers will
share the responsibility for managing the use of electricity through demand-driven
controllers that manage price and also control devices in homes and buildings.
This report, part of the Galvin Electricity Initiative, focuses on the drivers that are
leading toward an electricity world dominated by three characteristics:
1.
The commercialization of a real-time, demand response-driven,
increasingly decentralized electricity market;
2.
The upgrade and improvement of the existing centralized
electricity grid;
3.
The improvement in the quality management of the grid with a
goal of perfection.
The focus of this report is on the emerging panoply of Internet-based technologies
that will allow the customer to control electricity use harnessing the customer’s selfinterest and the total electricity systems incentives to efficiently use resources. Four
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Introduction
scenarios, described below, capture how we see the residential and commercial
spaces leading the way toward a more perfect system.
In the digital world, electricity, often taken for granted, undergirds the entire digital
economy and must perform that role perfectly, economically and competitively. This
report shows how the digital world is changing the electricity world from a slowthinking, low-risk, low-innovation business into a real-time, creative world. Our
reliance on electricity to manage everyday life means that today’s frequency of power
outages and spikes will no longer be acceptable. There also is growing evidence that
the aging electricity grid subjects us to more frequent system failures today.
The consumer has virtually no control over electricity use. Electric power companies
do not provide the customer with data on how electricity is used except long after the
fact. Customers do not have the ability to monitor use of power in their own
buildings unless they are very large consumers, and there is little financial incentive
to manage electricity demand. In fact, in the past decade, most utilities have reduced
their demand-management programs. We have been going backward.
In the end, it comes down to control. If customers are more responsible for making
consumption decisions and have the tools to do so, price-driven incentives will
encourage customers to use less electricity. It is often said that customers don’t want
to spend time managing their electricity load. Larger customers do want to manage
their energy loads, and even smaller residential customers want choice and control
and will make decisions on their electricity-use profile if given the tools to do so.
Signaling customers that a period of high prices is approaching is an effective tool if
peak pricing is sufficiently higher than base pricing and, most important, the
customer has the tools to do something about it. Demonstration programs confirm
that customers do not want to spend a great deal of time managing their energy use,
but they do want to know more about how much electricity they are using and they
want to make the decision about how much to spend.
These four areas also share a common attribute, which is that electricity management
is an incremental addition to a longer value chain of IP-based automation investments
that are already occurring. These include media and home entertainment in the
residential space and HVAC and security control in the commercial space. The same
communication protocols, sensors and controller software and hardware used to
automate these functions and others, such as lighting, can also be used to manage
electricity use at a very low incremental cost.
Underlying Assumption
The underlying assumption of this report is that the combination of ubiquitous lowcost communications (wireless and wired), IP-standardization, low-cost mesh sensors
and modules make precise, real-time and on-demand electricity management a lowcost increment to investments already being made to serve other needs (i.e., security,
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 12
Introduction
entertainment, comfort and Web connectivity). As a result, many new entrants will
offer new customer-centric products and services. This will finally create a “customer
pull,” which will fuel the need for regulators to adopt new electricity rates that will
favor utilities to invest in advanced metering infrastructure and smart-grid
technologies.
This will allow the entire electricity grid to respond almost instantaneously to
demand changes, allow for much more efficient decisions on where electricity is
generated and how it is distributed and allow the system to operate with less need for
large spinning reserves. This will be more economical; it will improve the
environment; and it will encourage investments in distributed generation, including
microgrids.
The barriers to change remain high and most utilities are still driven by the desire to
sell as many kilowatt hours of electricity as possible. The above text is almost
identical to text found on actual page 8.) In those markets where the utility no longer
makes a profit on the electricity itself, there is even less incentive to help customers
manage their electricity load. And in very few markets do the electricity distribution
companies (the companies that own the wires) believe they have an incentive to
provide the customer with more information about their electricity load.
In many cases, utilities do have an incentive to reduce peak demand since the
production and purchase of electricity at those key times, especially during hot
summers, benefits the utility because not all these costs are always recoverable and
there is likely to be a time lag before the customer pays the utility.
In addition, utilities have almost no incentive to minimize distribution throughput.
The profit centers in utilities have little to gain by reducing throughput or, on the
other hand, providing customers with tools to manage their loads.
In short, the biggest incentive for utilities is to manage peak loads where they cannot
always be assured of full-cost recovery. But even in this space, utilities are often less
sensitive than they were when they had more financial risk. Unfortunately, there are
few peak load management tools available to utilities or customers today. The new
demand response tools we analyze in this report provide these capabilities.
Most utilities will be replacing today’s mechanical electric meters with smart meters
that are capable of providing the customer with regular electronic flows of
information. But so far, nearly all utilities are using advanced meters to reduce their
cost of collecting billing data and in some cases enabling them to remotely disconnect
customers who do not pay their bills or as a way of managing load.
Advanced metering can be adapted to provide the customer with more immediate and
direct information and allow the customer to start making decisions. Unfortunately,
this is not the driving force for new meter installation.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Introduction
Our presumption is that as customers make investments in home and commercial
electronics for reasons other than managing electricity (for HVAC control, home
entertainment, security, etc.), the incremental cost of adapting these investments for
managing electricity will continuously decline. As sensors and mesh networks
become more common, the cost of retrofitting existing buildings will decline and new
buildings will be designed to manage heavy sensor communications.
As a result, over the next decade, the adaptation of advanced electricity management
will become less of a leap and more of a managed incremental addition to the
electronic building.
The biggest challenge will be to assure that the electric company meter hanging on
the outside wall of buildings will be linked real-time with the customer-owned
building management system inside the wall. The ubiquitous IP-based commonality
now becoming standard will make that easy to achieve at the right time.
The immediate challenge is to make sure that the utility industry moves away from
small-scale proprietary systems and embraces broader, interoperable IP-based
protocols and approaches. These two paragraphs appear earlier on actual page 8.)
As electricity prices climb, reflecting higher cost of fuel and ambitious capital
spending for new baseload generating, grid upgrades, etc., utilities are becoming
more conscious of the impact on consumers and there is a great incentive to shift the
responsibility for demand-driven decisions to the consumer. This is the start of the
long-lasting trend identified in the GF Energy 2006 Electricity Outlook that will
result in much more investment in demand response tools and infrastructure.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 14
Section 1: Customer-Centric Drivers
Section 1: Customer-Centric Drivers
1.1 Customer-Centric Drivers
In a world driven by customer demand and increased decentralization of control, the
electricity industry is an anomaly. It is a centralized, supply-driven industry built
around a central grid with nearly no customer information, incentives or control. The
electric utility industry remains a highly supply-side incentivized and controlled
industry. After the recent period in which an independent merchant generation
business dominated the construction of generating plants, the industry appears to be
moving back into a mode of large-scale, rate-based regulated baseload generation.
Relative to nearly all other industries that have moved away from supply-side heavy
production facilities (steel, chemicals, oil refining, etc.), the electricity industry
continues by necessity in its heavy industrial mode since shipping electricity over
global long-distances is not a feasible option. Furthermore, the utility industry
remains a virtual monopoly, another anomaly in a world of fierce competition.
Mergers and acquisitions are underway and it is likely that the electricity business
will, therefore, become far more consolidated. However, it is not clear that the
upcoming battle of titans will result in a few good effective players eager to win the
loyalty of customers and set the perfect dynamic to inspire both innovation and
customer choice. Without challenges from the customer demand side, the result could
be a further entrenched and more consolidated industry.
This whole system and industry structure has performed very well over the past
century and we will continue to rely on it. But it also is a system that, by its very
nature and “command-and-control” design, is unable to achieve dynamic efficiency
and respond in real-time to demand changes. It is a system built on gross measures in
a world in which instant, fine-tuned, highly-precise responses to customer demand
drives business decisions and business performance. At the same time, in many
industries there has been a transformation from centralized systems to distributed
ones. The shift from the mainframe computer to the laptop computer is one, and the
shift from wired to wireless telephone networks is another. In electricity, the shift to
distributed generation is an analog trend, but it has remained embryonic and
incipient.
Another characteristic of the electricity industry is primitive communications and
knowledge-transfer with customers. For a long time, selling a low value-added
commodity has allowed utilities to have to learn little about customers and to neglect
distributed generation opportunities since they require more sophisticated two-way
real-time communications. The penchant of the industry to only operate on “its side”
of the meter reinforces self-imposed limits on managing load more efficiently
through distributed resources and demand response-driven technologies.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 15
Section 1: Customer-Centric Drivers
The abortive early-1990s effort to create a demand-side management (DSM) structure
has drastically set back the industry’s shift to a demand-driven approach. In fact, a
major decline in demand response at the residential level has taken place since the
early 1990s. The Department of Energy estimates a one-third decline. But today,
with higher energy prices on all fronts (natural gas, oil, coal and uranium) assumed to
be “here to stay,” there is a greater willingness to look at demand response and
energy efficiency efforts. Yet, this willingness may still not provide sufficient
sustainable incentives to make the necessary changes for several reasons:
Exaggerated DSM claims and poor track-record in most cases;
Fear of losing demand and, hence, revenue and earnings;
Reticence to get involved in sales of hardware and services to
customers based on the failure of most efforts over the past 10-20
years;
Lack of communications infrastructure to manage load, either
proprietary or open protocol;
Lack of experience in joint venturing and teaming with partners,
facilitators, retailers, etc.; and
Regulatory obstacles to getting into these businesses, which
discourage or prohibit demand response programs.
First, many DSM programs in the early 1990s received bad press due to poor design,
imperfect pricing, awkward administration and unsatisfactory monitoring, even
though DSM has been shown to succeed when well implemented. Most utilities were
happy to see these poorly conceived and implemented programs fail and have since
resisted efforts to reinstate DSM programs. The competitive pressures that utilities
have been subject to, especially in the 25 states that have allowed customers to shop
among electricity suppliers, have made utilities even more reticent to commit hard
dollars to helping customers manage their loads. There is no incentive for a utility to
“give” customers free services and then have them take their business to a new
entrant. While retail competition is not taking off at the residential level, utilities can
realistically be expected to remain averse to making capital investment commitments
on customer property.
Now that retail customer choice of electricity suppliers has failed—at least for now—
except in Texas, utilities may be a little more willing to invest in demandmanagement if they can be assured of a reasonable return that matches the return they
would otherwise make by selling more electricity. And they may be more willing if
they can piggyback on the capital investment made by other parties. Ultimately,
however, customer choice must be about more than just alternative commodity
suppliers and must reflect alternative, individualized electricity services.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
Another issue is property rights. The customer’s right to access data collected by the
utility. This remains an untested area but utilities can be expected to be reluctant to
allow customers to have access to meter data that could then be provided to thirdparties.
Second, utilities continue to believe demand response programs will reduce demand
and revenue with few or no offsetting advantages. In addition, demand response has a
reputation for being anti-generation, especially anti-nuclear, seen as an alternative to
building generation and exaggerated claims have dampened credibility.
Third, utilities have had bad experiences investing in “customer facing” technologies
such as telecommunications, Internet technologies, home and building security
services and other customer-related services. To the extent that some utilities are
investing in internal communications, they are often not doing so using open IPprotocols. Broadband over powerline (BPL) may provide a limited win for some
utilities where penetration of other high-speed Internet technologies has not moved
quickly, but BPL is not yet taking off on a broad scale and is, in most markets, very
late. Some companies like PEPCO have tried to get into the customer-retail end of
telecommunications through cable and other services, but these have been financial
failures because utilities are not able to compete against the large telecommunications
players like Verizon and Comcast, which specialize in combining high-speed
communications and content.
This poor track record has created a tremendous resistance to any new investment in
hardware and customer-based services. This resistance is most evident, GF Energy
has learned through its interviewing, in the independent demand response market
space at the commercial and residential levels. In our interviews with home and office
automation entrepreneurs, there has been universal agreement that working with
electric utilities is difficult because of resistance to investment in any technologies
that reduce kilowatt hour sales and a great reticence to commit to relying on standard
protocols rather than proprietary approaches. Decision-making also is slow and
ponderous compared to other sectors.
Furthermore, utilities also have been slow to install proprietary automated meter
reading systems. Perversely, the uneven track-record of DSM and the slow
penetration of automated meter reading (AMR) have saved the industry from having
made large investments in transitional technologies based on proprietary
architectures, but today, the industry is not ready to commit to sufficient capital
spending in the demand response realm. Although, as the GF Energy 2006 Electricity
Outlook results show, there is a consensus that they will have to make that
commitment. While there are technology drivers encouraging utilities to move into
the demand response space, there are still many disincentives to doing so. In most
states, incumbent utilities are still driven to sell as many kilowatt hours as possible
because that maximizes revenue. In most markets, there are few demand response
requirements and as the recent U.S. Department of Energy report notes, the way
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competition has been pursued in the U.S. has resulted in a massive decline in demand
response programs in those states where the responsibility for making prudent
decisions has shifted from the utility to the retail customer. In several states, fuel
costs are a pass-through, taking away all incentive for a utility to encourage demandmanagement. In other states where there has been an internal uncoupling of
commodity supply and delivery, the delivery entity is not allowed to offer demand
response technologies.
Texas is an exception with an effective price-to-beat-mechanism, default service
auctions and structural unbundling of energy sales from energy production and
delivery. In other states, the real problem is the lack of retail sales competition due to
state level politics.
The result is that today, few customers are able to manage their electricity demand.
They have no price signals, no choice among usage profiles that reflect their social
and economic views and no portals or interfaces that allow them to see how they are
using electricity. However, this status quo does not have to persist, and it will not.
With the maturation of an Internet protocol-based industry and cheap, ubiquitous
communications (wired and wireless), the electric power industry has the potential to
piggyback on the “computer revolution” to build on infrastructure and cultural
affinities incrementally.
We believe that there is sufficient experience and data to show that residential and
business customers want the right to choose suppliers and set their own usage
profiles. They may not want to be “bothered” by this all the time, but they realize that
it is in their interest to have the power to make their own judgments when they want
to exercise it. Control is important to humans and the paradigm change now
underway changes electricity from a “given,” over which the customer has no control,
to a set of specific options. For a small residential customer, this may mean opting to
buy a packaged demand profile that they buy from an Internet seller; for a larger
customer it may mean a dedicated electricity provider who actively manages supply
acquisition and demand management on a multi-site basis nationwide.
We also believe that the U.S. is moving toward an intersection where higher
electricity and fuel prices and changes in electricity rates are aligning with dramatic
advances in real-time IP-based wireless communications:
IT advances, especially IP-based and inexpensive sensors are creating
new opportunities for advanced metering, demand-management, etc.
Heavier reliance on high-quality electricity in home entertainments
backup and standby devices, etc., requires “perfect” electricity.
Emerging mass market in residential wireless sensor management
provides low-cost pathway to electricity management.
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Marginal pricing sets prices high enough to stimulate innovation and
the penetration of new technologies and trigger more peak shaving, as
an incentive to demand response.
GF Energy envisions a top line scenario in which virtually all electricity-using
devices incorporate real-time transmitting sensors that manage all load (on and off,
up and down, etc.) by both the user and the seller. This capability includes large
electricity consuming devices, such as furnace motors, heat pumps, refrigerators and
other kitchen devices, as well as lighting, entertainment, etc. Through electricity
portals, customers will be able to program energy management capabilities easily. In
addition, on a real-time basis, electricity delivery companies (distribution-wires
companies) and commodity suppliers, as well as dedicated energy management
companies, can program loads and maximize the grid and customer pricing.
In parallel, our scenario calls for increased deployment of advanced metering
infrastructure (AMI). In our vision, real-time, two-way metering will replace today’s
antiquated meter reading and billing. It will allow perfect communications among all
the parties interfacing with the grid. This capability will enable the load of the entire
electricity system to be planned and managed far more efficiently than today's gross
supply-driven measurements, based on crude historic loads and weather patterns with
the result being a system that requires less total capacity and which can significantly
better manage peaks. Massive data management will create a very efficient smartgrid.
As a result, the entire electricity grid will be able to respond almost instantaneously
to demand changes. It will allow for much more efficient decisions regarding where
electricity should be generated and how it is distributed, and it will allow the system
to operate with substantially fewer spinning reserves. This outcome will be more
economical and will improve the environment. It also will encourage investments in
distributed generation, including microgrids.
The new perfect grid will involve significant (but we don't yet know how much)
energy storage capacity at the site, in microgrids, etc., and a microgrid orientation
that will allow marginal load to be located and managed at the sub-station and below
level to maximize efficiency, reliability, instant response and the overall advantages
of a real-time system. With experience, GF Energy foresees more generation being
built locally through various distributed and renewable resources. There will be
significant variations in deployment depending on the demographics of markets
(income, geography, climate, customer consumption, residential and commercial
etc.). This also will require the capability to manage large volumes of real-time data
and central and microgrid energy management algorithms.
GF Energy's conclusion is that within 10 years the penetration of new technology will
be underway as an increment to the current trends in home and business automation,
which will allow rapid deployment of electricity-related management technology
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once the structural incentives are in place to supersede today's utility-opposition and
reticence to real-time load management. This technology will create the potential to
radically change the electricity system in the U.S. from its current archaic, imprecise,
supply-side driven incentives to a high-reliability, “perfect,” demand-driven incentive
industry where there finally is a customer “pull.”
This report shows how the world of electricity is changing, how customers, both
residential and business, will have the ability to manage their electricity use in
tandem with their suppliers. It also shows how that can be done inexpensively and
elegantly and how the quality of the electricity supply will improve, better match
supply and demand, lead to a perfect electricity system and usher in a new world of
decentralized generating plants, storage and, perhaps, such innovations as plug-in
hybrid cars.
1.2 Economic Drivers
There is extensive literature and experience to confirm that customers will take
advantage of the ability to manage their electricity, since there are many choices that
can be made by the consumer once the customer is aware of the variability in
electricity demand and price. Electric loads follow patterns that vary over the day and
the season. The daily variation is generally low off-peak demand overnight, a rise in
demand in the morning to a shoulder period through the day, a high-demand period in
the late afternoon and early evening (exacerbated by air conditioning on hot days)
and a return to a lower, shoulder demand in the evening. In the absence of any price
signals to stimulate variation over the course of the day, this pattern repeats daily.
The seasonal dimension depends on whether consumers in the area use electricity for
heating or cooling and the extremity of the climate variance.
Therefore, the cost of generating and distributing electric power service to end-use
customers varies over the day and across seasons. But the fixed retail rates that
customers have faced under retail regulation mean that the prices individual
consumers pay bear little or no relation to the actual marginal cost of providing
power in any given hour. Typically, wholesale power is sold at marginal cost, but the
customer does not feel the affects of those prices until they receive their obtuse paper
bill in the mail by which time, of course, they cannot do anything to change their
behavior. Facing fixed prices, consumers have no incentive to change their
consumption as the marginal cost of producing electricity changes. Furthermore,
fixed prices ignore any variation in benefits to consumers across time. The
consequences of this disconnect among cost, price and consumption transcend
inefficient energy consumption, to include inappropriate investment in generation and
transmission and a less reliable system than one that valued electricity, based on its
importance to the customer.
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1.3 Dynamic Pricing
Dynamic pricing harnesses the dramatic improvements in information technology of
the past 20 years to provide price signals that reflect variations in the actual costs and
benefits of providing electricity at different times of the day. These same
technological developments also give consumers a tool for managing their energy
use, in either manual or automated ways. Customers can make their own pricing
decisions, “sign up” for supplier profiles or let the supplier control demand through
switching and load management. Currently, with almost all U.S. consumers paying
average prices (even industrial and commercial consumers), consumers have little
incentive or the necessary tools to manage their consumption and shift it away from
peak hours during the day. That inelastic demand leads to more capital investment in
power plants than would occur if consumers could make choices based on their
preferences.
Without dynamic pricing, the power system will fail to deliver efficiency and value to
consumers. In other words, without dynamic pricing, the power system fails to be
perfect. It does not measure quality and price, the interaction between which is the
essential dynamic for the perfect system to work. The “one size fits all” of regulated
and fixed rates is obsolete because of technological, institutional, regulatory and
cultural changes that have created a diversity of products and services, which the
electricity industry can profitably sell to consumers. Dynamic pricing is necessary to
maximize the value of technological innovation and other market reforms that
characterize the Perfect Power System. Dynamic pricing also is, in and of itself, a
valuable step in producing efficient and fair electricity markets.
The evidence of the past 20 years suggests that customers respond in a variety of
ways and to a variety of degrees to dynamic pricing, even when they have only
rudimentary enabling technology. This evidence suggests that a substantial, new set
of value propositions exists in the novel technologies described in other sections of
this report. While most existing programs and studies focus primarily on consumer
behavior in the face of dynamic pricing, the focus is shifting to the question of the
symbiosis of pricing and technology. With the enabling technology, do customers
respond differently to dynamic pricing? In conjunction with dynamic pricing, the
ability of customers to choose and to control their electricity consumption using
digital technology is at the core of the pursuit of perfection in transforming the
electric power network.
Several utilities have implemented some limited, market-based pricing demonstration
programs. Although small and exploratory, these have generated positive results that
will be useful as more utilities move to market-based pricing. None of these programs
implement true dynamic pricing. Instead, they are more basic demand response
programs that use time-of-day price changes to give customers incentives to shift
load. Nor do most of them explore the effects of digital enabling technology beyond
simple interval meters. That said, these experiences do indicate how powerful price
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incentives can be for consumers and how dynamic pricing contributes to a reliable,
efficient electricity system.
1.4 How Enabling Technology and Pricing Interact
Dynamic pricing and the digital technology that enables communication of price
information are symbiotic. Dynamic pricing without enabling technology is
meaningless. Technology without economic signals to which to respond is extremely
limited in its ability to coordinate buyers and sellers in a way that optimizes network
quality and resource use. The combination of dynamic pricing and enabling
technology changes the value proposition to the consumer from “I flip the switch and
the light comes on,” to a more diverse and consumer-focused set of value-added
services.
Such diverse, value-added services empower consumers and enable them to control
their electricity choices with more granularity and precision than the environment in
which they think solely of the total amount of electricity they consume. Whether it is
a building control system that enables the consumer to see the amount of power used
by each function performed in the building, or an appliance that can be automated to
change its behavior based on changes in the retail price of electricity, these products
and services provide customers an opportunity to make better choices with more
precision than ever before. In aggregate, these choices lead to better capacity
utilization and better fuel resource utilization, and provide incentives for innovation
to meet their needs and capture their imaginations. On a macro level, they make
better use of electricity generated and can, in stressed times of high demand and tight
supply, reduce outages. In short, technological innovation and dynamic retail
electricity pricing are at the heart of the pursuit of perfection in the electric power
network.
In market processes, prices communicate valuable information about seller costs and
buyer values. This information does not only determine resource allocation in a static,
snapshot sense. It also determines the levels and types of investments and
innovations that occur. Those investments and innovations can change the nature and
quality of the network as a whole, in part, by changing the products and services
available to consumers.
Competitive markets provide powerful incentives for all market participants to act in
ways that benefit consumers. The incentives for innovation and efficiency that result
from this process have been successful in powering our economy and have given
American consumers a standard of living that is the envy of the world.
When evaluating fixed and dynamic pricing of electricity, economists use two
concepts of efficiency – static efficiency and dynamic efficiency. Static efficiency
measures the extent to which resources are allocated, produced and consumed
efficiently (that is, in ways that maximize total well-being or total surplus) in a short-
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run snapshot of the transaction. Dynamic efficiency measures the extent to which
investment, innovation and technological change occur, and optimizes resource
allocation, production and consumption over time.
In the short run, which is defined as the period when capital assets are fixed,
competitive markets reward suppliers for maximizing output from existing facilities,
while at the same time deterring producers from operating uneconomic facilities.
These markets also provide consumers with accurate signals of the true costs of
producing the goods and services they are interested in buying. These price signals
permit consumers to take advantage of low-cost goods and services, to the extent that
they are available and to protect themselves from excessive prices by switching to
other substitutes when market conditions cause any particular good or service to
become uneconomic. This process is frequently referred to as “static” efficiency.
In the long run, when investments in new capital assets are possible, competitive
markets provide even greater incentives for efficiency, while also providing
consumers with further protections from excessive prices. Unlike franchised
distribution utilities, competitive suppliers face the very harsh reality that they will be
forced out of business unless they can provide their customers with the goods and
services they want, at prices that are competitive with those offered by such
suppliers’ rivals. Thus, competition rewards businesses that excel at supplying
customers with what they want at a low cost, while punishing those that do not.
Most of the value creation that arises from retail competition comes from new
investment and innovation to produce new products and services. As technology
changes over time, robust retail competition is the means through which the product
differentiation and cost reduction benefits of these new technologies will be available
for customers, and will simultaneously reflect and shape their preferences. Moreover,
while competitive markets reward successful competitors with higher profits, those
higher profits also provide other businesses with powerful incentives to invest their
capital to compete with those successful competitors. Over time, this new entry tends
to reduce prices and, hence, profits to normal levels, to the benefit of consumers
generally. This second type of efficiency is frequently referred to as “dynamic”
efficiency.
1.5 Why Dynamic Pricing Is Important for the Pursuit of the Perfect
Power System
Keeping retail prices fixed truncates the information flow between wholesale and
retail markets and leads to inefficiency, price spikes and price volatility. But the
customer is generally not aware of those spikes and volatility until the next electricity
bill is received. Fixed retail rates for electric power service mean that the prices
individual consumers pay have little or no relation to the marginal cost of providing
power in any given hour. Moreover, because retail prices do not fluctuate, consumers
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are given no incentive to change their consumption as the marginal cost of producing
electricity changes. This severing of incentives leads to inefficient energy
consumption and also causes inappropriate investment in generation and transmission
capacity. It also has stifled the implementation of technologies that enable customers
to make active consumption decisions, even though communication technologies
have become ubiquitous, affordable and user-friendly.
George and Faruqui (2002, p.2) define dynamic pricing as “any electricity tariff that
recognizes the inherent uncertainty in supply costs.” Dynamic pricing can include
time-of-use (TOU) rates, which are different prices in blocks over a day, based on
expected wholesale prices, or real-time pricing (RTP) in which actual market prices
are transmitted to consumers, generally in increments of an hour or less. A TOU rate
typically applies predetermined prices to specific time periods by day and by season.
RTP differs from TOU mainly because RTP exposes consumers to unexpected
variations (positive and negative) due to demand conditions, weather and other
factors. In a sense, fixed retail rates and RTP are the endpoints of a continuum of how
much price variability the consumer sees, and different types of TOU systems are
points on that continuum. Thus, RTP is but one example of dynamic pricing. Both
RTP and TOU provide better price signals to customers than do current regulated
average prices. They also enable companies to sell, and customers to purchase,
electric power service as a differentiated product. RTP and TOU can be built into
customer decisions automatically once appliances and other devices have sensor
modules, but can immediately work by setting price targets that trigger overall
building demand reduction or control the cycling of air conditioning units, etc. Many
of these control technologies have been in use for many years and require no new
innovation or cost-breakthroughs. In fact, we have retreated in the past decade and
rely less on load management control boxes than we did in the early 1990s.
The benefits of implementing dynamic pricing are extensive and widely agreed upon.
Dynamic pricing makes the value of energy use transparent to consumers and
particularly benefits consumers whose consumption is flexible. That flexibility and
response to price signals leads to market power mitigation, because active demand
disciplines the ability of suppliers to raise prices. Consequently, dynamic pricing
leads to lower wholesale electricity prices, better capital utilization and load factors
and reduced needs for additional generation and transmission investment. In this way,
dynamic pricing leads to long-term cost reductions relative to fixed, regulated rates.
Dynamic pricing also promotes a more equitable distribution of those costs, because
it prioritizes electricity consumption according to value and does a better job of
reflecting the actual costs of service.
Increased reliability is one particularly valuable benefit of dynamic pricing. Although
reliability is traditionally treated as a supply issue, it also is a demand issue. Active
demand response to price signals inherently acts to moderate strains on the entire
system when that system’s use is properly priced. The connection of dynamic pricing
and demand response to transmission networks is the reduction of peak-period
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consumption. Customer load reduction can serve long-run reliability functions, by
reducing the likelihood of transmission bottlenecks and insufficient generation.
Reliability in the existing regulated model requires the utility to have (or have access
to) sufficient generation capacity to satisfy all demand at all hours of the day. This
high capital requirement is one consequence of the regulated “obligation to serve”
aspect of the government-granted monopoly franchise. The requirement to build to
meet peak is expensive, but the failure to use dynamic pricing to reduce those peaks
makes the capital requirement even higher.
One of the most important benefits of dynamic pricing is its promotion of innovation.
The transparency of price signals that better reflect actual costs, gives consumers
incentives to seek out novel products and services that better enable them to manage
their own energy choices and make decisions that better meet their needs. This
incentive induces entrepreneurs to invest their capital in providing products and
services that consumers may choose. Competition for the business of active, engaged
and empowered retail customers would drive innovation in end-use technologies,
such as integrated home gateways, that allow homeowners to manage their home
theaters, stereos, appliances and heating/cooling.
Another benefit of dynamic pricing is risk management. Dynamic pricing emphasizes
the information content of prices, an aspect of prices that frequently gets overlooked
in political debates. Prices communicate valuable information about relative value
and relative scarcity, and when buyers and sellers make consumption and production
decisions based on those signals, they communicate further information about value
and scarcity. This information transmission and aggregation process is at the core of
the efficiency of outcomes generated through market processes. An important policy
distinction arises between customers being required to see hourly prices and
customers having the opportunity to see hourly prices. Requiring real-time pricing
would both contradict the idea of choice and expose some customers to more price
risk than they might choose voluntarily.
However, concerns about retail price volatility are exaggerated, especially in an
environment where suppliers are free to offer a menu of different pricing contracts to
their consumers. One of the most valuable benefits of dynamic pricing, but also one
of the most underappreciated and least understood, is its insurance aspects. Dynamic
prices can provide two types of insurance: financial and physical. Financial insurance
is protection against price volatility; physical insurance is protection against quantity
volatility, or outage risk. From this point of view, the current regime has too much
price insurance, although substantial disagreement exists about the optimal level of
physical insurance.
In addition, there is extensive experience in the U.S. in delaying the impact of
extremely high prices and rolling them in over time to avoid price shocks. While this
may mitigate some of the impact of real-time pricing, it protects the customer from
extremes.
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As a wholesale commodity, electricity has volatile prices. The financial insurance
benefit of dynamic pricing derives from this inherent volatility. The traditional fixed
average rate for electricity has two components–the price of the electricity
commodity itself, and the risk premium that consumers pay for being protected from
volatile prices. However, given that regulated rates are typically set to approximate
long-run average cost, consumers do not always pay a full insurance premium for the
extent that they are insured against price volatility. Furthermore, in states that have
pursued restructuring, the political bargain usually includes a fixed, discounted, retail
rate during a multi-year phase-out of price caps. Discounts on historic rates
exacerbate the extent to which consumers do not pay a full insurance premium for the
protection from price volatility that they enjoy.
Dynamic pricing would create an opportunity for consumers to choose how much of
that price risk they are willing to bear, and how much they are willing to pay to
avoid, by laying it off on some other party (such as a retailer). Although regulated
rates have provided financial insurance, they do not fully communicate the cost of
insuring different types of consumers against different types of price risks. They also
fail to reflect the different degrees to which diverse consumers might choose to be
insured. Customer heterogeneity means that they have, among other things, different
risk preferences and different willingness to pay to avoid price risk. Dynamic prices
allow the electricity commodity price and the financial insurance premium
components of the price to be unbundled and offered separately to customers. This
unbundling would enable more efficient pricing of the financial risk, leading to better
risk allocation.
Quantity volatility, and the associated outage risk, differs from price risk because it is
a reliability of service issue that is not often connected with the idea of insurance.
This physical insurance characteristic is what creates the opportunity for value in
interruptible contracts. Dynamic pricing enables some customers to shift load to offpeak (a form of physical insurance), which can benefit all consumers because it
would reduce overall prices. Consumers who choose to use meters and face real-time
dynamic pricing will provide their own financial insurance, or not, as they choose.
But in so doing, they may provide a physical spillover benefit to other consumers, by
reducing overall peak usage and improving reliability for all, with less excess
capacity and, therefore, at lower average cost.
Critics argue that such risk considerations are too complicated for many customers.
Two important arguments address this concern. First, most customers, even
residential, have experience buying automobile collision insurance and many
consumers have experience investing through financial markets. Consumers have
experience in dealing with risk trade-offs, because they see this relationship in other
contexts, like collision insurance, and different customers have different risk profiles
and different risk preferences. Offering them alternatives that capture those
differences improves economic efficiency and resource allocation in the industry. For
these reasons, if regulators allow customers to choose how much risk to manage and
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how much to pay to avoid risk and how to manage those risks, consumers will
themselves create physical insurance for the whole system. Second, the network
aspects of the system mean that even if only some large customers find it worthwhile
to manage their financial risk, their choice to do so will benefit the system
participants more broadly, even those who do not choose to manage their own price
risk through a TOU or RTP contract. Thus, market-based pricing creates reliability,
an important feature of a Perfect Power System.
1.6 Estimates of the Value of Active Demand and Dynamic Pricing
Several studies have estimated the value of transforming the electric power network
to incorporate more active demand and digital technology. A Government
Accountability Office study (GAO 2004) reported estimates over the overall
economic value of more active electricity demand and the ability to respond to price
signals. These estimates of benefits range from $4.5 billion to $15 billion annually
(GAO 2004, Table 1, Table 2).
In 2004, the Rand Corporation performed an analysis of the benefits of the GridWise
Initiative, a national initiative to modernize the electric power network using
communication technology, building and appliance automation, market processes and
contracts. The GridWise Initiative emphasized the use of technology to communicate
information, including price signals. Thus, Rand’s estimate of the benefits of
GridWise provides evidence on the value of dynamic pricing and enabling
technology. Projecting estimates forward to 2025, the Rand study compares a phasedin GridWise transition to the Energy Information Administration’s Annual Energy
Outlook projections over the same period. GridWise modeled features include peak
load reduction, due to dynamic pricing, capacity investment deferral for generation,
transmission and distribution, reduced operating expenses, improved power quality
and reliability and improved efficiency. They use ranges of estimates of these
variables to arrive at aggregate discounted benefits from $32 billion to $132 billion.
Their nominal estimate of the net present value of benefits over 20 years is $81
billion (Rand 2004, p. 28).
Commercial and Industrial Customers
Utilities have been experimenting with dynamic pricing for large commercial and
industrial customers for more than 25 years. Larger customers are generally believed
to be more willing and able to respond to price signals than smaller customers. In
many cases, larger customers have building controls and other installed technology
networks that enable them to automate electricity price response behavior more
readily and at less cost than smaller customers. Studies over the past 25 years
demonstrate that this presumption is generally true, but that larger customers do vary
greatly on their actual responses to dynamic pricing and to the enabling technology
they possess and are willing to use to automate behavioral responses.
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Studies of consumer behavior in the face of dynamic pricing use two different
measures of response: price elasticity of demand (also called own-price elasticity or
daily elasticity) and elasticity of substitution. Elasticity of substitution is the measure
of response, which looks at the ratio of peak to off-peak quantity relative to the ratio
of peak to off-peak price.
Early analyses of commercial and industrial (C&I) customer response to price signals
focused on a particular time-of-use structure called peak-load pricing. Peak-load
pricing involves charging a higher price during a designated peak period and a lower
price during the rest of the day, with both prices known in advance. Aigner and
Hirshberg (1985) studied heterogeneous small and medium-sized commercial and
industrial firms with peak-load pricing in Southern California. They found a
“significant though small estimated elasticity of substitution of 0.4433,” (p. 352).
They also found that for the largest customers, their summer responses would have
been sufficient to generate enough savings to offset more than the cost of the interval
meter required to communicate the price signal to the customer.
Herriges et. al. (1993) analyzed a time-of-use rate and a (revenue neutral) real-time
rate experiment performed with Niagara Mohawk’s large energy customers. Niagara
Mohawk divided customers into a time-of-use group, a real-time group that received
an hourly price, and a control group facing their current rate structure. Their analysis
indicated that in peak hours the real-time price users reduced their consumption by 36
percent, while the control group only reduced their peak use by five percent. On the
highest priced days, the real-time users decreased their energy use over the entire
day, while the control group’s use increased. These results provided early evidence
that large users do respond to price signals and can both decrease energy demand and
shift energy use to non-peak hours. Herriges et al also found that responsiveness did
vary, even among large users, but that the responses of a few large customers were
sufficient to cut peak demand substantially. This result illustrates how nonlinear the
system effects of dynamic pricing can be. Small changes in individual behavior at
the margin can have large effects on other variables, such as grid stability and
wholesale energy prices.
More recently, Georgia Power’s real-time pricing pilot program incorporates an
innovation in designing retail pricing structures. More than 1,600 customers with
5,000 total megawatts (an average of 3.1 megawatts per customer) of peak demand
participate (O’Sheasy October 2002). Each participating customer has a right to
consume the current load profile used in rate calculations for that customer, and any
deviations from the load profile are priced with reference to a real-time price. Thus,
the customer can consume along the pattern that the utility expected when calculating
the regulated rates and that consumer would be no worse off. The consumer can also
choose to deviate at the real-time price. This program uses load profiling to send the
appropriate price signals to the consumer, at least for the energy portion of the bill.
Monthly administration fees charged to customers range from $155 to $195
depending on plan and usage, to cover billing, administrative and communication
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Section 1: Customer-Centric Drivers
costs. Customers also have access to an Internet Web site for the retrieval of price
information.
Georgia Power has seen load reductions of 10 to 20 percent of peak demand for
participating customers. Georgia Power also has observed that its commercial and
industrial customers exhibit a wide range of price elasticities of demand when they
can act on their preferences, even within two-digit standard industrial classification
(SIC) codes. These customers were able to shift demand away from peak hours,
reduce overall demand and smooth out both the prices and the aggregate load profile
of Georgia Power’s large users. Note that the Georgia Power program relies on
creative use of the load profile as a baseline, and not necessarily on using technology
to enable price signals and to automate responses to those signals.
Niagara Mohawk customers have had further opportunities to make retail choices
involving dynamic pricing. In 2000, New York instituted retail competition and realtime pricing as the default retail option for large C&I customers. Thus, large C&I
customers could choose to purchase retail service from retailers other than the
incumbent utility, and if they chose to stay with Niagara Mohawk, they would pay a
real-time price for the energy component of their bill. Goldman et. al. (2004a, 2004b,
2005) analyzed data for customers with peak demand larger than two megawatts that
faced a real-time price, whether from the incumbent utility or from a competing
retailer. On average, the customers responded to dynamic pricing with an elasticity of
substitution ranging from –0.11 to –0.14. Although the reports do not provide much
detail about the use of technology by the customers, customer survey responses
indicate that although they may have building control technology installed, many of
them do not use it to automate short-term response to price signals, but instead use it
to manage their long-term energy use and budget (Goldman et. al. 2005, p. 17).
Residential Customers
Residential customers are generally believed to be less able to change their behavior
in response to dynamic pricing, and to be less willing to do so. As with commercial
and industrial customers, however, there is considerable heterogeneity within the
residential customer class. Technology and retail entrepreneurs could exploit this
heterogeneity to provide technologically-interested and early adopter consumers with
attractive, novel value propositions. Studies of residential response to dynamic
pricing suggest that even without much enabling technology, customers do respond to
simple price signals. Furthermore, when equipped with enabling technology that can
include digital home gateways and/or smart, grid-friendly appliances, such
technology produces even stronger responses to dynamic pricing.
Wisconsin was the pioneer in exploring the use of peak-load pricing to residential
customers. Caves and Christensen (1980) and Caves, Christensen and Herriges (1987)
describe a residential peak-load pricing experiment in Wisconsin between 1976 and
1980. Different customers had different “slopes” or differences between off-peak and
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
peak rates. Consumers did respond to peak-load pricing by shifting their use.
Furthermore, the consumers whose behavior changed the most were those with air
conditioners and those with electric water heaters. The price elasticity of demand of
these consumers was higher in certain peak hours and varied across the day, as
measured by differences in elasticities of substitution. Caves, Herriges and Keuster
(1989) performed a similar analysis of Pacific Gas & Electric’s TOU rate experiment,
with similar results.
One brief episode during the California electricity crisis provides further evidence on
the extent of customer demand response, even in the absence of advance price signals
and enabling technology. By 2000, San Diego Gas & Electric (SDGE) had recovered
its stranded costs and was released from the retail rate cap established by the
California Public Utilities Commission (CPUC). SDGE set its rates to end-use
customers based on a five-week moving average of wholesale market prices.
Unfortunately, the price of natural gas had risen by then, and much of California’s
“market” had shifted to the real-time spot market, which raised wholesale prices. San
Diego Gas & Electric passed these increased costs on to consumers and in the
summer of 2000, most San Diego customers saw their electric rates double.
Furthermore, they only saw the effects of the rate increase after the fact, when their
bills arrived. Consumers complained, and complained enough to have rate regulation
reimposed in September 2000, but they also conserved in response to price increases.
Bushnell and Mansur (2001) estimated that the average price elasticity of demand
during the three months before the reimposition of regulated rates was –0.068. A 100
percent increase in price led to a 6.8 percent decrease in consumption (Bushnell and
Mansur 2001). This event provides some evidence that although demand for electric
power is inelastic, it is indeed downward sloping, and customers can and do respond
to price signals.
California’s electricity policy challenges, particularly the absence of active demand
to discipline the pricing behavior of suppliers, led to the California Statewide Pricing
Pilot (SPP). A joint project of the investor-owned utilities, the CPUC and the
California Energy Commission, the SPP tested different pricing structures and how
customers responded to them during 18 months between July 2003 and December
2004. Different types of TOU price structures, some of which had a critical peak
price (CPP), were faced by 2,500 residential and small commercial or industrial
customers. All participants faced at least a peak price and an off-peak price, except
for one group that received only day-ahead critical period notification, but did not
receive price signals. Prices varied seasonally, reflecting the higher cost (and higher
value) of providing power during summer months. Participants received digital
meters capable of receiving and communicating hourly price signals.
Residential SPP participants faced one of four pricing structures that are called: CPPF, CPP-V, TOU and information only. CPP-F involved a fixed TOU structure on all
weekdays, but up to 15 days per year a critical peak price period could be called, for
which participants would be notified 24 hours in advance, and the CPP price and
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
length of critical peak were fixed. TOU participants faced the same price structure as
the CPP-F households, except that they did not receive any CPP notifications. The
CPP-V rate varied from the CPP-F rate in three ways: participants would receive
notification of a critical period up to four hours in advance instead of 24 hours, the
critical peak period they faced could vary from one to five hours and they had
supplemental enabling technology that they could use to manage their responses to
price signals.
The SPP final report includes estimates of both the daily own-price elasticity of
demand and the elasticity of substitution. For the CPP-F participants, the daily price
elasticity in 2003 equaled -0.035 and the 2004 daily price elasticity was –0.054. The
elasticity of substitution in 2003 equaled -0.09 and the 2004 elasticity of substitution
was –0.086 (CRA 2005, p. 48). Average reductions in consumption were highest
during the summer months (July, August and September), and the houses with central
air conditioning had the largest absolute and percentage reduction in consumption.
Overall consumption did not decrease, so there was no conservation effect among
these participants. Unfortunately, the TOU sample size was sufficiently small to limit
any inferences that can be drawn from their behavior.
CPP-V participants had daily price elasticities ranging between –0.027 and –0.044
and elasticities of substitution between –0.077 and –0.111. However, the most
important result from the CPP-V analysis is that the use of supplemental enabling
technology amplified the impact (i.e., reduction of consumption in response to price
signal) relative to that seen in the CPP-F sample. The impact of the group with
enabling technology was more than double the average CPP-F impact (27 percent vs.
13 percent) (CRA 2005, p. 109). Furthermore, an econometric decomposition of the
impact of the CPP-V decisions indicates that 60 percent of the impact was due to the
use of the enabling technology and 40 percent was due to other behavioral responses.
This result is the crucial one for showing the potential that digital technology has for
increasing the ease of automating decisions for residential customers, and thus, for
turning active demand into a network resource.
Information-only participants did not create significant reductions in use during
critical hours. This result led the SPP analysts to conclude that demand response is
unsustainable in the absence of the price signals inherent in dynamic pricing.
In 2004, the SPP participants had some instances of critical periods being called on
multiple days (two or three) in a row. In these cases, the repetition did not induce a
statistically significant fatigue, or diminution in response to the dynamic pricing.
The SPP also had small commercial and industrial participants. Those with peak
demand less than 20 kilowatts reduced their consumption by 14.3 percent when on
the CPP-V structure described above, and all of that reduction could be attributed to
using enabling technology to respond to the dynamic pricing. Those with peak
demand greater than 20 kilowatts reduced their consumption by 13.8 percent on the
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
CPP-V structure, with 80 percent of that impact due to enabling technology and 20
percent due to other behavioral changes.
Gulf Power in Florida (a subsidiary of Southern Company) operates a residential
demand response program, based on a combination of metering and control
technology, customer service and a TOU pricing structure. Gulf Power’s Good Cents
Select program uses a four-part TOU price structure, a programmable thermostat that
allows customers to establish settings based on temperature and price, meter-reading
technology and load control technology for customers to shift load if they chose in
response to price signals. Customers also pay a participation fee, which is one
unusual feature of the Gulf Power program.
In 2001, 2,300 residences participated in the Good Cents Select program. In that year,
Gulf Power achieved energy use reductions of 22 percent during high-price periods
and 41 percent during critical (usually weather-related) periods. Furthermore,
customer satisfaction is 96 percent, the highest satisfaction rating for any Gulf Power
program in its history, notwithstanding the monthly participation fee. Customers say
that the $4.53 fee (which covers approximately 60 percent of program costs) is worth
the energy management and automation benefits that they derive from participating in
the program (Borenstein et. al. (2002), Appendix B).
The Good Cents Select program is unique in its use of technology to provide
residential customers with automation capabilities. Each home has a programmable
gateway/interface that, in addition to allowing thermostat programming, enables the
customer to program up to four devices in the home to respond to price signals (GAO
2005, p. 9, p. 42). When surveyed, part of the high customer satisfaction and
willingness to pay a monthly participation fee arises from this ability to use
technology to manage energy use in the home and increase the ease of making
choices in the face of price signals.
Another innovative residential demand response program is in place in northern
Illinois. The Energy-Smart Pricing Plan (ESPP) is a three-year joint effort between
the Center for Neighborhood Technology’s Community Energy Cooperative and
Commonwealth Edison. In its first year (2003), the program had 750 participants in a
variety of neighborhoods and types of homes, from large single-family homes to
multiple-unit buildings. In 2004, the program expanded to 1,000 participants and in
2005, the program had 1,500 participants. It is the only large-scale program that
presents residential customers with hourly price signals. Commonwealth Edison
provides the hourly prices, on a rate tariff approved by the Illinois Commerce
Commission.
The keys to the Energy-Smart Pricing Plan are simplicity and transparency in the
transmission of information to residential customers. Participants receive a simple
digital interval meter and can either call a toll-free phone number or visit a Web site
to see what the hourly prices will be on the following day. Furthermore, if the next
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
day’s peak prices will exceed 10 cents per kilowatt hour, customers receive a
notification by phone, e-mail or fax. Customers will never pay a price above 50 cents
per kilowatt hour, which the Community Energy Cooperative implemented by buying
a financial hedge at 50 cents.
In 2003, customers saved an average of 19.6 percent on their energy bills (Summit
Blue 2004). They generally joined the program expecting to save $10 per month on
average and were not disappointed. Surveys indicate that the participants found the
price information timely and that with this small inducement to save money on their
energy bill by making small behavioral modifications, they actually became more
aware of their energy use overall, only in the approximately 30 hours last summer
that had higher prices. They also said that their personal contributions toward reduced
energy use and improving the environment by participating in this plan really
mattered to them.
Although the summer of 2003 was mild in northern Illinois, participants did respond
when prices rose. Most residents increased the temperature on their air conditioners
or shifted their laundry time to off-peak hours. The econometric analysis of the
results showed a price elasticity of demand in those hours, at the margin, of –0.042.
In other words, when price rose by 100 percent, participants reduced their electricity
use by 4.2 percent. For residential electricity customers, this is a healthy response,
particularly given the lack of severe weather conditions. This reduction in use is a
reduction at the margin, a margin that can often see prices go up by more than 100
percent in peak hours on hot days. Thus, although the elasticity number may sound
low because it is at the margin and at the right time, it can take strain off of the
system and contribute to grid stability and service reliability in those hours. On
average, the residents on ESPP reduced their energy use in high price hours by
approximately 20 percent, a number similar to the reductions seen in the Gulf Power
program.
In 2004, another mild summer in northern Illinois, the price elasticity of demand was
–0.08. A 100 percent increase in price led to an 8 percent decrease in consumption at
the margin. Again, this number is consistent with those seen in other studies. As in
2003, the price elasticity of demand for multiple-family dwellings with no air
conditioning was surprisingly high: -0.117 (Summit Blue 2005, p. 10). In 2004, 57 of
the participants had automation switches added to their air conditioning to enable
price-triggered air conditioning cycling during high price notifications, but the cool
weather and infrequent high price notifications made evaluating this effect difficult.
When surveyed, 34 percent of participants said they had replaced a major appliance
since joining the program, and almost all of them bought more energy efficient units
(Summit Blue 2005, p. 35). These results indicate that even in the presence of cool
weather, the dynamic pricing did provide incentives to manage energy use.
In Illinois, the summer of 2005 was hot, with sustained periods of high electricity
prices. Over the entire summer and the total participant pool, the price elasticity of
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
demand at the margin was –0.047. A 100 percent increase in price led to a 4.7
percent decrease in consumption. On the hottest day of the summer, July 15, total
electricity consumption by the participants was 15 percent lower than the level of
consumption predicted if the participants had not been receiving dynamic price
signals. The hot weather led to many hours with high price notifications and
customers did respond to these notifications. In particular, those receiving e-mail
notifications responded more than those who received them by telephone. It is
unclear whether the form of the notification or selection bias within the participant
pool is the main reason for this difference. The frequency of high price notifications
did lead to fatigue, or a diminution in response, when the notifications occurred in a
row, but responses did rebound as time increased between high price notifications.
The hot weather in 2005 also enabled examination of the effects of the automated air
conditioner cycling. The use of automated switches increased the price elasticity of
demand for those customers to –0.069, an increase of 0.022 (46 percent) relative to
the elasticity for the total participant pool. This result suggests that automation of
control can amplify demand response and the various individual and system benefits
that derive from it.
A current project in the Pacific Northwest promises to provide further evidence on
consumer behavior with dynamic pricing and enabling technology. The Pacific
Northwest National Laboratory GridWise Olympic Peninsula Project involves 130
households by presenting them with enabling technology and the opportunity to
choose a retail contract from a menu of contracts. The enabling technology is a
programmable thermostat with a graphical user interface, a digital meter and a water
heater that can receive digital data, such as a price signal, and be programmed to
provide an automated response to that price signal. Participants choose one contract
type from the following menu: fixed, RTP, or TOU with a critical peak component.
This project directly explores the interaction between dynamic pricing and the
availability and use of enabling technology to automate decisions. The project began
in April 2006 and will continue for one year.
Table 1.1 summarizes the own-price elasticity, elasticity of substitution and
impact/peak consumption reduction results in the projects discussed above. The range
of results and the consistency of some degree of impact across the studies indicate
that consumers can and do respond to dynamic pricing, and that installed enabling
technology creates the opportunity for them to amplify that response by automating
their behavior.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
Table 1.1
Summary of Elasticity and Impact Results
OwnPrice
Elasticity
Elasticity of
Substitution
Reduction of
Peak
Consumption
Location
Type of
Customer
New York
C&I
Goldman
et. al.
2003
-0.14
New York
C&I
Goldman
et. al.
2004
-0.11
San Diego
Mix
Bushnell
& Mansur
(2001)
2000
-0.068
CA CPP-F
Residential
CRA
(2005)
2003
-0.035
-0.09
CA CPP-F
Residential
CRA
(2005)
2004
-0.054
-0.086
13% (average)
CA CPP-V
Residential
w/technol.
CRA
(2005)
20032004
-0.027 to
-0.044
-0.077 to –0.111
27% (average)
CA CPP-V
C&I LT20
CRA
(2005)
20032004
14.3%
CA CPP-V
C&I GT20
CRA
(2005)
20032004
13.8%
Gulf Power
Residential
Borenstein
et.
al.
(2002)
2001
22% (high price
sig)
41%
(weather
crit.)
Chicago
ESPP
Residential
Summit
Blue
2003
-0.042
Chicago
ESPP
Residential
Summit
Blue
2004
-0.08
Chicago
ESPP
Residential
Summit
Blue
2005
-0.047
Chicago
ESPP
Residential
w/AC switch
Summit
Blue
2005
-0.069
Study
Year
The success of such programs for such a heterogeneous variety of customers shows the
potential future for active retail choice in electric power. Current “load profiling”
practices of public utilities with flat rates lump all consumers into large groups, and
charges them similar rates whether they consume on-peak or off. This practice means
the more frugal customers end up helping to pay for the most extravagant – a kind of
“customer service” that belongs to the past.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 1: Customer-Centric Drivers
1.7 Conclusion
The evidence presented here demonstrates that consumers of all types can and do
respond to electricity price signals. Furthermore, consumers have responded to price
signals with even the most rudimentary digital technology–a simple interval meter.
Evidence of the effect of enabling technology is largely impressionistic, because most
studies and projects have focused on demonstrating customer response to price
signals and not on the incremental effect of technology. In three cases discussed here
(California Statewide Pricing Pilot, Center for Neighborhood ESPP and Gulf Power
Good Cents Program), studies have documented a substantial amplification of the
demand response due specifically to the technology available to the consumer. Thus,
the evidence of consumer response to dynamic pricing presented here offers a lower
bound on the type and magnitude of behavior we could expect from consumers
empowered with the choice of more sophisticated technology.
One limitation of the programs and pilots that have taken place over the last two
decades is their known, finite nature. If customers know that a program is finite, they
may behave differently than they would if presented with open-ended retail options.
Furthermore, the length of the program may not be sufficiently long to provide a
payback to the customer for the change in behavior.
Retail electric choice puts more control in the hands of consumers and empowers
them to make intelligent energy choices, including the choice to use digital
technology to automate their behavior in response to dynamic pricing. Consumers
could choose anything from a fixed price that incorporates an insurance premium to
full, real-time pricing, in which the customer bears the financial risk of price
volatility, but could see electricity bills fall by shifting or reducing use.
The negative consequences of fixing retail rates have been hidden for decades by
other aspects of regulation, such as the control of wholesale prices and excess supply
in generation, but the problems arising from fixed retail rates have become more
obvious in the era of restructuring. In particular, the liberalization of wholesale prices
has disconnected the wholesale and retail markets, with unintended negative effects
for customers and firms. The pursuit of perfection and the transformation of the
electric power network require reconnecting those markets through price signals.
One of the most effective means of accomplishing that goal is by harnessing the
symbiotic relationship of dynamic pricing and enabling technology.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
Section 2: Business Opportunity Templates and Deployment
Scenarios
In this section, we first describe the range of emerging business opportunities that we
expect will be actively pursued in the next decade as new technology rolls out, new
entrants propose new offerings and residential and commercial customers embrace
the resulting broader choice and perfection in electricity usage and demand. Next, we
describe four deployment scenarios to help visualize what we believe could happen in
the most promising residential and commercial applications. Finally, we show
estimates of overall benefits by 2015 as the U.S. electric utility industry moves closer
toward enabling a Perfect Power System.
2.1 Potential Business Opportunity Templates
Based on our research and interviews with new entrants, GF Energy has identified
more than a dozen Business Opportunity Templates (BOTs) that we believe capture
the emerging dynamics of the demand-driven electricity industry in the residential,
commercial and network infrastructure sectors.
In particular, we conclude that within a decade, we may well reach a tipping point
where the entire system will have been sufficiently enabled to allow a true “plug and
play” environment where new technologies can be brought in on time and at
reasonable costs in both the residential and commercial sectors. This tipping point
will occur when:
Home automation systems have become a staple offering from
hardware retailers, home contractors, telephone companies and energy
retailers.
Building intelligence is implemented in more than half of the new
commercial buildings.
A whole new breed of system integrators has proved itself in the
commercial sector.
Active demand response (DR) programs are in place in all key load
centers and their track record has been established for a few years and
results have fostered the emergence of large-scale DR service
providers with customer bases that represent combined loads of
several gigawatt (GW) each.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
A large number of Fortune 500 companies have their multi-site
facility portfolios fully Web-enabled and monitored and have
subscribed to extensive and sophisticated demand response services.
Submetering has started to be widely and successfully implemented in
the commercial leased space and is becoming a valid option in multifamily and office buildings alike.
About 40 to 45 percent of aggregate load is served in areas equipped
with advanced metering infrastructure (AMI).
Grid interoperability has been mostly achieved (for more than 85
percent of the load).
More than 20 percent of new network investments are smart-grid
related.
As we progress toward this tipping point, new BOTs (i.e., new technological and
contractual offerings generally involving new entrants) will emerge. Our analysis
already reveals 14 emerging and promising BOTs, across the three sectors that are the
focus of this report: four residential BOTs, five commercial BOTs and five BOTs aimed
at the network infrastructure sector.
GF
ENERGY
LLC
Examples of new business opportunities
Commercial Sector
Residential Sector
Web‐enabled home control energy systems (inc. installation, maintenance and monitoring)
Automated home demand response (DR) capability
Smart grid‐interactive power storage systems (with built‐in energy management capability)
DG systems (with built‐in energy management capability) Integrated building intelligence solutions Turnkey perfect power block solutions Perfect power concierging Corporate DR service provider Full commercial perfect power retailing Infrastructure Networks
AMI turnkey solutions
AMI concessions
Regional AMI Independent System Operator
Enhanced Distribution Reliability Zones
Regional smart grid funds Next, we review the key aspects of these BOTs which are addressed in detail in
sections 3 through 5 of this report. We then discuss the likely timing of their market
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
adoption and roll-out. Finally we focus on four interesting BOT deployment
scenarios.
2.1.1 Residential BOTs
In the residential sector, we anticipate four basic BOT levels (in increasing frequency
order):
Level 1 - Installation, maintenance and content support for Webenabled home energy control systems;
Level 2 - Subscription services to automated DR programs;
Level 3 - Installation, financing, maintenance and remote
management of smart-grid-interactive power storage systems (with
built-in energy management capability); and
Level 4 - Installation, financing, maintenance and remote
management of distributed generation (DG) systems (with built-in
energy management capability as well).
We expect that, in two-thirds of the cases, we will end up with offerings that combine
both levels 1 and 2. Market penetration for levels 3 and 4 may be more limited for a
while until more is known about the true potential for monetizable demand response
in the residential sector. We also believe that, in most residential applications, it will
be a choice (either/or) between levels 3 and 4 when they occur.
New Entrant Type Security Company
Big Box
Retailer
Telecomm
Company
Energy
Retailer
New Home Developer
Level 1‐ Installation, maintenance and content support for web‐
enabled home control energy systems
++
++
+++
+/++
+++
Level 2 ‐ Automated Home DR programs
+
+
++
+++
+
+
0/+
+/++
++/+++
++
+
0
+
++/+++
+/++
Business Opportunities Level 3 ‐ Smart grid‐interactive power storage systems (with built‐in energy management capability)
Level 4‐ DG systems (with built‐in energy management capability) Likelihood and Fit: 0= unlikely; +=low; ++=moderate; +++=best
Source: GF Energy
The potential in residential applications will be fueled by an influx of many new
entrants eager to offer new products and services and leverage their existing book of
business. In our opinion:
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Section 2: Business Opportunity Templates and Deployment Scenarios
Security companies will find themselves well suited to help in the
deployment of home energy control systems that use the most of (and
are best tied with) the existing security systems that are in place.
“Big Box” retailers (e.g., Best Buy) will team with DR service
providers (e.g., New Energy) to sell customized multi-year (e.g., twoto three-year) DR subscription packages. Similarly, specialty retailers
can be expected to work together with either local distribution utilities
or telephone companies.
Telecommunications companies, both legacy players like Verizon and
AT&T and new entrants, will become natural players, being eager to
sell as many solutions as possible using their bandwidth and home
installation force. In addition to promoting entertainment systems and
security systems, they will market, maintain and bring the content
support to home energy management networks.
Energy retailers (e.g., Direct Energy or New Energy) may also market
home energy systems and smart-grid-interactive systems while
proposing to enroll their resident customers in local DR programs and
share the resulting benefits with them. Energy retailers also can mine
the residents’ energy usage information to help manage their own
electric supply load.
New home developers will propose various levels of energy
management systems and smart-grid-interactive storage in their
design options and may even team with third parties to sign up buyers
for certain demand response service plans.
Property managers for condominiums and rental multi-family
buildings will be able to offer submetered services.
We anticipate residential Web-enabled home energy management systems to become
commoditized offerings within four to six years even if reliable DR markets take
longer to evolve. Future winners will be companies with the largest books of business
and the best business processes, either telecommunications companies or large scale
retailers, the latter having the most to gain in an increasingly deregulated electricity
market.
2.1.2 Commercial BOTs
In the commercial building space, the four basic BOT blocks found in the residential
sector also will apply. However, the decision-making process in the commercial
sector is more structured. Applications are more complex and there already strong
established business models in place. So, we anticipate the emergence of more hybrid
BOTs (listed in increasing frequency order) along five different types:
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Section 2: Business Opportunity Templates and Deployment Scenarios
Type 1 - Intelligent turnkey building intelligence solutions that
perfectly tie fully Web-enabled energy management systems with
other building automation applications.
Type 2 - Intelligent turnkey Perfect Power block solutions from
specialty system integrators offering the best design combination and
installation of decentralized uninterruptible power supplies (UPS),
storage and DG “Perfect Power protection block solutions.”
Type 3 – Perfect Power (energy/power concierging) a la carte in
multi-tenant office buildings. This offering would involve a new
building where the building owner and operator offers a full menu of
building intelligence services (e.g., full Web-enabled energy
management combined with wireless sensor networks) combined with
different menu-type levels of DR management and high power
reliability capability.
Type 4 – Corporate DR Service Provider. This is, in essence, the new,
improved breed or wave of energy service companies (ESCOs) (the
first ones started operations in the mid-1980s). This type of player
would help manage, under a multi-year contract, the entire DR
potential of a corporate account with multi-sites in one or several
states. The load and energy usage information would be acquired and
monitored through the Web and the service provider would coordinate
all the DR responses in all the relevant states, providing a transparent
accounting of all the DR savings and credits earned through the
coordinated corporate program.
Type 5 – Full commercial Perfect Power retailing. This would involve
an energy retailer offering to commercial customers not only a
conventional commodity contract, but also a DR service combined
with grid-interactive storage and/or DG capability to provide the
equivalent of Perfect Power sold on a net metered basis. The retailer
would have the option to, within contractually pre-set limits, shed
load, shift load, store power, produce power and exchange power with
the grid.
We believe that types 1 and 4 will be prevalent in both new and retrofitted
applications. Type 3 BOTs will develop if large building owners and operators get
sufficiently involved. Types 2 and 5 will be the ultimate BOTs but may take longer to
deploy.
Companies offering these BOTs in the commercial sector will include new entrants
such as network companies (e.g., Cisco and HP), intelligence solution providers,
which will include new specialized integrator installers and diversified equipment
control companies, enhanced facility managers and energy retailers. Below, we show
how we see each group positioned to capitalize on the various BOTs we identified.
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Section 2: Business Opportunity Templates and Deployment Scenarios
New Entrant Type
Network Companies
System Integrators
Facility Managers
Energy
Retailers
++
++
++
+/++
Type 2 ‐ Turnkey perfect power block solutions 0/+
++
++
+/++
Type 3 ‐ Perfect power concierging 0/+
0/+
++/+++
+++
Type 4 ‐ Corporate DR service provider 0/+
0/+
+/++
+++
0
0
+
+++
Business Opportunity Type 1 ‐ Integrated building intelligence solutions Type 5 – Full commercial perfect power retailing Likelihood and Fit: 0= unlikely; +=low; ++=moderate; +++=best
Source: GF Energy
2.1.3 Improved Network Infrastructure BOTs
As utilities and regulators get more involved in advanced metering infrastructure
(AMI) and smart-grid investments, we have identified the potential for five types of
BOTs:
AMI turnkey solutions (for mid-size roll-outs). For example, e-Meter
proposes that type of offering. One scenario is to see groups of
utilities, vendors and system integrators forming consortia that would
operate under the oversight of the local public utility commissions
(probably hiring a third-party project manager to handle the roll-out
effort). This type of approach (probably subject to bid) could be a
solution to ensure more independence in the way AMI data is
collected, managed and shared among various DR stakeholders.
AMI concessions whereby a utility would form a consortium with
new entrants to design, roll-out and fund new AMI systems. This
would spread the financial risks, put the vendors at risk and make
them more committed to see the success of each AMI initiative. It
also may satisfy the regulators’ concerns for the large outlays that
AMI initiatives can entail. Investors could be repaid through the
combination of a financing charge and usage charge.
Regional AMI Independent System Operator. This is a case where a
third-party would oversee the effort of “syncing” the management of
separate AMI systems. Besides achieving economies of scale, this
would help bring consistency among DR programs in effect in
proximate service areas.
Enhanced Distribution Reliability Zones where a utility secures the
approval of its commission to design and implement a program of
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
network enhancements backed by special cost recovery provisions
and/or investment credits or subsidies. The program would include
specific performance targets and could call upon the involvement of
third party turnkey providers.
Regional Smart-grid funds where a utility develops a smart-grid plan,
following a state-of-the-art and methodology approved by the public
utility code (PUC) and various proposals are being bid from
legitimate/qualified players to implement the plan.
Companies involved in these new infrastructure network BOTs will principally fall in
four main groups:
1.
network grid managers;
2.
project and software management companies;
3.
smart meter developers; and
4.
AMI infrastructure development and management companies.
However, we also are likely to see the involvement of other enabling players, many
of which will work in consortia with the four main types of players listed above.
These more peripheral new entrants will include companies interested in tying the
AMI activity to network asset management programs, telecommunication companies
(including wireless communication software implementers and managers),
information signal companies, and companies involved in Web and data server
hosting companies, data mining and metering outsourcing data services.
We show below how the four main groups of new entrants will be able to support the
roll-out of each of the five network infrastructure BOTs that we have identified.
New Entrant Type Project and software management companies
Technology solutions vendors
Telecomm
Companies
Network Grid managers
+++
++
+/++
++
AMI concessions
+
+
0/+
+++
Regional AMI Independent System Operator
++
+/++
+
++
Enhanced Distribution Reliability (EDR) Zones
++
++
0/+
++/+++
+/++
++
0/+
+++
Business Opportunity AMI turnkey solutions
Regional Smart Grid Funds Likelihood and Fit: 0= unlikely; +=low; ++=moderate; +++=best
Source: GF Energy
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Section 2: Business Opportunity Templates and Deployment Scenarios
2.1.4 Timing of BOTs
The BOTs that we have identified will follow different growth dynamics based on the
specifics of their target markets (e.g., residential vs. commercial), the level of
technology advances that they assume (e.g., likely availability of better mesh wireless
controls in the next three to four years vs. another seven to eight years to see
increased and more cost effective fuel cells for DG applications); and their economic
performance (e.g., several commercial building intelligence BOTs are already very
attractive, while paybacks for residential energy home controls may still stay at the
three- to four-year level for a couple more years). Below, we illustrate the timing of
each BOT during the next decade.
GF
ENERGY
New Business Opportunity Timing
Potential New Business Propositions
Sector
Residential web‐enabled energy systems
Residential
Automated home DR capability
Residential
Residential smart grid‐interactive storage
Residential
Residential distributed generation (DG)
Residential
Intelligent turnkey building intelligence solutions Commercial
Turnkey perfect power block solutions Commercial
Perfect power concierging Commercial
Corporate DR service provider Commercial
Full commercial perfect power retailing Commercial
AMI turnkey solutions
Networks
AMI concessions
Networks
Regional AMI Independent Operator
Networks
Enhanced Distribution Reliability Zones
Networks
Regional smart grid funds Networks
Emerging
Next 3 years
4‐7 years
LLC
Deploying
>7 years
Our assessment is based on a systematic ranking of the commercial maturity level,
need for incentives and potential scale of impact of each BOT, as shown below. The
scale used ranges from one (lowest) to five (highest).
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
Scale= 1 (lowest) to 5 (highest) GF
ENERGY
LLC
New Business Opportunity Ranking Matrix
Potential New Business Opportunities
Residential web‐enabled energy systems
Maturity
Level
Need for Incentives
Potential Impact Scale
Take‐off Timing
3‐4
2
5
2007‐2009
Residential Demand Response (DR)
3
4
4
2008‐2010
Residential Grid‐interactive storage
1‐2
4
3
2010‐2015
Residential Distributed Generation (DG)
1‐2
5
2
2012‐2020
Intelligent turnkey building intelligence solutions
5
1
5
2006‐2008
Turnkey perfect power block solutions 4
2
2‐3
2008‐2010
Perfect power (energy/power concierging) 4
2‐3
3‐4
2007‐2010
Corporate DR service provider 4
3
4
2007‐2010
2‐3
2‐3
4
2008‐2011
AMI turnkey solutions
3
2
2
2007‐2010
AMI concessions
3
2‐3
2
2008‐2011
Regional AMI Independent System Operator
2
3
2
2008‐2011
1‐2
4
3
2011‐2015
2
3
1‐2
2009‐2012
Full commercial perfect power retailing Enhanced Distribution Reliability Zones
Regional smart grid funds 2.2 The Role and Impact of New Entrants
Our analysis reveals that several hundred of the new players are pursuing the new
“Perfect Power frontier.”
GF
ENERGY
LLC
Many new Entrants and Type of Players
Financial Companies and Venture Capital Firms
Network system developers and integrators
Communications Companies
BOTs
Real‐time sensors and network infrastructure and asset management companies
Residential
and Commercial
Building Automation
Building and home developers
Architects, Specifiers and Constructors
ESCOs and Facility Managers
Energy metering and management system/portal providers
Distributed Generation and Energy Storage/Power Quality Companies
HVAC/appliance companies
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Section 2: Business Opportunity Templates and Deployment Scenarios
Of course, this includes a certain number of enlightened incumbents, but we also
found several hundred small new entrepreneurs proposing new technologies,
marketing new offerings and often pursuing innovative emerging niche markets.
In general, we found that most new entrants are only eyeing partial solutions to the
Perfect Power System. For example, some are focusing on system intelligence
(through new software, new sensors and new communication protocols), while others
are focusing on system reliability (e.g., better storage, cheaper DG). There are very
few new entrants with a large industry scope to be instant macro-players in the
Perfect Power space suggesting the build-up of a new Perfect Power industry will
take another decade.
From their perspective, new entrants are looking for a level playing field which
means:
Open protocols and standards;
Fair regulation (e.g., focusing on outcomes rather than dictating the
type of technology to be used); and
Reasonable access to customers (including access to data, not free,
but at a reasonable cost).
Having said that, as we have indicated before, the new entrant population is very
heterogeneous. As a result, new entrants can be their own best enemies, that is often
developing their own standards at times, striking narrow regulatory deals at others
and not sharing industry data with others. Nonetheless, we identified a slate of most
active new entrants and we highlight the interesting offerings and business models of
upcoming players such as Beacon Power, Broadband Energy Networks, Cisco,
Control4, iControl, eMeter, Intermatic, GridPoint, Kiyon, Richards-Zeta and Zensys.
Most new entrants are single-sector focused, but a few of them (e.g., Cisco, Echelon
and Itron) are capable of or interested in addressing several sectors at once.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
GF
ENERGY
LLC
Examples of new entrants (by sector)
Adura Technologies, Ambient Corporation, Beacon Power, Blue Line Innovations, Bulogics, Cisco, Control4, Dell, Ember, H‐P, iControl, Intel, Intermatic, Gaia Power, GE, GridPoint, Kohler Power Systems, Lagotek, Leviton, LG, Microsoft, Monster, Motorola, Panasonic, Radio Shack, Samsung, Sanyo, Sharp, Vantage Controls, VRB Power Systems, Xanboo, Xantrex, Zensys
Active Power, Advanced Automated Systems Inc, ADMMicro, ASCO Power Technologies, Automated Energy, Beacon Power, Blue Point Energy, Broadband Energy Networks, Cimetrics, Cisco, Connected Energy Corp, Cyrus Systems, Eaton Power, Echelon, Ember, Enernex Corp, Encelium Technologies, EnergySolve, Enernoc, Enerwise, EYP, GridLogix, Itron, Kiyon, Lynxspring, Obvius, Real Energy, ReliOn, Richards‐Zeta, Stirling
Engine Systems, Sun Systems, TDI, Teletrol Systems, Tridium, WebGen Systems, Xtreme Power
Residential
Sector
Commercial
Sector
AMDS Connect, Beacon Power, Broadband Energy Networks, Cap Gemini, Comverge, Echelon, EKA Systems, Elster, Enerwise Global, e‐Meter, Enspiria Solutions, Hydro One, Hunt Technologies, IBM, InfraSource Services, Itron, Logica CMG, Munet, Northern Power, Olameter, Optimal Technologies, Real Energy, SAP, SensorLogic, Siebel, Smartsynch, Tractia
Technologies, Volt/R Energy Technologies
Network Infrastructure Sector
Source: GF Energy
Our research also allowed us to “pair” examples of innovative new entrants with the
various emerging BOTs we identified in both residential and commercial uses. The
result is the matrix shown. We are not implying that every single new entrant shown
is necessarily focused on the BOTs we have paired them with, but their activities, and
in some cases professed business models, seem to indicate that they could soon be
looking at these BOTs or might develop their own customized (but analogous) BOT
offerings.
Potential Business Opportunities
Residential web‐enabled energy systems
Example of New Entrants
Ambient Corporation, Blue Line Innovations, Bulogics, Control4, iControl, Intermatic, Lagotek, Vantage Controls, Xanboo
Residential Demand Response (DR)
Too early to tell.
Residential Grid‐interactive storage
Gaia Power, GridPoint, VRB Power Systems, Xantrex
Residential Distributed Generation (DG)
Ballard, Kohler Power Systems, Plug Power
Intelligent turnkey building intelligence solutions
Turnkey perfect power block solutions Perfect power concierging
Corporate DR service provider Full commercial perfect power retailing Cisco, Cyrus Technologies, GridLogix, Intelligent Buildings, Kiyon, Richards‐Zeta, Teletrol Systems, Tridium
Active Power, ASCO Power Technologies, Beacon Power, Blue Point Energy, Capstone, Eaton Power, EYP, Infotility, Northern Power, Real Energy, ReliOn, Stirling Engine Systems, Syska & Hennessy, TDI, UTC Power, Xtreme Power
Honeywell, Invensys, JIC, Siemens, Tromwell
Electric City, EnergySolve, Enernoc, Enerwise Global, Strategic Energy
Honeywell, JIC, Siemens
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Section 2: Business Opportunity Templates and Deployment Scenarios
Likewise, we have identified examples of new entrants that already show interest for
the kind of BOTs we identified in the network infrastructure sector. The result is
shown below.
Potential Network Infrastructure Business Opportunities
Example of New Entrants
AMI turnkey solutions and AMI Concessions (*)
Broadband Energy Networks, Cannon Technologies, Comverge,EKA Systems, Echelon, Elster, eMeter, Hunt Technologies, InfraSource, Itron, Lodestar, Olameter,Triacta Technologies, TWACS
Regional AMI Independent System Operator
Alliance Data, AMDS, Cap Gemini, IBM, Enspiria
Solutions, Logica CMG, Optimal Technologies, SAIC, SAP, Siebel, SPL
Enhanced Distribution Reliability Zones and Regional Smart Grids (*)
ABB, Alstom, Areva, Bechtel, Black&Veatch, Hydro One, InfraSource, Kema, Quanta Services, Schneider Electric, Shaw, Siemens (*): propositions combined just for the purpose of this chart
2.3 Four Deployment Scenarios
In this section, we present four deployment scenarios in residential and commercial
applications:
1.
Residential retrofits;
2.
New residential applications;
3.
Commercial office buildings; and
4.
Microgrid office complexes.
We have identified these four deployment scenarios based on our research as spaces,
in which higher penetration and thus, rapid deployment of better quality electricity
performance can be attained in the next decade. By our own estimates, these four
scenarios could together trigger additional investments of about $15 to 25 billion over
the next decade through 2015.
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Section 2: Business Opportunity Templates and Deployment Scenarios
GF
ENERGY
LLC
Roll Out TimeLine – Four Deployment Scenarios
Deployment Scenario Target
Scope
(through 2015)
New Homes
Up to 30‐40% penetration in new home developments; up to 10 million “enabled” homes.
Home Retrofits
Up to 20% penetration through enhanced “big box” distribution, growing utility programs and stronger involvement of telephone/cable companies. About 10 million accounts targetable.
Office Buildings
Microgrids
Up to 50% web‐enabling in large new buildings; large potential for submetering (25% of leased space); and emerging need for perfect power conciercing (10‐15% of new space). A third of the space IP‐enabled by 2015.
New
Hom es
Hom e
retrofits
Office
Buildings
Microgrids
0
2
4
6
8
10
Range of Investm ents ($Billion, 2007-2015)
In office parks in urban areas. Up to 750 MW (175 microgrids, mostly in urban areas).
Total investment range for the four scenarios through 2015:
$15‐25 Billion
Each deployment scenario more or less depends on the success and timing of the rollout of various combinations of BOTs, as shown below.
Key: +++= Highest to +=Some. Blank or 0 indicates none
GF
ENERGY
LLC
Dependence of Each Scenario on BOTs
Scenario 1
Residential Retrofits
Scenario 2
New Residential
Residential web‐enabled energy systems
+++
+++
Residential Demand Response (DR)
++
+++
Residential Grid‐interactive storage
+
+/++
0/+
+
Potential New Business Opportunities
Residential Distributed Generation (DG)
Intelligent turnkey building intelligence solutions
Scenario 3
Office Buildings
Scenario 4
Office Complex Microgrids
+++
Turnkey perfect power block solutions ++
+/++
Perfect power (energy/power concierging) ++
+/++
Corporate DR service provider Full commercial perfect power retailing AMI turnkey solutions/concessions (*)
0/+
+
+++
++
++/+++
++
0/+
Regional AMI Independent System Operator
Enhanced Distribution Reliability Zones
Regional smart grid funds +
0/+
0/+
0/+
+
+
Note: (*) BOTs regrouped for the purpose of this chart
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Section 2: Business Opportunity Templates and Deployment Scenarios
The success of each scenario also will depend on the current status and future
evolution of the innovation nodes for the Perfect Power System, as identified in phase
one of the Galvin Electricity Initiative. Phase one had singled out eight key
innovation nodes:
1.
Building systems;
2.
Communications;
3.
Computational ability;
4.
Distributed generation;
5.
Energy-efficient loads;
6.
Power electronics and controls;
7.
Sensors; and
8.
Storage.
First, we characterized the current status of these innovation nodes across the four
deployment scenarios that we outlined in this report. Our ratings are expressed on a
scale of one to 10 as it was done in phase one and we calibrated our ratings to be
consistent with the “ratings curve” used in phase one. However, we should note that
these ratings reflect specific slices of the market, not the entire market, so some
rating differences are justifiable (e.g., for distributed generation and storage). In any
case, the result is an innovation node status matrix that shows how the range of node
readiness varies across nodes and from one deployment scenario to another.
GF
ENERGY
LLC
Dependence of Each Scenario on Nodes of Innovations
Current Status of Innovation Node Development
under each scenario (on a scale of 1‐low to 10‐high)
Nodes
of
Innovation (from
Phase 1 of Galvin Electricity Initiative)
Average Innovation
Status
(across scenarios)
Scenario 1
Residential Retrofits
Scenario 2
New Residential
Scenario 3
Office Buildings
Scenario 4
Office Complex Microgrids
Building Systems
2
6
7
5.5
5.25
Communications
5
6
8
7
6.5
Computational Ability
3
5
7
6
5.25
Distributed Generation 1
3
4
6
3.5
Energy‐Efficient Loads
4
7
8
6.5
6.25
Power Electronics and Controls
5
6
8
6
6.25
Sensors
3
5
8
7
5.75
Storage
1
2
3
4
2.5
Average
3
5
6.6
6
5
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Section 2: Business Opportunity Templates and Deployment Scenarios
Our ratings show that several innovation nodes have status rates (averaged across all
four scenarios) of five to six, all but two nodes (distributed generation and storage)
lag significantly in comparison.
We also note that, from an innovation standpoint only, scenario three (in the office
building sector) has the highest node innovation readiness (average status of 6.6
across all nodes), followed by scenario four (the office microgrid vertical with an
average status rating of six, then scenario two (the residential new space) with a
rating of five and, finally, the residential retrofit scenario (with an average status of
only three).
This is highlighted even more in the following two graphs, which show how these
scenarios fare against each innovation mode (either ranked from the most ready to the
least ready node or along a radar-type diagram).
GF
ENERGY
LLC
Dependence of Each Scenario on Nodes of Innovations
Innovation Node Status (1-Low to 10-High)
m
un
ica
En
tio
er
ns
gy
P
Ef
ow
fic
er
ie
nt
El
Lo
ec
tr o
ad
s
ni
cs
an
d
C
on
tro
ls
Current Innovation Node Status
by Deployment Scenario
Sc1-Residential-retrofit
Sc3-Office buildings
St
or
ag
e
s
G
en
er
at
io
n
Sy
st
em
D
ist
rib
ut
ed
Ab
ilit
y
Bu
ild
in
g
pu
ta
tio
na
l
C
om
C
om
Se
ns
or
s
9
8
7
6
5
4
3
2
1
0
Sc2-Residential-new
Sc4-Office complex microgrids
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Section 2: Business Opportunity Templates and Deployment Scenarios
GF
ENERGY
LLC
Dependence of Each Scenario on Nodes of Innovations
Current Status of Innovation Node Development
under Each Scenario (Ranked 1-Low to 10-High)
Building Systems
10
Storage
8
6
Communications
4
2
0
Sensors
Power Electronics and
Controls
Computational Ability
Distributed Generation
Energy Efficient Loads
Sc1-Residential-Retrofit
Sc2-Residential-New
Sc3-Office buildings
Sc4-Office complex microgrids
We also attempted to project what would be the result of a decade worth of
technology development and deployment on the status of these innovation nodes,
scenario by scenario. Overall, we forecast that the innovation node status will
increase significantly in scenarios two through four, as shown below. In fact, the
diagram shows an increased convergence in innovation node readiness convergence
among all three scenarios. By contrast, the residential retrofit market scenario
(scenario one) will likely continue to lag as shown by the blue perimeter inside the
radar-screen display; that is because the next stage in scenario one would call for a
wide scale development of distributed generation and storage in the existing
residential sector, which would be a huge undertaking.
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Section 2: Business Opportunity Templates and Deployment Scenarios
GF
ENERGY
LLC
Dependence of Each Scenario on Nodes of Innovations
Future (10-Year) Status of Innovation Node Development under
Each Scenario
Communications
10
Power Electronics and
Controls
8
6
4
2
0
Distributed Generation
Storage
Sensors
Building Systems
Energy Efficient Loads
Computational Ability
Residential-Retrofit
Residential-New
Office Buildings
Office Microgrids
In the following, we describe the logic behind the projected timing of each scenario,
with all four scenarios being consistent with one single view of the future world and
thus, based on a set of common assumptions, including:
A continued development in controllers, sensors and wireless network
technology with as a result, improved performance, enhanced
functionalities and lower costs. In the residential sector, we will
expect significant cost reductions when unit shipments move into
mass market scale of millions of units.
In our scenarios, we are assuming a growing demand response (DR)
environment so that by 2015, about 40 percent of the residential load
and more than 65 percent of the commercial load are in a dynamic
pricing environment that empowers customers to make electricity load
management decisions reflecting their self-interest. We expect that
new DR environment to emerge first in high-price, congested and
mostly-urban service areas. In addition, some states (e.g., California,
New Jersey and Florida) are likely to be more amenable to being early
DR champions.
The evolving DR environment will be the result of more DRincentivized rates and embodying elements of dynamic pricing,
whether they are time-of-use (TOU) rates, real-time pricing (RTP)
rates and critical peak power (CPP) rates for various classes of
customers, as shown below. To be effective, such rates would have to
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
be approved as part of default rates proposed by utilities (e.g.,
California is considering having CPP rates embodied in default rates).
We also assume that future DR environments will be accompanied by
growing advanced metering infrastructure (AMI) deployments by
utilities that will successfully petition their regulators to be able to put
these investments in their rate bases and thus, be ensured of cost
recovery. Some industry estimates show a penetration of AMI that
could exceed 60 percent by 2015 (which implies a total number of
automated meters reaching more than 75 million units by then).
Several states (e.g., Pennsylvania, Wisconsin, Kansas and
Connecticut) are already heavily invested in AMI capability and
others (e.g., California, Illinois and New Jersey) will follow. Full
widely-deployed AMI capability is essential for DR and will enable
low-cost solutions.
The growing DR environment will result in a DR capability that
would increase from the current 37.5 gigawatt (GW) (based on the
most recent Federal Energy Regulatory Commission (FERC) survey,
issued August 2006) to more than 90 GW by 2015.
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Section 2: Business Opportunity Templates and Deployment Scenarios
The emergence of a growing DR industry with independent and
utility-owned DR service providers. We envision a community of 40
to 60 DR providers, including both independent companies (e.g.,
Enernoc) and utility-owned subsidiaries. We also believe that about
eight to 10 of these providers may have grown to the point that they
will be managing nationwide DR portfolios with thousands of
profitable customers and loads of several GWs each.
Changes in regulation assuring that electricity delivery companies
(what we call wires companies today) are incentivized to provide the
communications and management of DR and that commodity
companies are insulated from the potential loss of load as the result of
DR activities through higher prices. Other potential regulatory fixes
would include increasing the fixed component of distribution rates
(e.g., the part of the bill that is expressed in dollar per kilowatt or
dollar per account hookup), allowing networks to earn an incentive
per kW of deployed DR capacity (that incentive could be a fixed,
indexed or variable incentive), permitting networks to rate-base all
their DR-related capital and program costs in the rate base and earn a
return premium for high benefit DR, or setting up a mechanism to
share between DR customers and networks the DR-related savings
that can be attributed to deferral of new distribution investments. It
may also mean the unbundling of the commodity and delivery
functions, which are typically bundled today with an overall incentive
to sell kilowatt hours versus providing customer services.
In parallel, we anticipate that future deployment will strive faster if
there also is a growing retail electricity market. However, this is not a
necessary condition as long as there are no barriers of entry for new
players to get involved in DR activities or in marketing electricity
management and storage equipment to households and commercial
accounts. As noted above, it may mean separating delivery and
commodity sales. Nonetheless, a striving retail market will mean that
large energy retailers may also become large DR service providers.
This should trigger more creative offerings and a faster adoption of
customized electricity management features in both residential and
commercial applications.
We also envision a growing number of market-based “targeted” utility
RFPs, following the example that ConEd recently set with its 123
megawatt (MW) RFP for demand response investments in prioritized
locales within its service area. The utility issued a list of eligible DR
measures but did not specify them any further. DR service providers
will be able to propose their own mix of DR solutions.
Finally, additional changes in existing regulations so that net metering
is integral to the regulatory compact maximizing the value of
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Section 2: Business Opportunity Templates and Deployment Scenarios
distributed generation. Real-time pricing also will provide a bigger
window for distributed generation. In addition, when it comes to
microgrids, one constraint is the ability to physically tie in the power
and thermal sides of neighboring sites across roads and rights-of-way.
We assume this will be remedied.
Scenario 1: Residential Retrofit
We expect that a growing number of homes will become equipped with Web-based
residential electricity management systems offered by a multiplicity of players
including utilities, energy retailers, telecommunication companies or DR service
providers. Millions of homes can take advantage of these systems if they are an
incremental investment built into other home automation investments, if they provide
the customer with financial and social incentives to reduce electricity use, if they can
be installed easily by the customer inexpensively or, even better, if they are
embedded in electrical equipment and appliances and if they are integrated or can
communicate with the utility’s automated meter. We assume these criteria can be met
and that millions of homes will be electricity-control enabled within a decade.
Market deployment will tend to emerge in those states with early DR programs in
place and with a focus on energy-intensive residential applications. Deployment will
be facilitated by the likely involvement of professional chain-owned “Big Box” stores
with installation networks such as the Geek Squad from Best Buy or home security
companies. Our interviews with major players like Hewlett-Packard suggest that the
channel development process will move from home entertainment to security to
energy management to electricity control applications which will reduce the
incremental cost to a manageable level for most homeowners. We also assume that
some incumbent electricity delivery companies will provide customers with digital
readouts and other tools for allowing the customer to manage demand through
programmable devices and, perhaps, alarms during impending periods of high prices
or system distress.
This trend will benefit from the growing demand for home automation systems that
can network many consumer devices and are backed up by powerful and speedy
Internet broadband applications. Today, 64 percent of households are Internetconnected and most have the capability of in-house networking. Of these 64 percent,
25 percent are considered as early adopters as shown below. Another 29 percent are
what we might call followers, some stronger than others, and nine percent are
laggards. About 50 percent out of the 64 percent that are Internet-connected already
have broadband capability, fairly evenly divided between DSL and cable. Broadband
capability not only provides fast connections, but the routers required to connect to
the Internet also can serve as network hubs for a growing number of applications.
Most routers are now wireless, enabling very easy networking of new control
functions without costly and cumbersome wiring, which requires expensive
installations by outside contractors.
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By 2010, close to 80 percent of the households will have broadband connections with
high-speed wireless routers. It is estimated that 30 million households will be
equipped with home automation by 2010 and it would follow that at least another 30
million homes also might be equipped in the next five years. By 2015, there could be
a potential target of 60 million households. These households will have the capability
to network scores of consumer devices for entertainment, security, comfort and
maintenance, as well as have the capability for electricity and energy management.
Currently 10 to 15 percent of households are declaring an interest in investing in
automatic energy management. At first, the focus will be on lighting control
applications using products like the ones developed by Motorola (HomeGenie),
Intermatic (HomeSettings) and Control4. These entry-level applications will become
increasingly available in retail outlets like Best Buy, Circuit City, Home Depot,
Lowes, Radio Shack, Sears and Tweeter. They will be self-installed or installed by
these chains’ installation workforce. The number of products will increase with the
more active involvement of consumer companies like Panasonic, Phillips, Hewlett
Packard and Sony.
In the next few years, we also anticipate the deployment of smarter, cheaper and more
user-friendly IP-enabled thermostats tied to broadband routers and, thus, remotely
controllable by customers, by utilities and/or other DR service providers. This may be
a major, mass-market catalyst for the takeoff of DR activities in the residential
retrofit market. Although such thermostats will only manage HVAC loads, they will
have a notable impact on electricity demand. Furthermore, smart thermostats can be
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Section 2: Business Opportunity Templates and Deployment Scenarios
far more finely controllable, able for example to change temperatures to match time
of day prices for electricity and in periods of system stress. Honeywell and other
incumbents will market many of these devices, but we expect some other new
entrants to emerge as well.
We also anticipate that some utilities will start pilot marketing efforts to sell
thousands of smart thermostat units in their service areas. In parallel, we expect
telecommunications companies, such as SBC and Verizon and cable companies, such
as Comcast to offer systems as an adjunct to their services. Large telecommunications
companies could sell hundreds of thousand of units if they were only reaching 10 to
15 percent of their base. Next, these companies could team with software content
providers to provide a full Web-supported automated energy management capability.
For example, Verizon could include a MSN-supported “My Web Energy” offering as
part of the DSL-MSN premium package, which it currently offers for $29 a month. At
the same time, we anticipate many new energy management sites to develop with
their own content. They will be capable of downloading the data from the home
energy controller and run that data on these sites. One application will be the ability
of a home office owner to show how much power he can claim is attributed to his
home office activity.
With the advent of networked energy management solutions and the increasing
backing and involvement of large players ranging from Comcast, Lowes, Microsoft
and Verizon, we believe that the penetration of residential automatic energy controls
could increase within 10 years to almost 20 percent, (e.g., the proportion of
residential customers across all existing homes that have already embraced security
systems). At that level of market penetration, system prices will fall (by probably two
to 2.5 times from current levels) and installation costs will become more
standardized. We can envision program retrofit initiatives run by local utilities or
telephone companies heavily marketing clusters of existing townhouses or home
developments, somewhat similar to current market campaigns promoting DSL or
fiber-optic roll-outs.
Web-enabled energy control systems also will be actively marketed by utilities once
they have the right regulatory incentives in place. Many utilities are already looking
into the capability to tie in home energy management systems, through two-way
communications between the meter and the homeowners’ energy controllers, using an
open protocol like Zigbee. With such capability at hand, utilities will then have more
flexibility to roll out DR programs and, to speed market adoption, some utilities will
offer rebates to lessen the first cost impact. Based on our preliminary calculations, a
$50 to $100 rebate could help shave 15 to 25 percent of the required payback period.
Penetration will be higher in existing houses already equipped with home automation,
such as larger houses typically occupied by families with children. There, the impact
will be more significant since it will address that part of the market that consumes the
most and where energy management could make a big difference. Thus, we think it is
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reasonable to project by 2015 an impact of about 20 GW in incremental DR resources
from such a development and annual savings in the range of $6 to 8 billion per year.
Perfect Power Applications in Home Retrofit Applications
Web‐enabled energy management with DR capability
Penetration
Rate (%)
15‐20%
Web‐enabled energy management integrated with DR capability and
power storage
2‐3%
Web‐enabled energy management integrated with DR capability and on‐
site distributed generation (DG)
<1%
We also anticipate that a fraction of that market will opt for a more Perfect Power
solution, combining energy controls and power storage management. At the
beginning, this package would be akin to what new entrant GridPoint is offering, but
future product offerings may also add a sensor network for more functionality. Future
solutions also will inevitably include new generations of battery technologies or even
fuel cells.
At first, penetration of a smart power control and storage package may be limited to
larger homes in areas with high electricity prices, known reliability problems and
where the use of local generators is not practical (for site-specific reasons) or
acceptable (by neighbors). This may only be 15 percent of all houses but the market
target should grow to also include an increasing number of home offices, the number
of which is expected to rise considerably over the next 10 years as a larger number of
homeowners opt to work from home more frequently. In particular, early adopters
could involve home offices in townhouses as well as homes in dense urban
developments with strict home association rules where home generators are not
allowed. At the same time, many homeowners inclined to buy generators may instead
opt for the new package. For reference, it is estimated that 11 percent of affluent
households own generators. That’s a potential of several hundreds of thousands of
units per year. However, one should not discount the likelihood that future generators
also will become more sophisticated with their own remote-management and
intelligence functionalities.
Still, it is quite possible that many homeowners that have first purchased a Webenabled energy management system opt, after having learned a lot about their energy
usage and the value of controlling that usage, to go one step beyond and buy a
combination control-storage package. Overall, we estimate that two to three percent
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of all existing U.S. households could invest in such packaged capability once costs
have come down. That may not sound like much and yet, that would represent the
sale of more than one million units over a 10-year period.
Scenario 2: New Residential Applications
We expect a growing number of home builders to sell electricity management
systems as part of their list of features in new homes. More new homeowners will
want to see an electricity management capability based on the results of what may
already be established in the retrofit market. However, new home buyers will want to
see that capability fully integrated with the balance of their home automation
systems. So, we anticipate that some of the large national home builder companies
(e.g., Centex and Ryland Homes) will do so as a way to differentiate and brand
themselves at first and then match the competition thereafter. Based on the
expectation of higher electricity prices, we expect new home buyers to be more
interested in these investments. We envision some developers marketing new homes
with a high degree of power perfection (for example, coining a label such as Perfect
Power Home).
About 40 percent of new home buyers are already opting for some home automation
capabilities and that proportion is expected to increase to possibly 60 percent by
2015. This would mean a target market of some 10 million new homes between now
and 2015.
An increasing large number of these new homes, maybe as much as 30 to 40 percent
or the equivalent of 400,000 to 500,000 new dwellings per year by the mid-2010s,
will be part of planned developments and community-based initiatives. In these cases,
which involve economies of scale, the builders can offer full slates of Perfect Power
configurations ranging from custom-designed, Web-enabled energy management
systems on their own or integrated with energy storage or DG units. It also will help
that most (more than 55 percent probably) of these new dwellings will be built by the
largest developers. Such developers will have leverage dealing with local utilities or
network managers by negotiating certain power distribution improvements (e.g., full
AMI installed from the start and universal transformers feeding to the development)
to help brand the developments as “high-tech and high-reliability” communities.
Some improvement costs could be offset against pre-agreed distribution deferral
credits and the balance rolled in the cost of the new homes, such as sewer connection
charges now.
In some new home communities, developers may propose various forms of electricity
contracting as well. For example:
A developer may work in cooperation with an energy retailer to offer
long-term electricity contracts with the new home owner. Such
contracts could be three, five or 10-years long and include support of
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the home owner electricity Web account, registration to the best local
DR programs available and the ability to upgrade on a lease basis
their home electricity management capability by installing additional
features such as energy storage.
The developer may sell the new home along with a long-term DR
contract that pre-registers (under attractive terms) the house with the
prevailing local DR program. Furthermore, such contracts could be
tailored to best capitalize on all the home energy automation features
that the new homeowner has specified for his new house. Long-term
DR contracts also would have a high value for the DR provider,
because they would contribute to stable DR performance in the future
and the DR provider could include such contracts in its resource
portfolio with a higher confidence than shorter (e.g., two to four year)
DR contracts that may be more prevalent in the retrofit market, for
example.
Some in-house appliances also may be sold with their own energy and
maintenance contracts. For example, advanced refrigerators equipped
with DR-capable features and provided with 10-years worth of
electricity supply, along with a maintenance monitoring contract that
can check on the performance of the refrigerator. Preliminary
calculations could show many service areas where one would then
expect yearly contract revenue of $150 to $175, assuming a 1,250
kilowatts per year average consumption and the equivalent of a $25
per year monitoring fee.
In addition, a new segment―senior housing―will continue to grow, with special
needs in terms of reliable continuous medical monitoring, ease of home automation,
and additional comfort factors (e.g., indoor air). This will be the opportunity for some
developers to offer special Perfect Power configurations combining automated energy
management systems with power storage.
Overall, we can foresee about five to seven million new Perfect Power-enabled
homes built between now and 2015. Only a few hundred thousand may be equipped
with energy storage or DG features, but the remainder will have electricity
management systems that will provide reliable control over electricity usage and the
ability to best tap that capability to take advantage of new DR programs. Together,
this should involve about $4 to 5 billion of investments over the next decade.
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Perfect Power Applications in New Home Applications
Web‐enabled energy management with demand response (DR) capability
Penetration
Rate (%)
30‐40%
Web‐enabled energy management integrated with DR capability and power storage
3‐6%
Web‐enabled energy management integrated with DR capability and on‐site distributed generation (DG)
<2%
Scenario 3: Deployment in Commercial Office Buildings
Commercial office buildings will be a prime target for deploying new Perfect Power
System configurations. They represent the largest segment with more than 12 billion
square feet of space with a total of about 825,000 buildings (including 85,000
government buildings). In addition, some 15,000 office buildings are being added
each year.
Many office buildings are becoming equipped with IP-based electricity management
systems allowing building owners and managers to share the responsibility for
managing electricity demand. We envision that by 2015, 60 percent of buildings will
have a Web-enabled electricity account monitoring capability set up either with their
own local utility or with their electricity retail provider (e.g., Constellation New
Energy) or through an outsourcing contract with one of the growing number of thirdparty utility managers (e.g., Automated Energy and Enerwise Global). We also expect
more niche players (e.g., Cimetrics, IDC) to get involved in building operations data
mining services to offer ongoing building commissioning and operations and
maintenance (O&M) services.
In parallel, we foresee companies like the “big four”–Johnson Controls, Honeywell,
Invensys and Siemens–to aggressively push Web-enabled energy control solutions for
new and retrofit buildings with the hope that such solutions could represent most of
their new sales within five years. In addition, software and network companies like
Cisco and HP are moving into this Web-enabled energy management as part of full
intelligent building solutions. To do so, these players will develop networks of
preferred partners and system integrators. Overall, we project that 40 percent of large
new owner-occupied buildings may have Web-enabled energy management by 2015.
At first, most target buildings will have floor areas greater than 150,000 square feet
but, as costs come down, Web-enabling energy management will become attractive
down to the 50,000 square feet building size.
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New buildings also will become increasing targets for tailored power storage
solutions, power concierging and full electricity account management options, as
shown below.
New Office Building Business Opportunities Penetration
Rate (%)
Integrated building intelligence solutions 35‐50%
Turnkey perfect power block solutions 5‐10%
Perfect power concierging 10‐15%
Corporate DR Service Provider 15‐25%
Full perfect power retailing 10‐15%
Note: some new office buildings will be candidates for
more than one BOT.
Source: GF Energy
However, there also will be a push for Web-enabling retrofits of existing buildings.
Many control system integrators will want to attack this market which may involve
less head-to-head competition with the “big four” and carry over bigger margins since
these jobs would be more customized. Building owners who see the advantages of
Web-enabled electricity management systems in new buildings will want to
implement similar solutions in their existing buildings, by using wireless sensors to
help overcome installation problems when needed. We project a 30 percent market
penetration there.
One interesting application will be the ability to submeter tenant space in leased
buildings, particularly in buildings where tenant mix is diverse and with varying
levels of power usage. We think that it will become easier for real estate management
companies to offer submetering by installing power usage meters and tying them to a
sensor network to help account for power usage in tenant suites. Submetering will
bring several benefits:
Each tenant will be able to see power usage and ask for more sensors
or more detailed load monitoring if desired.
Tenants will be able to register into DR programs and set their own
limits.
Tenants also will be able to make more educated decisions about
investing in power-efficient technologies such as programmable
lighting and variable air controls.
We believe that Web-enabled submetering could achieve 25 percent penetration in
the commercial leased space by 2015. Most submetering will occur in single
buildings with more than 10 stories, as well as multi-building office complexes with
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more than five stories (that represents a universe of about 100,000 buildings). We
expect quicker penetration in government buildings that are under stricter guidance or
legislation to implement energy conservation and demand response measures.
Scenario 4: Microgrids in Office Building Complexes
There are many engineering and power system planning definitions for microgrids.
In this instance, we focus on microgrids that meet five criteria:
1.
It is reliably islandeable.
2.
It includes some form of generation (e.g., solar, microturbine, fuel
cell or smart battery). That generation could work in a power-only
configuration or in a combined power and thermal setup
(cogeneration mode).
3.
It represents a group of proximate customers around a substation
or critical load pocket (i.e., it is not a virtual ring of separately
located, but remotely controlled, customers but instead the
microgrid customers are neighbors that may already share some
existing infrastructure such as parking, access roads, etc., or are
part of an existing real estate complex).
4.
The microgrid’s load is big enough and well-coordinated enough
that it becomes attractive (and justified) to enter into a sharing of
some distribution network interface infrastructure with the local
utility.
5.
The customers that are on the microgrid are linked into a
contractual pact like some form of long-term "energy concession"
(i.e., they have agreed to a certain standard of power quality for
the microgrid operations; they abide by certain DR rules or all
subscribed to the same DR contract terms; they have co-financed
the generation or improvements on the microgrid; and they all
share in the microgrid benefits according to pre-set formulas).
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There are various types of microgrid configurations that would meet these criteria, as
shown below.
Potential Microgrid Examples
•a new house development micro‐grid •a coop multi‐family complex
•a new mixed development (e.g., combination of hotel, office building and condo) across 3‐4 adjoining city blocks
•a brownfield inner city mixed‐redevelopment initiative •a downtown commercial building ring (several buildings tied) •a downtown civic association zone
•an office park •a campus with multiple buildings in several blocks with possibly non‐
university tenants as well (e.g., R&D park attached to it)
•an enterprise zone micro‐grid •a new science or R&D park in a utility‐sponsored development zone
•the extension or part of a district heating system that also invests in separate power circuit and DG infrastructure. •a feeder‐defined area; a substation‐defined area
•a registered power zone (designated by the distribution company with regulators’ blessing – e.g., Ofgem concept in the UK).
One interesting target in our opinion is multi-building office complexes, as well as
aggregation of buildings in downtown areas or office parks. We believe that they
could be good settings for microgrids consisting of shared power-only or
cogeneration systems. Such microgrids (most likely to range in sizes between one
megawatt [MW] and 10 MW) would be economic because they would benefit from
economies of scale especially if they can share thermal loads, power infrastructure
and project development costs and potentially benefit from load diversity as well. For
example, an office park with five buildings might be equipped with a five MW DG
unit, which would be 20 percent more efficient and would cost 15 percent less to
develop and build than a slate of five DG units in sizes varying from say 250 kilowatt
(KW) to two MW each.
However, such microgrids will require the right to set up power lines to exchange
power from one building to another (internal net metering), as well as possibly the
right to share steam or hot water lines. However, it is very rare that private power
lines can cross public rights of way. So, this will require regulatory changes that
have been difficult to achieve so far. We believe that it may take four to five years to
see a positive regulatory climate evolve in microgrid target areas. We also think that
it will first involve a series of pilots and champion demonstration sites sponsored by
innovative utilities or in cities and states with strong local government or utility
commission involvement. This could happen for example in Chicago, Detroit, Los
Angeles, New York and Washington, D.C.
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Yet, this is a potential that is hard to ignore. A rough estimate would indicate that
there might be as many as 2,500 potential sites in the largest 35 to 40 urban or
suburban service areas with electric rates above normal and where there are more
than three to five buildings together. This could represent up to 12,500 buildings with
a floor space that might approach 1.75 billion square feet. About a third of that floor
space is likely to involve one or more tenants of importance (i.e., anchor tenant in one
of the buildings or substantial tenant in terms of floor space occupied).
It is difficult to predict how quickly such opportunity could be tapped. For one thing,
many building owners may delay embracing this concept if they feel that by Webenabling their own buildings, they already have done all they could. Alternatively,
some building owners may want to install their own DG units. However, we also
believe that building owners will start to amass sufficient electricity and energy usage
data to realize how much more they could do by joining forces and building
microgrids. One issue, however, is the number of potential developers of microgrids.
There are only a few players (e.g., Northern Power Systems and Real Energy) that are
currently interested in pursuing this type of business model, even though there is a
broader community that has pursued the commercial DG business in the past.
We envision by the early 2010s a community of a dozen developers promoting about
15 to 25 microgrids per year (or the equivalent of 75 to 125 MW per year). From
there on, we might see the level of microgrid development reach 40 to 50 projects per
year by 2015 (that would be the equivalent of 200 to 250 MW per year).
Cumulatively, this may mean 175 microgrids in operation by the end of 2015, with a
combined potential installed capacity in excess of 750 MW. Such growth would be
comparable to the growth experienced in commercial DG applications between 1985
and 1995. This would represent an investment of about $1.5 billion over the next
decade.
2.4 Roll-Out and Potential Benefits
There will be several institutional, regulatory, financial and technological constraints
on deployment. It will take time for customers to learn about the different new
offerings, perceive their full value and, in some cases, overcome their risk-aversion.
Utility attitudes also will be a hurdle to conquer. The status quo can often be
perpetuated by incumbents who do not want to lose the level of control they have
today and the existing regulatory incentive to sell kilowatt hours. Nonetheless, we see
several signs that indicate, in our opinion, that there are several regulatory fixes,
which will be progressively implemented as regulators learn about and realize the
pervasive value to consumers of many of the new information, DR, storage and DG
technologies that we have identified.
As a result, innovative new entrants may have difficulty at first but they will
eventually break into the market, reach their target customers, gain market share and
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Section 2: Business Opportunity Templates and Deployment Scenarios
achieve critical mass, even if it happens in an uneven manner across service areas and
market segments.
In our scenario, a lot of progress can be achieved over the next decade toward
deploying a Perfect Power System, with the eventual result being:
A widely increased home and building energy management
intelligence;
Near-ubiquitous enabling of DR;
A wide reliance on AMI and smart-grid technology;
Most applications becoming DR capable; and
The emergence of well-planned microgrids.
We believe that the deployment of the Perfect Power System will, generally speaking,
involve three waves. The first wave will inject home and building intelligence
through energy information and control systems. The second will enable demand
response across end-use points. Finally, the third will build storage and DG, where
they best fit.
These waves will overlap, but there is a reason for this three-step sequence.
The first step is not that capital intensive and can be quickly rolled out since there is
plenty of smart intelligent control technology already available. Plus, that first step
capitalizes on the pervasive use of the Web and it is the fastest way to reap the
benefits of the end-user-based infrastructure in place, pretty much akin to what U.S.
businesses were able to do in the late 1990s and early 2000s with IT-led business
process reengineering.
The second step toward automated demand response could go hand-in-hand with the
first one, but it also involves a fair amount of regulatory fixes, thus, the lag between
the two steps. In addition, there will be business process issues that will rise with
large-scale DR and they may take a while to get resolved.
Finally, the third step is the most capital intensive and involves power storage and DG
technologies that are expected to see further improvements (both in terms of
decreases in costs and increases in performance). Where and how to best deploy the
third-step assets also will depend on how much intelligence has been reaped and how
much DR resources have been successfully tapped.
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Section 2: Business Opportunity Templates and Deployment Scenarios
GF
ENERGY
LLC
Roll Out Timeline Overview
Relative Progress
toward Perfect System
Fully Enabled
3 ‐ Adding smart grid investments, end‐use storage and DG and microgrids
2 ‐ Enabling Automated Demand Response
Tipping
point
1‐Injecting Home and Building Intelligence
plus growing AMI
Status Quo
Now
10 years from now
Time
In that context, we estimate future investments of about $45 to $60 billion in smart
home energy controls, commercial building intelligence, AMI and smart-grid
technologies over the next decade. We also forecast that such investments could yield
$14 and $22 billion in annual benefits by 2015. This would include:
The “smarting up” of premises in both residential and commercial
sectors, which could result in more than $6 to 8 billion of benefits per
year by 2015 for an investment of about $20 to 30 billion through
2015.
The enabling of DR and deployment of AMI could add $5 to $8
billion per year by 2015 (and closer to $15 billion per year by 2020 as
AMI usage gets more prevalent) for investments around $7 to $8
billion over the next 10 years.
The deployment of smart-grid technologies should yield annual
savings of $2 to $3 billion by 2015 (and growing higher in the
ensuing years), for investments up to $20 billion through 2015.
DG and smart interactive storage for residential and small commercial
applications could add another $1 to $2 billion per year for 10-year
investments in the $2 to $4 billion range.
In the next figure, we show a snapshot of how we estimate the various sectors could
perform in terms of expected annual benefits in 2015 against projected 10-year levels
of investments between now and 2015. We should note that benefits will tend to lag
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Section 2: Business Opportunity Templates and Deployment Scenarios
(especially in the DR and AMI areas) so the level of annual benefits would continue
to increase even if no further investments were made past 2015 (which of course will not
be the case).
GF
ENERGY
LLC
Huge Benefits at Stake (by 2015)
Target Sector
Potential Benefits/year
($B, by 2015)
Source of Benefits
10‐Year Investment Level ($B)
“Smarting up” of customer premises
(smart homes, intelligent buildings)
$6‐8
$5‐8
Residential
7‐10
Commercial
13‐20
Network Infrastructure
$25‐30
Enabling of Demand Response
and AMI deployment
TOTAL
45‐60
Investments in smart grid technologies
$2‐3
DG, smart grid‐
interactive storage technologies and microgrids $1‐2
TOTAL/year
14‐21
GF
ENERGY
LLC
Projected Benefits and Investments by Sector
Estimated Annual Benefits ($B, in 2015) Commercial Retrofits
Smart Grid
Investments
5
Residential
Residential New
Retrofits
AMI investments
Commercial New
1
Storage, DG, Microgrids
5
10
15
20
Estimated 10‐year Investment Levels ($B)
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Section 2: Business Opportunity Templates and Deployment Scenarios
To support this deployment, we have identified several technologies, regulatory and
outreach activities that could be considered for potential support by the Galvin
Electricity Initiative. They are listed in section seven. This set of activities also
includes several areas where better quality management in building design,
distribution system planning and microgrid development could pay.
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Section 3: The Potential in the Residential Market
Section 3: The Potential in the Residential Market
The residential market is being “enabled” with the emergence of new Web-based,
mesh networked, home control systems that are becoming cheaper, increasingly
versatile, multi-functional and customer-simple. They can manage entertainment,
security, lighting, heating and cooling and the entire home energy system including
electricity. They are remotely controllable from everywhere: from home on a local
PC, a hand-held remote or from outside by a cell phone. Most important, they can
improve the quality of life, make more efficient use of resources and pay for
themselves quickly giving the customer more control.
The widespread use of customer-controlled energy management in the home will
reduce energy demand, allow much more extensive load management by utilities and
allow the customer to make more informed decisions. For the first time, the customer
can cost-effectively manage energy use and can do so as a reasonable incremental
investment after having made more popular and compelling decisions regarding home
entertainment, comfort and security.
GF
ENERGY
LLC
The New Home Energy Control Chain
The new residential roadmap is becoming more complicated with potentially many entry points and routes from network managers and service providers to customers
Appliances
Power grid
Meter
Internet
account
(grid manager,
meter reader, service provider)
Internet account
(customer, service provider,
grid manager)
Portal on web
Critical Load
Router
Energy Management Controller Remote
Control
= sensors
Storage Load controller
Energy Storage
Meshed network sensor
Wall‐
mounted
dashboards
In Premises
The value and component chain allowing residential customers to manage their
energy load effectively is not yet complete. Pieces are missing and new business
opportunity drivers have not yet matured. Questions abound as to who owns the
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Section 3: The Potential in the Residential Market
meter, how many parallel metering devices can be installed, how much of the load is
controlled and what fraction of that load is further backed up by on site storage or
distributed generation (DG).
However, it is now very clear that the cost of enabling the customer will be much
lower than previously estimated, since it can be an incremental add-on to investments
being widely made today by customers for other reasons.
Companies like Cisco, Google, Intel, Microsoft and Verizon are all expecting a huge
increase in home automation and connectivity in addition to the initiatives of many
creative startups. In GF Energy’s estimate, more than 100 vendors are now active in
the home automation and digitized control field. Home connectivity and automation
(measured in terms of controlled applications) could easily increase tenfold over the
next decade. Communications protocols like Z-Wave are gaining traction.
Home energy systems are riding the home connectivity wave, either as part of larger
automation systems or as stand-alone compatible modules. Most are wireless, but
some use Ethernet cabling and yet others use existing home electrical wiring. A new
Web-enabled home energy system (or subsystem) will typically involve a base
controller set up on a cable or DSL router, which oversees a local home network that
operates either via the home power line, Ethernet or wirelessly. The network consists
of either plug-based control modules or wireless sensors and controls. Installation is
easy. Programming may take a couple of hours for the first set up and prices are now
falling around $400 to $500 for a four to six point network controlling the majority of
the home load. Systems will soon be manufactured or branded by big company names
(e.g., Motorola, Cisco and General Electric) and by smaller companies like Intermatic
and Leviton and available through major outlets (e.g., Lowes, Best Buy and Circuit
City).
Moreover, we find that many new entrants are seeking to promote the installation of
energy management systems as a package along with other “content” or
“connectivity” offerings. For example, communications companies that already offer
Internet connectivity are considering offering wireless home energy management
systems, as part of a three-play, multi-year package including Web connectivity,
voice over Internet protocol (VOIP) telephone and video/content streaming. Cable
companies and network companies based on broadband over powerline (BPL), could
do the same. Content companies like Microsoft, Google and America Online could
easily add one more service that would display the energy management system data,
along with local weather data and tariffs. Existing energy management companies
including Intermatic, Leviton and Honeywell also are moving to IP-based protocols
for wirelessly managing lighting and heating and cooling.
As hardware manufacturers, telecommunications companies, content providers,
legacy energy control companies and new entrants jockey for position, the
momentum will grow and successful marketing models will emerge.
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In parallel, vendors are developing cheaper and easier to use sensors to monitor
power usage and control remotely an increasing number of loads and applications.
Vendors (e.g., Samsung and Whirlpool) are working on specific appliance controls
for refrigerators, washers and dryers that will be increasingly sold as embedded
features. Such controls also will be able to report on the condition of appliances to
improve their maintenance and life expectancy. In addition, vendors will market
better communicating thermostats with their own logic board, offering truly
customizable profiles, able to communicate with other thermostats for multi-zoning
and addressable remotely via the Web.
Web-based home energy systems will be a huge enabler for residential demand
response. First, they empower the residential customer to control their own energy in
response to price information from either the utility or its energy retailer built around
an analysis of actual demand. Second, they allow local utilities, network managers
and energy retailers to manage wide-scale demand response (DR) programs. That is
because the home system can be set up so that any authorized demand response party
(e.g., the utility, a retail provider or a demand response aggregator) also could access
the home system via the Web, subject to proper security and authorization protocols,
to change settings remotely. Another option may be for such DR parties to feed
information to the home system via any communicator installed in the home meter.
As we discuss in section five, many utilities are expected to deploy in the future an
automated metering infrastructure (AMI) in their service area which will involve the
installation of two-way communication meters.
The picture that emerges from all these possibilities is a residential world where there
are potentially many ways to access, read, profile, curtail and manage various types
of residential electricity, with an increasing level of precision to respond to changes
in weather, demand and price. All of this with a level of end-user “engagement” not
that much more complicated than what is involved in placing an airline reservation on
Orbitz or managing a checkbook via Web-access. Current consumer data show that
20 percent of homeowners already transact electronically and that percentage may get
to 40 percent within the next five years.
GF Energy foresees a large market penetration potential for home energy systems as
prices continue to come down, high-brand retail and installation channels get set up,
new time-of-use (TOU) or critical peak pricing (CPP) rates start to apply to the
residential sector and more and more residential demand response programs are in
place. In that context, it is not unreasonable to project a 35 percent penetration by
2015 for all new houses and a 15 percent cumulative retrofit rate in the existing house
population. These numbers also appear realistic given the amount of current vendor
activity with the potential involvement of large telecommunication and consumer
electronic players.
In addition, homeowners can be expected to invest in on-site energy storage and
distributed generation as new systems prices come down. One intriguing possibility,
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and possibly killer application, is the potential commercialization of intelligent home
energy storage appliances that would provide increased reliability and power quality,
sustainable ride-through even during relatively prolonged multi-hour outages,
exchange power (on a net-metered basis) with the grid and act as an energy control
system as well. One current offering is a perfect prototype. GridPoint is a wellthought-out and packaged unit that is easy to install. Today, it is priced at $8,000 to
$11,000, but with large scale production, the price would come down substantially.
The unit (described in more detail in section 3.1.2) has won several industry awards
recently and the company is just starting to sell its products, so there is no track
record yet.
However, this model could be the precursor of a whole new type of smart
decentralized home power system if performance can be improved, a new battery
technology is successfully rolled out (as the company claims) and prices can come
down by reducing the cost of electronics. In our estimate, based on our market
simulation, the sweet spot for such systems is in the $4,000 range.
This system is a proxy for the Perfect Power appliance in the residential sector. Such
systems could definitely help in three key segments: large home market in congested
areas or service areas with high outage frequencies, homes that want to set up
renewable systems, and large homes that serve as home offices (also will apply to the
small commercial market). The combined target may be 15 to 20 percent of the
residential market in terms of energy usage.
The future of small, fossil-based distributed generating (DG) systems (e.g., using fuel
cells, Stirling engines and microturbine technology) and renewable-based DG
systems will depend on how such system prices can come down. However, we expect
to see more compact and better packaged systems which will make their installation
and sitting easier. We also believe that improved interconnection rules, a ubiquitous
net metering environment and a growing number of fully enabled and connected
homes will all be positive factors for more residential DG. As this section of the
report concludes, effective commercialization of DG will depend on the penetration
of real-time communications and effective controllers, as well as stable fuel prices.
The potential for progress toward Perfect Power in the residential market will be
unleashed by Web-enabled home energy systems, later coupled in a growing number
of instances with intelligent grid-interactive home storage systems. By 2015, GF
Energy expects close to a 25 percent overall penetration in residential home energy
management and DR responsiveness (up to 35 percent in new houses and 15 percent
across existing houses).
3.1 Potential Opportunities
We structure this discussion around three major perspectives:
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Opportunities in pervasive residential energy and power management;
The ability to enable residential DR on a wide scale; and
The potential roll-out of smart interactive power storage and DG
solutions.
3.1.1 - Residential Energy and Power Management Opportunities
The ability to have precise power and energy usage and enhanced end-user data
transparency in the residential market has been limited to date. The most ubiquitous
energy system controls in the house are the circuit breaker box, the internal
electronics in the HVAC system and the thermostat. Even then, only a third of
households have at least one programmable thermostat, even though some of these
are available for retail prices as low as $50, their designs are eye-pleasing and they
are easy to install and manage.
For most of the past 30 years, the market for home control systems has been limited
and basically a “barbell” market of either large, often new, expensive homes or cheap
retrofit installations by tech-savvy, geekish homeowners using X-10 and other home
wiring-based protocols. High-end home control systems are more widely offered in
new homes with prices greater than $500,000, but that only represents about 100 to
150,000 homes out of new annual sales of 1.2 to 1.5 million units. Many of these
applications have been customized, luxury applications that can cost thousands of
dollars and are offered by a few niche vendors such as Aprilaire, AMX, Crestron,
Lutron, RCS and Vantage Controls. On the low-end, retrofit installations often
involved the old-fashioned X-10 technology and had the most success in simple
lighting control applications. By some estimates, X-10 was installed into seven to 10
million homes, but its complexity and low-reliability have made it a geek toy, rather
than a commercial application. Together, however, this barbell market has
represented less than 10 percent of the new market and less than two percent of the
installed market.
However, this environment is changing as the result of three key trends:
1.
Widespread broadband wireless IP access;
2.
The convergence of traditional home consumer electronics (CE)
with PC-based energy control technology using new wire-based
(e.g., PLC) and wireless (radio frequency [RF]-based) home
control network solutions that also include smarter and cheaper
control devices and sensors; and
3.
More sales and installation channels in both new and retrofit
applications.
The result will be home energy control solutions that will become more and more
cost competitive.
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3.1.1.1 – Trends at Work
First, consumer data show that 80 percent of the homes have computers and about
two-thirds of the homes in the U.S. are Internet connected. Additionally, half of the
homes have broadband access. Recent surveys in CE Pro magazine show that more
than 65 percent of the homeowners with broadband access have or will set up a home
network; 30 to 35 percent will use their PC to share video, digital video recorder
(DVR) content or music; and about 25 percent would like to use their network for
home control. By 2010, about 80 percent of the households will have some form of
broadband home connectivity and over half of these will have two or three broadband
alternatives. This means that at least 20 percent would want to have Web-enabled
home control, but the actual fraction is likely to be larger.
Second, more and more homeowners are adding CE devices. The average home now
has more than 25 such devices and consumer data shows that 35 percent of residential
households are considering home entertainment systems and 40 percent of homes will
have media storage capability.
In that CE-rich environment, home energy control applications can become an easy,
convenient and cheap incremental by-product of other home activities such as TVviewing, cable-channel surfing, security and home entertainment investments. When
doing so, the interface is not a grey thermostat LED read out, but a “10 foot” plasma
TV display, a handy remote control, or a slick Web page. In that area, Microsoft
Media Center is emerging as a portal for energy control.
GF
ENERGY
LLC
Residential Sector: Smart Energy Control Interfaces
LifeWare offered by Exceptional Innovation is the first full visualization offering using Windows Media Center PCs
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IT hardware and software companies like Cisco, Dell, H-P, Intel, Microsoft and
Motorola are investing in developing and marketing such convergent home energy
control automation solutions. To roll-out their solutions, these IT companies are
cooperating with consumer electronic firms like LG Electronics, Mitsubishi,
Panasonic, Samsung, Sanyo, Sharp and Sony.
Third, new home control products are hitting the market using a programmable logic
controller (PLC) with wired or wireless communications. On the PLC side, the most
success has been encountered by Intellon, which has already sold five million chips
worldwide and is now selling at a quarterly rate of one million chips. However, the
company has yet to expand significantly in the U.S. and most applications have been
core communications (Ethernet routing, VOIP, High Definition TV and video). Yet,
the PLC-based part of the industry is represented by the Homeplug Alliance, which
groups big brand names such as Cisco, Linksys, GE Security, Earthlink, Comcast,
Motorola, Radio Shack, Samsung, Sharp and Sony.
Another emerging but fast growing approach involves wireless home networks that
use either Z-wave or Zigbee, both of which are low-speed, low-bandwidth RF-based
routing mesh protocols. The Z-Wave Alliance includes companies such as Cisco,
Intel, Leviton, Intermatic, Cooper Wiring Devices, Logitech and Panasonic. The
ZigBee Alliance lists Motorola, Cisco, Texas Instruments, Eaton and Legrand as
some of its backers.
GF
ENERGY
LLC
Lagotek’s offerings
Console Interface
Type of Loads/Functions controlled
1. Heating and air conditioning (HVAC)
2. Lighting
3. Video surveillance
4. Audio entertainment
5. Irrigation
Router and Controller
Smart switch
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More than two dozen companies now offer Z-wave home controls, a proprietary RF
technology from Zensys. Although it is proprietary, Zensys is encouraging broad use
and expects it to become the de facto standard. Z-Wave products seem to be in the
lead today, but this may be temporary. A Z-wave single chip is a highly integrated
mixed-signal system-on-chip whose main blocks include a radio transceiver, a
microprocessor, 32kB flash memory (containing the Z-Wave protocol and the
application), digital and analogue interfaces to connect external devices such as
sensors. It also includes an “engine” to ensure confidentiality and authentication
(100 series) and (for lighting applications) a Triac controller to reduce the module
cost of dimming applications.
Z-wave technology is used in high-end systems such as Lagotek, which offers a
single integrated platform for HVAC, lighting, video, audio and irrigation, but the
costs of such systems is still very high, in part, because of their whole inclusiveness
and the use of slick panels and PDA remotes.
Now, however, what we are witnessing are low-end Z-wave-based offerings by start
up companies, such as Intermatic and Leviton aiming at the mass market.
GF
ENERGY
LLC
Intermatic – HomeSettings Line
Company offers a home control system at a low price point, effectiveness and ease‐of‐use that is designed for “non‐techie” households. The system is sold at Lowe’s. It includes a number of plug‐in and screw‐in modules and in‐wall devices that can be used around the house. All controls can be set with a master controller and/or a remote control. Master Controller
Master controller:
z
12 Programmable channels control up to 16 devices each up to 192 devices Remote Controller
z
Features: ALL ON/ALL OFF, timing functions, 2‐
way feedback, low battery indicator
Remote Controller z
6 Programmable channels control up to 16 devices each up to 96 devices. ON/OFF and DIM settings (8 dimming settings)
z
Controls appliances and compact fluorescent bulbs using remote control Appliance Module
z
Wireless control up to 100 feet. 2‐way feedback confirms devices are set up and working properly. z
ON/OFF settings and manual override function
Appliance Module
Outdoor Appliance Module
Another example is Bulogics, which makes a set-top box that can control a Z-Wave
installation via a clear TV-based user interface.
Likewise, Motorola has started to market its HomeSight line through Radio Shack.
The technology uses Zigbee.
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Another example of a company using Zigbee is Control4, which markets light
switches, but is considering many other applications.
A third protocol is INSTEON, which is used in single function controllers offered by
Smarthome, a large control device distributor. INSTEON is a proprietary data
transmission approach developed by SmartLab that can work with both PLC and RF
configurations. In addition, Insteon is backward compatible with X-10. Insteon says it
has the backing of some 350 partners, including CompUSA Digital Living,
Perceptive Automation and Home Automated Living (HAL).
Regardless of which protocol (Z-wave, Zigbee or Insteon) is used, we expect to see
the integration of the energy system communicator with the home’s wireless fidelity
(Wi-Fi) router. Cisco’s Linksys division has been considering releasing a hybrid
device. Eventually, the router is quite likely to become a single facility management
communication bridge combining outside communications (modem, DSL connection,
fiber or satellite) with inside communicators dealing with both the security and
energy management systems. Data usage restitution, control setting visualization and
control strategy definition can all be done through Web-based platforms.
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Data visualization will take place either on a computer cathode ray tube (CRT)
monitor or on a TV that can be fed by a Web-enabled home computer or is Webenabled itself. For example, as part of its HomeSettings product line, Intermatic
offers a Web-based subscription service (for about $10 a month) that allows the home
owner to set its home control unit from a Web page maintained by Intermatic.
GF
ENERGY
LLC
Intermatic – HomeSettings Line (portal software)
Several vendors are opting to use Windows Media Center software for data
displaying and dashboarding. One interesting offering along these lines is the
Life/Ware software platform that can roll in data from various systems into a
seamless result and display the result on TV.
Home energy control applications also will be more easily integrated with other home
automation systems, most often with security systems, even in retrofit applications.
All the large residential control players are commercializing integrated solutions,
using a Web interface to tie-in systems that in the past were stand-alone or where it
would have been far too expensive to connect. For example, Honeywell now offers
the ICM system that ties its APEX security system with its Enviracom programmable
thermostat and allows control via an IP Web-based interface. The ICM also is
compatible with lighting products offered by Lutron Electronics, a major lighting
product company. Such systems can offer enhanced protection. For example, if the
security system detects a fire, it sends a message to the HVAC unit to turn off the
fans and shut down.
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Another residential retrofit approach is to install switches that are small black boxes
that convert the programming interface of a legacy HVAC or lighting controller and
convert it into a Web-enabled device, such as the one shown below.
Integrators can automatically discover and configure devices implemented as Web
services, significantly reducing the time for on-site system set-up. This approach is
more applicable in commercial applications, but it is proposed by some companies
(e.g., Life/Ware with its Life/Link modules). One problem is that such boxes can cost
between $60 and $120, but prices will come down. However, the result is a more
open control network system.
Finally, we also will witness new residential sensors and device controls. First, all
three major thermostat manufacturers (i.e., Carrier, Honeywell and Trane) are
working on thermostats with improved communication. For example, Carrier is
marketing the ComfortChoice thermostat, which has already been deployed by
utilities in New York, Connecticut and Washington. For every 100,000 homes
installed with this technology, 150 megawatts of peak power can be saved. The cost
of deployment has been about $375 per installation (labor and material) plus utility
software costs and monthly communication fees (source: UTC, Carrier’s parent
company). However, prices are coming down.
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White good manufacturers also are developing new sensors for refrigerators, range
tops, washers and dryers and are exploring how to embed these sensors in new
products. Such sensors would have a two-way communication capability either over
the power line or via a RF network and eventually could tie back to the white good
manufacturer for O&M tracking for example. This way, a home owner would know if
their refrigerator is working efficiently. Sensors also could be used to determine when
to best shed loads in refrigerators (based on internal humidity and temperature) and
when (and how long) to extend a drying cycle. In most cases, the cost of such sensors
(with its logic) would be in the $10 to $20 range. The settings on the sensors could be
addressable from the central energy system for more precise customization.
Another major trend will be a considerable increase in distribution channels through
more installation channels, the involvement of more do-it-yourself resellers and the
involvement of the big box chains. On the first point, survey data from CE Pro
magazine shows that the number of system installations has more than doubled
between 2003 and 2005, quite a jump even after taking into account the growth in
new home starts over that period. The survey also confirms that more home
developers are willing to offer home automation and energy management systems.
The CE survey corroborates the results of another survey by Parks Associates about
the practices of new home developers and installers, which showed that the number
of installations greater than 70 percent of the offered security systems, which are sold
in 35 percent of the cases, more than 65 percent of the home builders offer structured
wiring (which is installed in 35 percent of the homes), mostly because of the need for
either entertainment centers or broadband connections; more than 60 percent offer
central audio or entertainment systems (which end up being installed in 25 to 30
percent of the cases) and multi-room installation was considered as a crucial sales
factor in 35 percent of the home sales where the homeowner inquired about the
feature.
However, only 45 percent of new home developers and installers offer whole home
automation and even less, only 35 percent, offer home energy controls, which end up
being installed in only 15 percent of the cases. HVAC and lighting controls represent
more than two-thirds of these applications as the demand for central home systems
still represent less than 20 percent of all applications. However, more home builders
report in the CE Pro survey a sense of growing demand for central control.
Few builders partner with electric utilities or cable companies to offer central control
systems but this too may be changing, as 20 percent of the builders interviewed have
reported that they would strongly consider that option and 65 percent would be open
to it.
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On the second point, more wireless and broadband over powerline (BPL) home
energy systems will be increasingly available in large do-it-yourself (DIY) chains and
hardware stores and this will fuel the home retrofit market. Motorola sells its
HomeSight system through Radio Shack and Intermatic sells its product line through
Lowe’s and it is likely that both Circuit City and Best Buy will do so within the next
12 months. Specialized chains like Tweeter are already in this space in higher value
environments.
Finally, the big box chains will offer more home system installation service options, a
key enabler to overcome the homeowners’ historical reluctance to fiddle with wires
and control boxes. It is reported that Best Buy’s Geek Squad installation service
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division is very interested, as well as Circuit City’s new service division, Firedog,
and CompUSA’s Techknowledgist division. Other players could emulate these
companies, including a diversification by Tweeter Home Entertainment and Sears.
So, we believe that we will see an explosion of what has been called the “digital
plumbing” business, which could grow at 10 to 15 percent per year for the
foreseeable future, based on a recent Reuters announcement.
3.1.1.2 – Cost Competitive Home Energy Control Solutions
Although many vendors will approach the residential market differently, it is now
becoming clearer that a full residential electricity management array will revolve
around the configuration shown below.
GF
ENERGY
LLC
Smart Home Applications – The electric management array
Wireless or plug‐based modules and sensors
Remote (inc. PDA)
End‐user Web Page
Management
Energy Content Info/alerts (*)
Lighting Load
In‐house network
Subscrip
tion
Controller
Tie/w utilities, ISO, service providers
HVAC Load
Other loads
•Visualization
Meter
•Setting profiles
•End‐user overrides
On PC, CRT, TV, wallboard, or cell phone
(*) Including bill visualization on‐demand; metering usage breakdown; bill analysis and benchmarking; set up of profiles; Demand‐Response (DR) program notification and participation . That configuration includes several components, the combination of which could vary
depending on the nature of the application (e.g., retrofit or new home).
A sensor network including sensors at the circuit breaker box (to
monitor various circuits), plus wireless sensors installed on certain
loads (e.g., HVAC, lighting and sump pump), as well as built-in
sensors on major end-use systems (e.g., washer and dryer). Some enduse sensors could be built inside new appliances or mounted in smart
cords or plugs that residents could buy separately (retrofit cases). The
network could be of a hybrid configuration with some sensors
wireless and others plug-based to avoid wireless blind spots,
depending on the configuration of the house.
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A base control unit which may take different form could be mounted
in a router, built in a separate desktop unit or be an add-on to a home
computer.
Remote controls or control repeaters (i.e., wall-mounted dashboards
that repeat the information stored in the base controller and provide
zone controllability).
A control logic which may reside, in part, in the base control unit but
may also reside in an end-user personal Web site that the base control
unit has access to:
ƒ
Enough on-site control logic has to be easily accessible from
residents walking around the home and making adjustments
on the fly through interfaces on the repeaters or the base
control unit. That on-site logic has to be able to place orders
to the sensor networks and interrogates the sensors as needed
to capture total system status and usage.
ƒ
More sophisticated control logic can be residing on the Web
site and be called upon on demand.
An interface with the home electric meter so that end use and
appliance control information can be exchanged between the meter
and the base control unit either locally (through the base control unit)
or via the Web (through an exchange between the local utility’s Web
site and the end-users personal Web site. This would allow the utility
to send direct demand response signals which could be corroborated
through the base control unit. This would be the tie between the endusers portal and the utility’s Advanced Metering Infrastructure (AMI)
if it developed one.
A subscription to a Web-based electricity account management site.
That site, which may be run by a local utility, a deregulated power
retailer or even a telecommunication company, would probably store
information of past usage, provide updated benchmark analysis on
energy usage to date, manage the energy consumption profiles for the
home and adjust them based on potential walk-by inputs from the
residents and react to inputs received from the local utility or a
demand response provider if the resident has signed up for a DR
program.
A retrofit application will generally be limited compared to a new application. The
range of constraints can include wiring issues, location of the meter, location of
major appliances, distribution of lighting loads, etc. In a new home application, by
contrast, there will be a higher likelihood to find the home equipped with structured
cabling There may be a multi-zone-system in place and it will be easier to include
load circuit monitors right from the start. By contrast, a new home also will have a
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tendency to be designed with more control points and the electric management
control will be better integrated with the security system (i.e., a water leak detection
may trigger a change in the operative electricity end-use profile). For that reason, we
expect retrofit applications to be more limited and not as comprehensive (i.e., in an
existing house, it may be good enough to control only 60 to 70 percent of the load).
In our opinion, when the market starts to take off, retrofit applications may most
likely fall in a cost range around $350 to $600 and would include the more basic
configuration shown below. Meanwhile, we would expect that the majority of new
residential applications may cost more like $500 to $1,000 (there will still be highend applications that may be up to $2,000 to $3,000). The higher cost of new
applications will be offset by their additional features, however. We show below the
range of specifications and costs for these various components for what we would
consider mainstream applications.
Component
Specification
Cost Range
Sensor network
Probably 12‐16 with the capability to monitor 4‐8 circuits. Sensors are either wireless or plug‐based (could be a mix of both in some cases).
Between $250 and $500 depending on the number of control points Base control unit
Tied to a DSL or cable modem. Includes a wireless emitter or manages a plug‐
based network. Would include on‐board memory to store settings and profiles
$150‐400 depending on whether it includes a separate LCD display (Eventually prices will be as cheap as a router)
Remote controls/repeaters
Probably one remote and 1‐2 wallboard based repeaters
Remote could be $50‐150 and repeaters around $100‐350 depending in both cases on the level of built‐in LCD visualization Control logic
Capable to display past usage; benchmark data; accept and administer preferred end‐user profiles Would come free for standard program (e.g., with base control unit) and part of a subscription for premium service
Interface with meter
Capable to respond to and coordinate with network’s demand response (DR) signals $35‐75/meter for retrofit module
Subscription to web management site
Analyzes bills; updates profiles and benchmark data; provides load, weather and price alerts; helps select DR programs; and suggests power management improvements
At first, in the $9‐11/month range but eventually around $3‐5/month
The control modules are sold for $30 to $45 for lighting, security and single-load
circuits and up to $60 to $70 for the HVAC control module. The cost of the module
may only be $10 to $12 and such costs will decrease when volumes pick up. These
controls are managed by a communicator which generally retails for $100 to $150.
So, this brings a total “entry level” system to $300 to $500, depending on the number
of modules installed. Reliability is claimed to be very good. Even wireless
applications work well because the modules can talk with (and help) each other (what
is called a wireless mesh network configuration) to avoid blind spots.
Given what we heard through our industry interviewees, we believe that we will see a
growing number of mid-market home energy systems in the $500 to $750 range with
the following specs:
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Monitoring of four to eight circuits;
Between 12 and 20 modules;
Energy use data storage and backup;
A home-based, Web-connected replication dashboard (with battery
back-up), independent entry for on-the-fly overriding, schedule
alterations and control strategy changes; and
Communication card with communicator in the home meter (if any).
On that basis, we have simulated the economic attractiveness of a residential
electricity management array and found that it could yield paybacks of less than three
years. On one hand, the actual payback will depend on many cost-side factors
including not only the total cost of the systems, but also the cost of its installation
(which may add 10 to 25 percent) and the cost of the Web subscription (which may
start at around $9 to $11 a month, but would probably have to decrease to a more
acceptable level like $3 to $5 a month).
On the other hand, there will be many benefits that can accrue from residential
electric management systems, but they too will vary. They will be site-specific
depending on the house and its energy use pattern and they also will depend on the
existence and extent of local residential DR programs. Nonetheless, the range of
benefits could be quite broad:
1
First, the system allows the end-user to achieve electricity savings by
better managing loads as a function of in-home occupancy, family
scheduling, weather patterns and potential security concerns. The
system also can provide benchmarking data to compare the power
usage in the home to that observed in other homes in the same
neighborhood to properly highlight the range of power usage gains
that are realistic.1 The system will be able to issue alerts that can help
make on-the-fly decisions on how to leave the home for short trips
(e.g., one or two-day trips). This will provide end-users with a better
sense of control over their premises. They will even be able to
correct a home setting remotely if circumstances change (e.g., delayed
commuting trip). In turn, this will contribute to a heightened sense of
better home security (i.e., by being able to override a default lighting
schedule to make the home look habited even though the family
schedule has just been altered). The system also can better tie lighting
schedules with the home security system schedules.
Many benchmarking sites (e.g., BNL, Nexus Energy) already exist.
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Section 3: The Potential in the Residential Market
Second, the system will allow that end-user to participate in demand
response programs sponsored by the local public utility commission
or network manager. Participation in such DR programs may entail a
fixed annual payment (or a prorated monthly payment) for registering
and agreeing to limit power usage under certain prescribed
circumstances. By participating in the DR program, the end-user will
be able to reduce its power usage during either so-called critical
power period, which would involve designated hour-periods during
high-peak days, or during the high-price hours of a time-of-day rate if
there is one in place. The homeowner may be entitled to receive
distribution deferral savings as it has been proposed in some program
initiatives (e.g., the PSE&G ACLM air conditioning load management
program, which has an estimate of nearly $20 per Web-enabled
thermostat installed).
Third, the system will have sufficient energy use data to help the enduser chose an energy supplier when its contract comes to the end. The
end-user may be able to run “what if” scenarios, akin to certain Web
sites that help consumers choose their best telecommunication plans.
Fourth, the system will enable the end-user to better operate its
appliances and monitor their operating and maintenance status. Some
of that information could be relayed to the supplier of the appliance,
which would be better able to service the units in time and at a lower
long-term cost to the end-user. Some of that maintenance information
also may help the homeowner best decide when to upgrade or replace
the units.
Fifth, there may be other benefits available through the subscription
service, such as promotional savings to buy energy savings devices
and loyalty account management (e.g., a “kWh mileage account,”
etc.)
In our simulations, we relied on inputs gathered from conversations with many new
entrants eyeing the residential market and broke down our estimates across five types
of benefits: added convenience, increased energy savings during non-peak hours,
benefits from DR programs (both in terms of reduced use at time of high peaks, but
also from utility or independent system operator [ISO] demand capacity payments),
contribution to reduced outages, potential utility installation credits or rebates and
other advantages (i.e., co-marketing benefits in the form of vouchers and discounts
offered for purchases of energy-efficient equipment). In our analysis, we find that the
two most important benefits are the demand-resource and the energy savings
components. Together, they are often two-thirds or more of the total value
proposition of a residential electricity management system. However, convenience
benefits are important since their contribution can range between 20 percent and 35
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Section 3: The Potential in the Residential Market
percent. The other benefits will depend on the commercial aggressiveness of the
service providers.
GF
ENERGY
LLC
Smart Home Energy Control Application (example)
$250
“Elements of The Deal”
Controller
$200
Modules
$250
Installation Cost
$100
Total
$550
Subscription Fee with web‐based service $(/month)
$3
Annual
benefits
($)
$200
$150
$100
$50
$0
1
Convenience
Outage reduction
CCP/TOU benefits
Electricity usage savings
Utility Credits
Co-marketing benefits
Utility/ISO benefits
If we take a $750 energy control system in a house with an annual bill of $1,750 and
a rate with typical time-of-use (TOU) pricing and a 100-hour critical peak price
(CPP) pricing program, and assume that the system can generate 12 percent savings
and yields a monthly DR credit of $15 for five months per year, we get a payback of
about two years. If the homeowner sees that the system also provides a convenience
and security value as well, it may be worth a third of the original equipment value,
the payback gets down to less 18 months. We are not too far from a mainstream value
proposition, especially if systems are being deployed through third parties with
innovative business models (see discussion below).
3.1.1 - Residential Demand Response Opportunities
The capacity to control power usage precisely and on-demand will become a reality
as we see the deployment of three trends:
More Web-enabled home energy/power control systems;
More automated metering infrastructure (AMI) in place; and
More players willing to offer third-party managed DR programs.
The result will be a multi-layered, multi-enabled DR fabric that has the capacity to
yield a wide ranging spectrum of DR control and activation strategies, which is a far
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Section 3: The Potential in the Residential Market
cry from the early DR efforts generally focused on a single type of load (e.g., air
conditioning) for only certain classes of ratepayers. As DR programs multiply, this
will create a demand for more sensors, control modules and Web-based energy
information services.
First, Web-enabling of home energy systems may allow home residents to understand
their energy usage, run what-if scenarios if they wish using alternate rates and, for
example, estimate the CO2 impact of their consumption so that they can put green
power offerings in perspective.
With that information at hand, home residents will be able to self-subscribe in DR
programs run by the local utilities or third-party DR service providers. To do so,
residents would call up their control Web link and on one screen click a link with the
local utility or DR provider subscription Web page to “sync” the two sets of controls,
identify right away possible conflicts and provide priority rules to resolve conflicts as
they arise. Alternatively, residents may fill in a “preference template” like the ones
that are used on travel reservation Web sites.
One theory is that the growing segment of baby boomers and younger consumers,
who have been exposed to the Internet for several years, should be particularly
receptive and embrace the ability to take charge, as they will want to cut costs while
having the option to be environmentally responsible and open to high-quality thirdparty services. They also will see the value of tying energy management with other
family scheduling and “protection” routines, such as security protection, medical
monitoring, homeowners’ insurance and maintenance services.
At the same time, utilities will develop advanced metering infrastructure (AMI)
systems (as discussed in section five), which will operate as DR backbones. In doing
so, utilities will be able to provide default DR options for all residents who do not
want to self-manage their DR or who do not want to sign up with a third-party DR
service provider. At the same time, many third-party providers may be allowed to
“rent” the utility’s AMI-based DR backbone to offer supplementary services, increase
their coverage or even offer joint programs with the local utilities or network
managers. The new AMI investments will then become the catalyst for a widespread
dissemination of customer energy use data and network utilization information. The
result will be an enhanced and open understanding of local power supply and
distribution conditions with the capability to then reduce outage risks.
Finally, we anticipate a growing number of players involved in providing DR
services, such as enrolling customers, monitoring their DR behavior, offering various
DR programs (each one with its own credit compensation) and proposing to install
and finance DR technologies. For example, we would easily see a company help
deploy and finance smart, interactive energy storage systems (e.g., of the GridPoint
type).
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Section 3: The Potential in the Residential Market
Some of these DR providers are most likely going to be the power retailers of the
future, like Direct Energy or Constellation New Energy. These retailers have already
found that providing Web-enabled energy management services was a critical sales
factor in the small commercial and industrial (C&I) market and the same situation
may develop in several segments of the residential market as well.
In addition we anticipate the emergence of two new DR deregulated utility
subsidiaries. Finally, local utilities that embrace AMI early and aggressively will be
key players as well.
3.1.2 – Smart Interactive Storage and DG Opportunities
Opportunities so far have been quite limited and more than one player (e.g., Plug
Power with its seven kW fuel cell) has experienced failure or disappointing results.
The biggest issues have been system costs, sitting and installation issues, limited
system packaging and operations and maintenance (O&M) issues, not to mention
interconnection issues with the utility grid. But system costs are really the most
important issue. A five to seven kW DG system may cost $12,500 to $20,000 fully
installed and operable, which is six to 10 times more than a fully loaded energy
control system. Clearly, in many cases, homeowners will first go with the latter. Or
their next option may be to buy a back-up generator, which has been an increasingly
popular option, in spite of their costs and all the installation, fuel management and
environmental drawbacks that such generators can have.
An interesting new hybrid concept is emerging, a smart-grid-interactive power
storage unit that is part energy management, part reliability back-up and part redistributed energy. Such units seems to have been designed to meet a combination of
five criteria:
Well packaged, easy to site (basement), relatively easy to install (less
than a day and a four to six hour procedure), and remotely monitored;
With a rapid back-up capability (e.g., <30 milliseconds) and multihour ride through capability;
Equipped with its own Web-enabled home energy management
system capable to “listen” to the load usage and best determine which
power storage strategy to adopt, as well as follow specified DR
strategies;
Offering a power exchange capability with the grid; and
Designed to easily interface with a renewable DG solution at the time
of installation or later.
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Section 3: The Potential in the Residential Market
One product was recently launched that seems to meet this concept. Offered by a new
start-up called GridPoint, it is a 3.6 kW AC-rated unit, which comes in two
configurations:
The Grid Connect version, which can easily tie to a renewable energy
source such as solar panels (up to eight kWp) and can use that power
even if the power is out; and
The Grid Protect version as a reliability and DR system interfacing
with the grid.
In either configuration, the unit can control between four and eight loads in the home
and the owner can choose all the right settings using a Web-interface with 24 hour a
day/seven day a week monitoring by the GridPoint network center. The owner can
even set up a monthly energy budget and have the unit manage its operations to come
as close as possible to the goal through a combination of load shifting, load shedding,
battery cycling and power resales.
At this point, the GridPoint units use high capacity conventional batteries with an
estimated average 800 cycle life time, remote continuous performance monitoring
and proactive replacement notification. This has its own limitations, including limited
life and significant battery replacement costs (as much as a third of the original unit
cost). However, GridPoint is supposedly already considering a new battery
technology and other vendors can be expected to come up with new technology
improvements as well.
Yet, the batteries are not the only critical part of the system. There are a lot of
electronics involved, including power conditioning and surge protection, the inverter,
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Section 3: The Potential in the Residential Market
the power management circuit board, the communications interface, the cabinet, etc.
Significant cost reductions would have to be achieved there as well.
At this point, the company seems to be targeting large homes with reliability
problems homes with photovoltaic systems homes in areas where a back-up generator
is not an option and finally, home offices of telecommuters.
We believe that GridPoint is onto something and possibly it is the precursor of a
killer application. As we said, significant price and performance improvements would
be needed, but a sweet spot price in the range of $4,000 or so, could help launch
strong sales. Our analysis (shown below) indicates that at a unit cost of $4,000, the
payback could be reduced to less than four years.
GF
ENERGY
LLC
Smart Home Energy Storage (offering example)
System Costs
Annual O&M ($/yr)
Annual Subscription Cost ($)
System Benefits
Convenience benefits ($/yr)
Outage avoidance benefits ($/yr)
DR/CPP benefit ($/yr)
DR/TOU benefit ($/yr)
Arbitrage value ($/yr)
Other Energy Savings ($/yr)
Generator spending avoidance
Utility First Cost Rebate ($)
Utility Monthly Credits ($/yr)
Utility/ISO DR Credits ($/yr)
Total Yearly benefits
8
15000
13
1950
350
120
$
136
$
84
$
103
$
25
$
27
$
190
$ 2,000
$
750
$
392
$
392
$ 1,347
Sample Payback Analysis
9
8
Payback period (years)
Sample Assumptions
Application Characteristics
Peak (kW)
Yearly Elec consumption (kWh)
Average electric rate (cents/kWh)
Yearly Electricity Bill ($)
7
6
5
4
3
2
1
0
7000
6000
5000
4000
Smart Energy Storage Unit Cost ($)
We believe that a whole new generation of GridPoint products could develop for both
renewable energy-equipped homes and homes that want higher reliability. One
assumption is that such target customers would otherwise most likely involve in a
generator.
3.2 Emerging Business Opportunity Templates (BOTs)
The home networking market is clearly poised for growth and this should have a
strong effect on future sales of home energy control network systems as well. Several
consulting firms, such as In-Stat, estimate that the home networking market could
reach $5 to $6 billion in 2007, up from $3.5 billion in 2005.
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Section 3: The Potential in the Residential Market
In the residential sector, we anticipate four basic BOT levels (in increasing frequency
order):
Level one - Installation, maintenance and content support for Webenabled home control energy systems;
Level two - Subscription services to DR programs;
Level three - Installation, financing, maintenance and remote
management of smart-grid interactive power storage systems (which
will have their own built-in energy management capability); and
Level four - Installation, financing, maintenance and remote
management of DG systems.
We expect that in two-thirds of the cases, we will end up with offerings that combine
both levels one and two. Market penetration for levels three and four may be more
limited for a while until more is known about the true potential for monetizable
demand response in the residential sector.
In this new “enabled” environment, we anticipate many new players, Perfect Power
offerings and innovative business templates:
“Big Box” retailers (e.g., Best Buy) may team with DR service
providers (e.g. New Energy) to sell customized multi-year (e.g., two
to three year) DR subscription packages, like when Circuit City sells
an America Online subscription. The DR solution would be proposed
by the DR provider after a site visit. The installation would be carried
out by the retailer through their growing home installation service
divisions (who also would be responsible for after-sale service). The
installation could be free or discounted. The home resident would
pay a DR subscription and maintenance service ($5 to $10 a month),
but he also would earn DR credits that would be used to repay the
system and its installation. The resident could have the option to buy
the system at the end at a much reduced residual price.
Similar scenario involving specialty retailers tied with either local
utilities or telephone companies.
Security companies are well suited to get more involved in the sales
and installation of home control systems. Several have gone into
diversification by offering home entertainment systems. One survey
by Park Associates already shows that home builders have 15 percent
of their entertainment systems installed by security companies, so the
strategy seems to be working. Next, security companies are eager to
go into medical monitoring. Should this happen, security companies
would then make more and more home sales calls, a situation that
may position them very well to diversify in home energy control
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Section 3: The Potential in the Residential Market
installation and management as well. Some security monitoring
systems have large customer books of business as the result of the
drastic consolidation that took place in the industry.
Telecommunications companies, both legacy players like Verizon and
AT&T and new entrants, are natural players in this space with the
intention to sell as many solutions as possible that can use their
bandwidth and their home installation force. So, in addition to
pushing entertainment systems and security systems, they may
quickly become inclined to market home energy management
networks with the ability to manage the system using a special “Your
Energy” Web page that will be part of the account Web pages and
will provide energy information content. In many cases, the service
could be an incremental one and priced/structured accordingly. For
example, the telecommunications company could help benchmark the
performance of the resident against that of neighbors that the
company also serves. The cost of the system installation could be
subsidized and recouped through a monthly fee added to the telephone
bill that will probably include many other fees (e.g., VOIP, Internet,
etc). The telecommunication companies also may team with DR
service providers to include in its offering a DR enrollment service by
tying with the local utility or a third-party DR service provider. The
DR credits could be used to offset the monthly installation repayment
fees and wrapped up in the same bill.
Energy retailers are arguably the type of players that could offer three
or more BOT service levels. They could readily involve customers in
multi-year contracts that include a new energy management system
capability and they could propose the installation and financing of
smart energy storage or DG. They would have the most incentive and
capability to price and manage a three-tier BOT offering, because
they would know so much about local power supply and distribution
conditions. They would be well positioned to enroll home residents
in any available DR program (and share the associated credits) and
they would have the data gathering and dispatching systems to
combine demand response with DG and storage management.
New home developers will propose various levels of energy
management and storage/DG systems built in their design options and
may even sign up buyers for certain DR service plans. They also may
offer smart interactive storage and DG solutions, the cost of which
may be rolled into the mortgage. In addition, some have estimated
that the master planned residential market, which involves large scale
new and retrofit projects, could grow from 400,000 homes in 2004 to
almost 1.4 million homes in 2009, reflecting a higher proportion of
anticipated community-based development (vs. single homes). These
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Section 3: The Potential in the Residential Market
are primary opportunities for installations of home automation
systems and energy control systems as part of that activity. They
could team with local retailers or DR service providers. They also
could be teaming with a third-party to develop a microgrid.
We suspect that residential Web-enabled home energy management systems will
quickly become a fairly commoditized offering within four to six years if there are
reliable DR markets that develop. At that point, the winners will be the companies
with the largest books of business and the best business processes, either telephone
companies or large scale retailers, the latter having the most to gain in an increasingly
deregulated market. We show below how we foresee that each type of new entrant
may fare in promoting new residential BOTs.
New Entrant Type Security Company
Big Box
Retailer
Telecomm
Company
Energy
Retailer
New Home Developer
Level 1‐ Installation, maintenance and content support for web‐
enabled home control energy systems
++
++
+++
+/++
+++
Level 2 ‐ Automated Home DR programs
+
+
++
+++
+
+
0/+
+/++
++/+++
++
+
0
+
++/+++
+/++
Business Opportunities Level 3 ‐ Smart grid‐interactive power storage systems (with built‐in energy management capability)
Level 4‐ DG systems (with built‐in energy management capability) Likelihood and Fit: 0= unlikely; +=low; ++=moderate; +++=best
Source: GF Energy
3.3 Potential Deployment and Benefits
We believe that we will see a multi-layered DR world emerge in the residential sector
whereby home residents, local utilities, energy retailers and independent DR service
providers will all be able to tap residential power loads and propose various
programs.
We foresee a growing number of players, including utilities, energy retailers, security
companies, telecomm companies, specialty and “Big Box” retailers and consumer
content providers. It is not that difficult to imagine a scenario where the race is on
between brand names such as Verizon, Best Buy, Home Depot, GE Security, Sears,
Comcast, Trane, Earthlink and Cisco. A few leading players could then accumulate a
portfolio of one to two million subscribers, with a cumulative DR potential of one to
two GW, worth possibly $500 million or more in annual shared DR and subscriptionrelated revenues.
As a result, we would project that 20 to 25 percent of the residential power usage
could be Web-enabled by 2015, thus, possibly yielding 20 GW of DR capabilities and
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Section 3: The Potential in the Residential Market
allowing close to 15 million households to more precisely manage their power
consumption. In addition, together with utilities’ deployment of AMI and smart-grid
technologies, residential outages may have the potential to be reduced by 30 to 40
percent as well. Total investments in residential applications could be around $7 to
$10 billion and yield annual benefits of close to $4 billion by 2015.
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Section 4: The Potential in the Commercial Market
Section 4: The Potential in the Commercial Market
The commercial sector which, by our definition, includes office buildings, retail
outlets, hotels, hospitals, universities, light industrial buildings and research centers,
is experiencing a huge change, thanks to the increasing deployment of true building
intelligence. This will dramatically improve energy management in commercial
buildings leading to Perfect Power building configurations. This development is
fueled by three trends:
Increased convergence between Web-enabled IT systems and all other
building automation systems (BAS), including telephone, data, video,
safety, fire alarm, digital signage, energy, environmental systems and
building maintenance monitoring, with a heavy reliance on low-cost
wireless communications.
The pressure to be able to use open protocols to be able to mix and
match (plug and play) equipment from various vendors and
generations, generally using extensible markup language (XML) and
simple object access protocol (SOAP) protocols.
The growing use of sensors, in many cases linked by wireless mesh
networks.
We estimate that 40 percent of the new buildings could be IT-BAS convergent or
intelligent by 2015 and that the retrofit rate for existing buildings may exceed 10 to
15 percent. Meanwhile, we expect sensor demand to grow at seven to 10 percent per
year over the coming decade.
The large incumbent energy system control companies, such as Honeywell, Johnson
Controls, Siemens and Invensys, have all developed in the past two to three years,
open protocol solutions to complement their legacy, mostly proprietary, product lines
and they are now starting to offer wireless solutions as well. Some of these energy
control companies are expected to expand in security system applications and then
propose full building intelligence systems, more comprehensive building O&M
contracts and get involved in demand response (DR) programs. In parallel, many new
players have already entered the business intelligence system (BIS) field, including:
Cyrus Technologies is bringing together under one roof a mix of
several specialties in IT networks, BAS, environmental controls, etc.,
so as to be able to design and install the best open source solutions.
These integrators will have the expertise and savvy to go through the
general contractors and actually reach out to the end-users to be able
to offer true alternatives and explain them in terms that the tenant’s
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Section 4: The Potential in the Commercial Market
CIO or CEO will understand. They also have the programming skills
required. Some of these integrators may push for smarter
neighborhood types of applications, whereby proximate buildings
(e.g., in city downtowns) could share some facilities. Some
integrators will specialize in some verticals (e.g., data centers and
health facilities).
Signal and sensor start-up companies are offering new products that
are IP compatible and easy to program.
Increased building intelligence will not be restricted to new buildings (where,
granted, it will be easier to sell), but it also will become increasingly applicable in
existing buildings. To retrofit and smart-up an existing building is already doable
with current emerging technology, especially new wireless networks. Furthermore,
many retrofit improvements can occur without any local utility involvement.
Increased building intelligence will mean more precise and open energy and power
management in commercial premises, as a result of being able to relay on-demand,
real-time precise point-of-use data to Web portals that will be openly accessible by
building guests, tenants and owners alike (subject to security rules). The on-demand
remote metering and monitoring of any load will be possible. So, for the first time,
commercial electricity management will be an open playing field where building
managers, owners and tenants will all be able to truly “discover” and manage their
energy needs as they want, with the ability drill on precise real-time information,
available on-demand, neatly displayable on the Web, easily understandable for
immediate interaction and retrievable remotely via mobile phones and computers.
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Section 4: The Potential in the Commercial Market
GF
ENERGY
The New Commercial Electricity Management Paradigm
Supervisory Web‐based Capability
Local oversight from resident building manager
TCP/IP System
LLC
Tenants’ inputs
IT Load
HVAC Zone load
Oversight of other facilities (same region or not)
Building Control System
Tie with local network manager
Traditional links
New paradigm: web‐enabled links
New Options (case specific)
Lighting Load
In premises
Building wireless and wired network and loads
Not only will open commercial energy management benefit the building engineer or
manager who in his own way is not always as transparent or objective (or disinterested in
the status quo) as he should be, but it also will reach the building owners’ CFO, CIO and
operations executives, who can now oversee large commercial real estate portfolios on a
regional or national basis.
Tenants in intelligent commercial buildings also will be able to monitor and influence
their demand profiles and routines to truly control their energy use, level of comfort
and energy bills, all at once. This will be much better than receiving a monthly
statement based on the amount of square feet they happen to rent (especially if some
arcane adjustments have been made by cost accountants that do not necessarily have
any idea of how the building operates and what various types of equipment different
tenants use or how these tenants use their space).
As some of our contacts said, this completely changes the game. More stakeholders
will have a true seat at the decision table. These new constituencies will have to be
recognized and catered to and new business propositions will emerge. Additionally,
the marketing of energy will change. Tenants will be able to relay their site
information to their headquarters, which will be able to quickly aggregate a regional
or national enterprise-based picture including, of course, the opportunity to shop for
electricity supply.
For example, building intelligence will help solve the tenant conundrum. Right now,
tenants generally pay their energy as a more or less transparent part of their rental
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Section 4: The Potential in the Commercial Market
lease payment. With building intelligence, tenants can be submetered (and meter any
load they want) and take local, precise and cost-effective actions that affect not only
the entire premises, but also select parts of the rented space. This will be the end of
the blind energy lease charge, the “one-size fits all” building management approach
and the end to the tons of excuses that building owners can throw at tenants to offer
them half-baked approaches.
Furthermore, increased building intelligence (and the underlying IT/BAS
convergence that it implies) will enable or allow an increased or better use of many
new energy saving and demand-responsive technologies such as:
Daylighting and fully programmable (luminescence-based) lighting
(based on the digital addressable lighting interface [DALI] standard)
will be prevalent in new buildings past 2010;
HVAC efficiency will have increased by five percent by 2010 and
over half of the new buildings will have adopted new demand-control
ventilation techniques. And 20 percent will use passive cooling
properly integrated in the building envelopes;
Innovative demand-controlled ventilation designs;
Decentralized distributed generation (DG) uninterruptible power
supplies (UPS) networks in data centers; and
Packaged plug-and-play DG.
GF
ENERGY
LLC
IT/BAS convergence will have significant ripple effects
Better and Smarter IT/BAS Convergence Allows
z
The ability to operate in real time (right information, right time, right format, right person – Cisco)
z
Electronic utility metering and full sub‐metering for tenant billing and cost accounting
z
Bill estimating and forecasting z
Load management based on price signals, occupancy profiles, security requirements z
Automatic/algorithmic participation in site‐
specific/pooled demand response schemes
z
System‐controlled daylighting
and digital addressable lighting interface‐driven lighting networks (DALI protocol)
z
Demand‐controlled ventilation and better HVAC technologies.
z
Power quality monitoring
z
More dynamic power storage
z
Better sizing and siting of DG systems
z
Predictive maintenance
Which in turn allows better use of new technologies
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Section 4: The Potential in the Commercial Market
And the payoff will be huge. Tenants will be able to buy their own energy from their
own supplier in states that allow this. They also will have the freedom of
participating in an individual customized or building-wide basis in local demand
response schemes based on their specific supply-demand profile. Buildings will
become a major source of demand response. Data shows that, even though it accounts
for 35 percent of the total U.S. load, the commercial sector accounts for 45 percent on
average of summer electric peak coincident demand, with a sector peak in excess of
330 GW. The ability to precisely trigger on-demand DR could help reduce the
sector’s peak by at least 10 to 15 percent, based on various DR experiments
conducted to date. It will become possible to enroll and aggregate thousands of
buildings in DR programs. The impact could be considered if we believe some
estimates that show a 2.5 percent reduction in peak demand could reduce the costs of
serving that peak by 25 percent.
Finally, tenants will be able to decide whether to invest in dedicated UPS, storage or
distributed generation, or rent these capabilities from the building’s central manager
or potentially from adjacent or nearby facilities. If they do, the UPS, storage and DG
systems also will be fully Web-enabled and managed. We will probably see more
decentralized demand control-based UPS systems, more smart, mid-sized, gridconnected “active,” two-way storage technologies and the ability to deploy scaleable
plug and play DG (including better DG packaging and better interconnection
modules).
In parallel, the deployment of BIS will usher the entry of next generation
maintenance management programs, allowing equipment condition monitoring, early
fault detection and predictive and self-healing maintenance approaches. Operating
personnel will be effectively dispatched through wireless communications through
their PDAs or cell phones.
Finally, one also can progressively expect a new way to design and develop new
buildings, if only because the buildings of the future are likely to fulfill new functions
and operate differently, especially in the office, hotel, health and educational sectors.
We now sense a reasonably strong momentum toward a green and smart building and
a better way to spec energy systems for that purpose and truly consider more longterm costing approaches. Still, many observers keep saying that the commercial real
estate sector will continue to operate under an ancient and dysfunctional system,
where the decision maker ends up being a general contractor, which is neither the
end-user nor the future facility manager. As a result, the sector is served by a
fragmented vendor population, including architects, specialty designers (e.g., for
UPS, DG), building control vendors, HVAC vendors, UPS vendors and DG vendors.
How long the industry remains fragmented will depend on how ubiquitous new, smart
commercial building management systems get implemented, how quickly energy
retail deregulation happens and the speed at which DR programs get implemented.
Yet, we believe that the trends that are at work in the commercial building sector
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could trigger a defragmentation of the sector. We think that eventually, there will be
three major types of players with largely distinct business models (but some overlaps
are possible as indicated):
The intelligence solution providers, which will include a mix of
network companies, new, specialized integrator installers and
equipment control companies. In many cases, these players will team
with each other but there also is the possibility to see large solution
conglomerates emerge, mostly through acquisition (e.g., Siemens,
which has bought several companies in the past, Schneider, which is
now buying several outfits and Honeywell, which just acquired
Tridium). The business proposition here is to design, install, protect,
run and “futureproof” an intelligent hardware and software solution to
either a building owner or a tenant. Some of these players also may
provide intelligence content (e.g., market data). However, most of
them will not run the energy systems (e.g., HVAC) themselves,
except for the very few large incumbent control companies that have
set up their own facility management divisions. In any case, hardly
any of these intelligence solution providers is likely to be involved in
energy sales, but some may offer DR management services.
The energy concierges, which will be stewards of building energy
systems (including their intelligence backbone), will propose “a la
carte” energy and power services based on a balance of core and
decentralized services. They will choose the energy/power equipment,
sometimes own it, run it and maintain it. They also may be involved
in broader or full-premise management as well. So, they will have the
capability to roll-out various levels of Perfect Power configuration
based on the tenant mix and overall branding of the building. Such
capability should not only enhance the value of the building and
facilitate tenant attraction and retention, but building owners also will
be able to reduce their costs, while charging for more services to
increase revenues (broadband, ambient music, digital signage, cable
or customized content diffusion). Energy concierges could be
specialized energy departments of large building owners, independent
facility management companies (i.e., not captive from any vendor)
and energy service companies. They may be involved in some niche
energy/power intelligence offerings. Finally, they may be
energy/power buying agents (earning a commission of a management
fee) but they will generally avoid really taking full title to the energy.
The full-service retail providers, whose main mission is to sell
energy, but also may diversify downstream and offer energy facility
development, management and DR program management services.
This could include companies like Constellation New Energy. Some
could also be involved in building intelligence design and installation
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services, probably through alliances with specialized integration
contractors. They also could invest in energy/power asset upgrades,
UPS, storage and DG.
We believe that now are the heydays for intelligence solutions providers. Whether
energy concierges quickly develop will depend on whether the large building owners
step up to the plate and decide to get fully involved in perfect energy and power
management. In many cases, they may not, because they do not have the skills or the
strategic will. Finally, the involvement of full-service retailers will depend on three
major factors:
First, the growth of the deregulated retail business (only 40 percent of
the market is open);
Second, the ability to see large players emerge (so far, only three are
of the right size). We would need three to four times more players;
and
Third, the capability to bridge the two ends of the business, the fastmoving commodity sales side with the long-sales cycle energy facility
development and management side. Many retailers tried and gave up.
So, it may be that to work, the combination requires to have first
reached critical mass on the commodity side and then progressively
move in the facility development and management side.
In addition, although it is outside the scope of this report, we believe we are
witnessing a consolidation of the ownership of the commercial real estate sector,
which should further facilitate the penetration of new technology.
In the mean time, many outreach actions can be undertaken to help speed up the
transition to more Perfect Power System configurations in commercial buildings,
working with various industry groups (e.g., Continental Automated Buildings
Association [CABA], Building Owners and Managers Association International
[BOMA], General Services Administration [GSA]) and promoting applications in the
mid-market (between 25,000 square feet and 125,000 square feet) where market
penetration could be more difficult.
In this section, we first describe the commercial building universe and then review
the range of Business Opportunity Template (BOT) opportunities that are likely to
emerge and how quickly these may be rolled out in the market place within the
upcoming decade.
4.1 The Commercial Sector
The commercial sector is very diverse including both private and public (institutional
buildings and complexes, including office buildings, hospitality buildings (e.g., hotels
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and motels), data centers, healthcare buildings (including hospitals, outpatient care
and nursing homes), educational facilities (including schools and universities),
shopping centers and malls, airports, convention centers, prisons, etc.
The total amount of commercial buildings is estimated in the latest 2003 Department
of Energy’s Commercial Buildings Energy Consumption Survey (CBECS) at 4.85
million buildings, representing 72 billion square feet of built space, with an estimated
annual consumption of more than 18 quads Btu (19 percent of the total U.S.
consumption in that year). Commercial buildings also constitute the most electricintensive sector in the country, 76 percent of what they use is electricity-based and
they consume 35 percent of the country’s total electricity.
The five largest building segments are office buildings (12.2 billion square feet),
followed by the mercantile sector (retail stores and malls) with 11.2 billion square
feet, educational buildings (9.9 billion square feet), lodging sector (5.1 billion square
feet) and the healthcare sector (3.2 billion square feet).
Energy consumption varies significantly from one type of building to another and
even within each type of building, depending on building architecture, operating
schedules and the type of activities conducted on site.
The amount of new construction is about 85 to 90 thousand new buildings per year
with a total floor space between 1.25 and 1.4 million square feet per year, about 1.5
to two percent annual growth. A good deal of that new construction involves small
and mid-size buildings below 50,000 square feet. Many applications are multi-tenant
buildings. We also note that:
About 50 percent of that building stock involves buildings of less than
50,000 square feet. Of those, 15 percent are between 50,000 square
feet and 100,000 square feet and 100,000 square feet and 200,000
square feet each. Another 10 percent are between 200,000 square feet
and 500,000 square feet and 10 percent are above 500,000 square feet.
About 60 percent of the building floor space is owner-occupied and
about 37 percent is leased in private buildings. Of those leased, about
30 percent involve 10 tenants or more and another 12 percent have
more than five tenants.
About 62 percent of the floor space also is associated with standalone
buildings while the balance is part of a multi-building complex
(college, university campus, office complex, retail complex, resort or
government complex).
About 43 percent of the floor pace is found in buildings that are less
than 25 years old. About 60 percent of buildings older than 25 years
have been renovated at least once.
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Twenty percent of the floor space involves buildings that operate
continuously.
GF
ENERGY
LLC
All Buildings
(4.85 million)
72 bsf
Office buildings
12 bsf
Retail
11 bsf
Education
10 bsf
Lodging
5 bsf
Health care
Building Area
The Commercial Sector
<50 Ksf
50-100
100-200
200-500
3.2 bsf
>500 Ksf
0%
10%
20%
30%
40%
50%
% Comm ercial Floor Space
New Construction
z
60% floorspace owner‐occupied; 40% leased.
•85‐90,000/year
z
30% with >10 tenants; 12% with 5‐10 tenants.
•1.4 bsf/year
z
62% standalone; 38% multi‐building complexes.
•Many design‐build
z
21% with 4 floors or more.
Bsf= billion square feet
z
43% under 25 years; 60% of space over 25 years renovated once or more.
z
20% in buildings that operate continuously. z
Push for more floor versatility, higher connectivity.
In terms of energy controls, penetration to date has been uneven:
Five percent of commercial buildings (25 percent floor space) are
equipped with energy management and control systems (EMCS). The
highest penetration (20 percent of buildings and 45 percent of the
space) is found among government buildings versus three percent of
the privately-owned buildings (and 17 percent of the associated
space).
Only 10 percent of the buildings (30 percent of the space) are
equipped with variable air volume systems or have economizers.
One and a half percent (seven percent of the space) of the buildings
have lighting control systems. Here again, penetration is much higher
in government-owned facilities (3.5 percent of the buildings and
almost 10 percent of the space).
Two percent of the buildings are equipped with daylight sensors.
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Limited Controls Penetration to date in the Commercial Sector
% Buildings
% Floorspace
Are Equipped with
5%
25%
Energy management and control systems (EMCS)
20% government buildings
45% of government occupied
EMCS
3% private 17% of private space
EMCS
10%
30%
Variable air volume; economizers
1.5%
7%
Lighting controls
3.5% government buildings
10% of government occupied space
Lighting controls
2%
5%
Daylight sensors
The penetration of controls is, however, much higher in larger buildings, leaving
much room for improvement in buildings in the range of 25,000 square feet to
100,000 square feet.
4.2 Current Developments
To date, commercial buildings that have shown the most concern for improved
energy, power systems and usage have been specialized buildings, such as
data/telecommunications centers, airports, convention centers, large hotels and large
urban center office buildings. In most cases, these buildings had a single owner or an
anchor tenant, which made the decision-making process easier. Often, there was a
seminal event that helped, such as a major renovation by a new owner, the fact that
the building is a flagship building for the owner, the availability of real estate grants,
etc.
However, we have reasons to believe that a larger fraction of commercial applications
can become engaged in the search for better energy and power management.
For one thing, commercial customers are becoming very energy price and power
perfect conscious. Some property owners have seen energy prices double in the past
three years. Customers’ willingness to react is shown by their willingness to switch
energy suppliers in large proportions in certain deregulated markets. For example, as
of mid-2005, six states have experienced high commercial load switch rates of more
than 50 percent: the District of Columbia, Illinois, Massachusetts, Maine, New York
and Texas and two (Maine/industrials and Texas/commercials) were above 80
percent, while New York/industrials and D.C./commercials have rates between 70
percent and 80 percent. However, it is not always the case. Four (Connecticut,
Delaware, Oregon and Virginia) had commercial load switch rates of less than 10
percent.
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Finally, with increased building intelligence, we expect to see more applications of
innovative energy, power efficiency and demand response technologies, from
improved programmable lighting to better UPS systems and more versatile DG
systems.
4.2.1 Setting Up Interactive Utility Account/Energy Management Portals
Many commercial building owners have set up powerful utility account management
portals offering new ways to meter, record the meter and energy consumption data,
develop alert systems and take advantage of increasing real-time pricing to manage
their utility accounts. To do so, users have installed additional meters on some of
their key loads and the information is being sent via phone lines or increasingly via
Internet to a central location, either within their own organization, central corporate
energy office or on a third-party-owned site. The collected information is then
processed (often automatically) via software that can display energy use, bills, etc.,
on-demand or at preset-frequencies on a Web-managed customer portal.
More than 15 companies have emerged to offer these software packages. In many
cases, they offer what is called an application service provider (ASP) subscription
service. They install the meters, they collect, read, store and process the data off-site
and then prepare reports that are available on Web sites and thus, accessible by
users/subscribers whenever they want. Examples of companies catering to these new
needs include Automated Energy, CAP, Circadian Information Systems, Enerwise
Technologies,
Honeywell/Atrium,
Indus/Enerlink,
Itron/EEM,
Johnson
Controls/Facility Explorer, Maximum Performance Group (MPG)/eMAC, SMR
Inc/UM OnLine, SPL/Enermetrix, Tridium Inc. and WebGen Systems.
These companies have been very creative in exploiting the benefits that such
interactive utility account monitoring capability can offer and their clients have
readily accepted many of these new services, including:
Real-time load monitoring and auditing;
Bill estimation and forecasting;
Allocation of utility costs by process lines, departments or tenants;
Tools to manage utility contracts;
Setting consumption or peak alerts messages, as well as notifications
of hourly tariff changes;
Rate/tariff analysis (tariff engine);
Metering systems integration;
Market value pricing, hourly price communications combined with
load profiling to support load curtailment, peak management, demand
response and hourly sales of electricity;
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Multi-site energy management (gas and electricity);
Power quality analysis; and
Electrical testing.
For many customers, the value proposition is very beneficial. The process is not that
difficult to set up (to get the right to read meters may be the biggest obstacle in some
cases) and once installed, it is easy to reprogram and the cost of the initial set up is
becoming cheaper, now down to less than $10,000 for a set up that may accommodate
up to 500 data points. Ongoing monitoring can be offered in many different shapes
and forms, but it generally means between $25 and $125 a month per point.
Competition between vendors has resulted in lower prices in the past 12 months and
users’ costs can be expected to further decrease in the next two years. We estimate
this total energy management systems (EMS) market at close to $200 million per year
and now more than 100,000 facilities are probably covered. Although we did not
conduct a detailed study, there is much evidence that this market could grow at seven
to 10 percent per year for the next five years.
In some cases, vendors are exploring how to tie such information to other
capabilities, most notably the users’ asset management systems. As a result, some
users (e.g., GlaxoSmithKline, King Of Prussia, PA, with Enerwise application), with
the most integrated applications, have mentioned additional benefits such as:
Reliable operations;
Protection of sensitive laboratory equipment;
Reduced maintenance and energy costs;
Reduced downtime;
Customized engineering reports and records;
Fewer equipment replacements; and
Improved facility planning.
Furthermore, some vendors are looking at pooling data from proximate sites in the
same distribution service area or same constrained area to help monitor local
distribution power usage and start gathering information such as supervisory control
and data acquisition (SCADA). Eventually, this could lead to enabling the
development of local microgrids.
We expect that utilities and energy retailers will start to offer some of these
capabilities to their customers. Already, Constellation NewEnergy, the largest
deregulated energy retailer in the U.S., rolled out in November 2005 its Itron-based
resource that it offers to all its customers. Likewise, a company like Automated
Energy has sold its system to investor-owned utilities (IOUs), which, in turn, offer
that service as private-labeled services under their own names. If this happens, the
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growth of such utility account management systems could then be more in the 10 to
15 percent per year range.
4.2.2 - Injecting Intelligence in Buildings
For the past three decades, buildings have been equipped with more and more
building energy management and control systems (EMCS) to handle HVAC systems,
as well as with building automation systems (BAS) to handle safety, security and
elevator systems. Today, nearly one-third of all U.S. buildings larger than 100,000
square feet have an EMS system and BAS market penetration is about 30 percent
overall.
The ability to master more control building activities has been increasing over the
past 15 years and many standards were developed, including BACnet, LonWorks,
Modbus and OPC, to be able to control an increasing array of devices. At this
juncture, BACnet and LonWorks dominate with about 55 to 60 percent market share.
But, now, some building owners and operators (BOOs) want to inject true
intelligence in their buildings for several reasons:
Many BOOs are convinced their energy management systems (EMS)
are not saving enough energy. In one study, five out of 11 energy
management systems were found to be "underachievers." Some
surveys indicate that EMS have been underutilized when it comes to
functions such as remote monitoring, load shedding, peak demand
limiting, pre-cooling, lighting controls, boiler sequencing, energy use
targeting, energy metering and condition monitoring of certain critical
assets.
To achieve a better control performance, BOOs want to be able to
merge the offerings of various vendors, so users are clamoring for
what is called truly open access and usage. Although large control
companies (Honeywell, JIC and Siemens) have developed opensystem applications that can interface with many devices using
various standards. Users still complain that the management
application is often handled through proprietary software. Users want
to be able to let third parties access that management function but, of
course, this becomes an immediate threat against incumbent control
companies, which offer long term monitoring contracts.
BOOs want system-wide, on-demand access to intelligent energy use
information, something that only a Web-enabled architecture can
provide along with a well-thought out software platform.
BOOs are often faced with having to manage several systems (i.e.,
one for energy, one for security, one for asset management). The
typical comment goes as follows: “We still have separate computers
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that operate probably five or six systems in the average large
building. Very few operations allow the network to share information
among them, and it's rare for there to be a well-organized hierarchy of
control.” Instead, users want an integrated building management
platform that can intelligently tie energy management to both their
financial systems (for true financial energy management) and their
asset management (to be able to design and implement preventive
management strategies).
BOOs’ wishes are on the point on being satisfied, thanks to recent developments in
the marketplace over the past two to three years:
The ability to develop open architectures that can converge IT and
building automation systems to allow full Web-enabling of building
energy and power management systems.
The development of new smarter and more powerful Web-enabled
sensors, many of them wireless, for cost-effective new and retrofit
installations.
The increasing creativity displayed by new players (i.e., network and
signal managers, facility system integrators and smart sensor
vendors), who now can offer (on their own or though new types of
alliances) customized and integrated solutions that effectively provide
convergent IT-BAS solutions empowered with the ability to use plugand-play sensor networks.
GF
ENERGY
LLC
The Commercial Sector is attracting new entrants
CISCO
Downward commercial integration
The Network and Signal Managers
(data, voice, data storage, system continuity and maintenance)
Richards Zeta
The Facility Integrators (open architecture, wired/wireless, all BAS functions)
NEW
Smart Sensor
companies NEW
Honeywell Buildings
Upstream capability integration
Traditionalist energy control companies (wired, proprietary technology)
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Increased Web-enabling also will be helped by changes to the 2002 National
Electrical Code (NEC) and the Construction Specifications Institute (CSI)
MasterFormat 2004. The changes to the 2002 NEC require proper cable management
on the part of the building owner and the breakup in divisions in CSI's MasterFormat
2004. This will become a strong impetus for building owners to start thinking
“intelligently” right from the start, such as at the blueprint stage.
Thus, many observers believe that we may be approaching a tipping point in the next
two to three years when BOOs can transform the way they manage their building
operations. We think that this timing is coming soon since we have identified more
than 60 new entrants in the building intelligence (e.g., IT/BAS) space that deal with
applications related to energy and power management. Although many of them tend
to be small companies, some have received the support of large players. We also
believe that many will be acquired by larger players (e.g., Honeywell or Schneider).
There are so many new Web-enabled solutions for commercial buildings that it is
difficult to describe them all but they tend to fall in three categories or levels:
1.
At the top level, there are integrated building systems that call for
designing an overall conversion platform, which on one end
communicates with a TCP/IP (Transmission Control
Protocol/Internet Protocol) backbone and on the other end
communicates with all the BAS systems with their own protocols
(e.g., HVAC systems, security systems, etc.).
2.
At the middle level, it involves setting Web-enabled conversion
boxes at various critical parts of the legacy system (e.g.,
controllers and major sensors).
3.
At the bottom level, it means deploying new Web-enabled
sensors, either macro sensors that are self-enabled or wireless
networks of sensors that communicate with the building’s TCP/IP
backbone.
This richness of options means that Web-enabling can be either all encompassing (in
the case of a major retrofit) or progressive (i.e., focusing on the HVAC functionality
only). It also provides flexibility of scope when considering the retrofitting of a
complex building. Eventually, though, the scope can be all encompassing as shown in
the diagram below.
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BUILDING SYSTEM/IT CONVERGENCE
Building automation systems today rely on open, industry-specific protocols such as
LonTalk (shown) or BACnet for device-level communications, but they increasingly
leverage Ethernet and TCP/IP for home runs back to the control systems. Some
systems, such as building security, can support IP from end to end, and Web services
may allow greater integration between building systems — and with business
Top level Web-enabling solutions. Of course, many argue that deploying an overall
platform is the most natural way to “smart up” a building. In that case, the building
system control architecture becomes drastically altered, as shown below, looking
more like an hour-glass rather than a typical command-and-control pyramid. The
open platform in the middle allows a two-way communication between, on the top, a
host of Web-based software applications and, on the bottom, the whole suite of
separate BAS systems.
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New Platform
The trend also is to have that core platform use XML or SOAP. At this point, XML is
deemed the best, most widely accepted way to get data from a control network to an
enterprise application or external service provider’s management application. Steve
Nguyen, director of corporate marketing at Echelon said: “We see the industry
moving to a point where EVERY automation system, from HVAC to lighting to blind
control, will be accessible and controllable via an XML feed of some sort. Every
manufacturer we’ve talked to now includes the idea of connecting to the IP network
via XML as part of their pitch. The reality, of course, varies widely, but the gist of it
is that the buildings industry is moving to XML capable systems, period.” And, in
fact, a lot of work is now being done by XML standards setting bodies (e.g., oBIX)
on XML-capable interfaces for building automation systems.
All the incumbent control companies are responding to the new trend and have
developed their own proprietary conversion solutions to allow their systems to be
fully Web-enabled. However, there also are several new entrants, who are active in
developing truly open IT/BAS conversion platforms, including Broadband Energy
Networks, GridLogix, Lynspring and Tridium.
These new entrants are developing new software drivers to accommodate more
devices. For example, Tridium, which has its Niagara software platform, is said to
develop one to two drivers every month for specific applications, such as smart ovens
in fast food facilities or monitoring actual communications gear, battery back up
systems and backup generator systems. Furthermore, more software vendors are
issuing tool kits to allow their partners to create new drivers on their own to handle
their own customers’ requests, while remaining compatible with their system
framework. At this juncture, Tridium’s Niagara system has been used to connect to
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more than 1,000 devices from more than 250 manufacturers using about 100 different
protocols.
Middle level Web-enabling offerings. We witness the emergence of a whole new
series of smart add-on (or snap-on) conversion devices, which can supplement an
existing legacy network, bypass it or ride in parallel. This brings a whole new front
for retrofit applications in particular. These conversion devices can be embedded
either at the chip level or at the controller/server level.
In the first case, we are talking about convergent new chips that can communicate
with an open platform, have their own connectivity and can deal with legacy
standards. A good example is the JENEsys chip from Lynxspring, which embeds
Tridium’s Niagara software platform and has two Ethernet connections, one RS-232
port and one RS-485 port. The chip can work on an IP network (using JAVA and
XML) while communicating through a normalized database with protocols such as
LonWorks, BACnet or Modbus. The result is a solution that is scalable from a unit
controller to a Web-enabled supervisory level manager and can communicate through
a 56K modem, general packet radio service (GPRS) and wireless mesh.
In the second case, we are talking about injecting the open code in select
controller/server devices. One example is the Tridium’s JACE-2 offering, which
injects the capabilities of the firm’s Web-based NiagaraAX software in small, lowcost, modular controller units. JACE-2 brings Internet connectivity closer to end
devices in monitoring, control and machine-to-machine applications. Furthermore,
JACE 2’s modular design has an expansion slot for easy plug-in of accessory devices
(including an expandable plug-in input/output (I/O) for up to 64 points of local I/O
for direct interface and control of legacy equipment). So, it becomes easy to “snap
on” a new or second, network right off a single JACE 2, which then becomes a
server/controller. This adds flexibility and reduces installation costs.
Such new middle-level devices allow users to add devices without having to replace
the controllers, which are too expensive. This way, the BAS configuration is flexible
and future-proofed thanks to a true plug and play capability. It best suits the needs of
smaller buildings.
Bottom level Web-enabling devices. This includes both micro- and macro-sensors.
First, we will witness an explosion of small processor ICs that can be so small in size
that they can fit into virtually any sensor or actuator. They also will be media
independent for wired or wireless media and can be self-organizing into functioning
systems without technically-skilled assembly personnel or laborious configuration
tools or procedures, which can receive and disseminate control information between
sensors/actuators, displays, host processors and the other devices and components
within a machine.
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The results are embedded control networks in building systems, which extend
networking to the discrete sensors (micro-switches, push-buttons, shaft encoders,
etc.), actuators (solenoids, pumps, valves, etc.), and displays (LCD, LED, etc.)
embedded inside a machine or device. For example, an air handling unit could
operate by means of an embedded control network that makes the machine more
reliable, easier and cheaper to manufacturer, have increased functionality, lower lifecycle costs and be able to provide more diagnostic data. This same air handler should
be installed and managed using the exact same software tools as the building
automation system to which it belongs. In this scenario, a building integrator might
not know that he had just added a complete embedded control network to his BAS.
One example of new embedded control network offering is the Pyxos network
product from Echelon, which is a good platform for embedding control networks for
small rooms and control applications, especially for new types of automated
ventilation applications (AVA). The benefits include extending and leveraging the
BAS, using standard legacy codes (e.g., LONWORKS), self-installation (no software
tool) of the Pyxos Points, free-topology wiring, power and data over the same wire,
reduced parts, elimination of wiring errors and greater reliability. This is a huge win
for the end-user, installer and equipment manufacturer.
Second, we foresee the development of larger sensors that will be easier to use. For
example, Sun recently announced the availability of its Sun SPOT offering, which
uses JAVA technology and is equipped with a sensor board for I/O, an 802.15.4 radio
for wireless communications and uses NetBeans as a code writer. Some predict that
the market deployment of such sensor boards could trigger, within three to five years,
a wave of new applications not even thinkable at this point. When releasing its new
product, SPOT, Sun explicitly mentioned the potential use to control and manage
energy devices.
With the explosion of sensors, we will see more wireless mesh sensor networks
because they are self-forming (or self-configuring) for simple deployment (once
tuned on, they “join” the network). They are very reliable (self-healing) since they
can use various paths to communicate between sensors and controllers. Additionally,
they are multi-hopping (a sensor can read another sensor’s data). With these three
characteristics, wireless sensor mesh networks also offer many benefits (as compiled
from various product developers):
Reduced wiring costs (up to 80 percent);
Reduced labor costs by eliminating cumbersome manual monitoring
techniques ;
Speeds up retrofit projects;
Allows staged migration for retrofit situations;
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Potential for retrofit sensing applications that would not be possible
otherwise (because wiring would have been too dangerous);
Reduced maintenance costs through deferred maintenance activities;
Increased uptime and revenues through elimination of failures;
Avoidance of the
replacements; and
Elimination of costs and constraints associated with rewiring and
change in maintenance procedures whenever the floor space is being
reconfigured or a new tenant with a different floor usage pattern
moves in.
need
for
costly
“just-in-time”
equipment
At this juncture, there are several different mesh networking systems, some
proprietary (Millennial Net, SensiMesh, EmberNet and Crossbow Technology), some
open source (TinyOS) and others the work of industry consortia (Zigbee and Zwave). Yet, in the end, like wired systems, wireless networks will need to feed into
TCP/IP backbones so that they can be managed from the Web as well.
The major control companies have already developed their wireless extensions. For
example, in late 2005, Siemens launched a wireless version of its APOGEE building
automation system. Johnson Controls and Honeywell are on the same path.
One good example of a new entrant is Kiyon, who recently issued its KAN 254B
product line, which gives a glimpse of the kind of new functionalities that will
quickly become common in a few years:
Communications compatibility: It uses standards 802.11 a, b and g
WiFi so it is compatible with laptops and PDAs, which allows mobile
troubleshooting and easy installation. The sensors automatically find
each other and dynamically determine the best path for routing
communications, adjusting in real-time for interference and roaming,
maintaining high connection reliability and compensating for
potential coverage shadows.
Distributed intelligence: Each node is aware of all other nodes in its
area so that they manage traffic without need of centralized switches.
Kiyon also provides network monitoring software to show the current
status of the entire wireless network. This makes network setup and
on-going network operations easy for a typical building installer and
operator.
With the KAN 254B, which also is BACnet compatible, Kiyon is targeting building
automation applications (e.g., AVA’s, field controllers, and supervisory controllers),
which are often harsh RF indoor environments and where Kiyon’s approach yields
high reliability, low cost per node and high user density applications.
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A steady stream of announcements can be expected. As a result, we envision
significant market penetration of wireless networks over the next 10 to 15 years. By
2010, penetration could be around 15 percent and reach 30 percent by 2015.
In addition, to date, wireless sensor network deployment has generally required
experienced integrators and developers. So, we are witnessing more newcomers (e.g.,
Tendril) proposing new “tool-kit-type” software engines to “tie-in” wireless sensor
networks by integrating (or acting as a broker between) different types of low-power
sensors with enterprise or product computing systems. So, the solution is a software
engine that acts as broker that can detect sensors and extract their capabilities,
aggregate and manage the data received from the sensors, store and apply decision
rules and monitor the sensors. This way a wireless solution developer does not have
to spend a lot of effort learning about the intricacies of microelectromechanical
sensors (MEMS), wireless mesh networking routing algorithms, wireless network
reliability, node operating systems, inter-node networking, etc. Some have estimated
the market for such brokerage software at about $1 billion per year by 2010 (25
percent of all wireless applications).
Tendril has already developed wireless network brokerage solutions, one using
Zigbee (with the EmberNet 2.0 platform from Ember Corp). Tendril plans to release
a steady stream of additional platforms through 2006 and 2007, including platforms
from Chipcon, Freescale and Renesas. We also will see companies develop wireless
sensor network compliance services (e.g., Draintree Networks).
The result is going to be an increasing reliance on convergent open wireless
networks. Finally, as more and more wireless sensor network applications develop,
these networks will use a Web services protocol from the outset. This is, for example,
the approach adopted by Dust Inc., one of the leading suppliers of wireless mesh
network technology, to deploy pilot projects for advanced energy management.
4.2.3 - Capitalizing on Building Intelligence
Higher levels of IT/BAS convergence and building intelligence will deliver a huge
array of benefits. Overall, the trend toward the smarting-up and Web-enabling of
commercial buildings opens the door to smart energy and power usage, better use of
the facilities and has positive environmental impacts as well. Below is a list of the
benefits that can be associated with the new trend by type of commercial building,
new or existing.
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Type of benefit from increased IT/BAS in Commercial Building
New
Existing
Increased power reliability
H
M‐H
Ability to understand, track and bill (and submeter) energy/power use
H
H
More choices in levels, quality and costs of energy/power service
H
M
Enhanced energy and power savings
M‐H
H
Ability to participate in DR programs
H
M‐H
Better “sync” with other building activities (e.g., occupancy scheduling, security programs)
H
M
Higher tenant satisfaction
H
M‐H
Higher worker well‐being productivity
M
L‐M
Ability to provide power versatility to match floor space versatility requirements (decentralized lops, wireless controls)
H
L‐M
Better ability to accommodate new tenant energy needs
H
L‐M
Better design of potential energy/power configuration retrofits
na
M
Higher potential to capitalize on green building design H
L‐M
Contribution to property value and brand image H
M
As a result of access to real-time precise data, building engineers, remote facility
managers and demand-response companies see the potential for easier, cheaper and
more dependable:
Optimized remote control, monitoring and reporting of building
automation systems;
Increased energy efficiency of buildings and reduced costs through
intelligent heating, lighting and cooling;
Automated work scheduling, billing and help desk, all linked to
enterprise resource planning (ERP);
Improved staff productivity (maintenance, facilities and security),
enhanced health and safety functionality;
Improved operations, management operations and scheduling and
better asset management and tracking; and
Centralized management of a distributed portfolio of properties.
The value of IT/BAS convergence is even higher in new buildings, because the
building can be designed from the start to have a common communication
infrastructure or structured cable plant. This means less cabling, lower initial
installation costs and reduced yearly maintenance. Buildings with extensive IT
infrastructures, such as data centers and hospitals, will reap the most savings from a
structured cable plant.
One company that sees a huge value in such IT/BAS convergence is a new entrant,
Cisco, which has just launched its Cisco Connected Real Estate Initiative (CCRE)
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aimed at office buildings, hotel operators, multiplexed retail outlets and corporate
tenants. CCRE’s value proposition is a multi-service IP platform that supports
intercommunication between multiple proprietary networks to run systems such as
HVAC (heating, ventilation and air conditioning), security and access, energy,
lighting and fire and safety, as well as separate voice and data telecommunications
networks.
From Cisco’s perspective, a connected intelligent building offers four benefits:
1.
Enabling building owners and operators to offer new services to
their tenants and thus develop new revenue streams or business
models.
2.
Reducing capital expenditure and operational expenditure for key
stakeholders over the lifecycle of the building.
3.
Creating more productive and flexible workplaces that are
scalable and foster improved collaboration, mobility and remote
connectivity. It enhances health, safety and security for a
building’s occupants
4.
Increasing the value of building properties.
All four benefits combined, can make for a convincing economic case. Generally
speaking, smarting up a building may cost $3 to $5 per square foot for new
construction and $4 to $6 per square foot for retrofits. However, it is likely to yield
between $0.5-1.25 per square foot in energy savings and DR benefits plus $1 to 1.5
per square foot in enhanced worker productivity and another $2 to $3 per square foot
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Section 4: The Potential in the Commercial Market
in higher rent and service revenues. If all three benefits are at hand, the resulting
payback would tend to be less than two years.
GF
ENERGY
LLC
Commercial Sector
New entrants believe that smarter buildings will open the door to new facility management business models
$/ft2
Energy savings/
yr
Productivity Improvement
/yr
Increase in chargeable rent/yr Sample range (e.g., retrofit vs, new)
Adapted from Paul Erlich
One‐time cost of “smarting” a building
This can be even more the case in office buildings where a convergent IP/BAS
infrastructure can offer many benefits to the owner or property manager:
They can offer to their tenants another slate of services in addition to
standard HVAC and security services, including high-speed Internet
access, IP telephony, unified communications, wireless/mobility
solutions, network security plans and digital signage, advertising and
streamed media services.
They will experience reduced IT resource requirements and cheaper
communications costs.
They will be able to reduce the average time and cost per move for
new tenants and thus, lower the vacancy rate. So, instead of waiting
weeks or months for those services, tenants could get them within
hours or days
They will see the value of their buildings rise and they will be able to
charge higher rents.
To attack the market, Cisco recently announced an alliance with Richards Zeta (a
high-end BAS integrator) and Panduit (which specializes in structured cabling). We
envision more new entrants. This will include IT network companies offering
backbone umbrella propositions, system integrators developing smart modulators and
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network interfaces along with system solution implementation and new solutions
specifiers (e.g., Intelligent Buildings and Cyrus Technologies) working with IT
network companies and system integrators to specify and help manage integrated
BMS solutions.
We also see new solutions being offered to start mining the richness of data that
intelligent BMS will be able to deliver. For example, Eagle Technology is offering its
ProTeus capability to integrate a new capability in an Internet-based system (IBS)
architecture: preventive maintenance scheduling, demand maintenance work order
processing and inventory and equipment tracking. Eagle has already teamed with
companies such as Alerton Controls, Carrier, Johnson Controls, KMC Controls,
Microsoft, Oracle, ProfitKey, Trane, Tridium, Invensys and Staefa Controls.
Similarly, companies like Cimetrics and IDC offer detailed building operations
monitoring services that can retrieve detailed sensor data to be able to explain and
resolve every fault on the system. To do so, they set up various Web-enabled
interfaces on the existing system and develop automatic routines to mine the data and
deliver operational and maintenance alerts. The two companies also have ways to
translate the impact of each fault in financial terms, not Btus or KWhs.
Clearly, we envision a future when it will become easier to carry out the continuous
commissioning of all energy and power systems to ensure that all components operate
at peak performance and their configuration is adjusted to reflect changes in
tenantship, floor usage and building occupancy patterns.
Eventually, there will be a desire to move toward self-maintained buildings (i.e., to
manage HVAC systems, oversee lavatory appliances and plumbing futures and
monitor waste treatment operations) through the use of predictive asset management
techniques (i.e., for relamping and fan testing). There also will be some effort to
design and develop self-repairing buildings.
4.2.4 - Other Commercial Building Technology Developments
We expect that the commercial sector also will embrace other energy and power
technologies:
A huge uptake in lighting controls, most of them Web-controlled;
More on-demand HVAC control applications;
New UPS configurations may be considered for data centers;
More commercial buildings will be enabled for DG; and
New buildings will be built with new designs in mind and the possible
integration of more appropriate HVAC technologies (e.g., solar
hybrids).
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More Lighting Controls. We expect more lighting controls in commercial buildings,
including occupancy sensors and photosensors. Many will be digitally programmable,
using the digital addressable lighting interface (DALI), bi-directional protocol
developed by lighting manufacturers. DALI can be applied to linear and compact
fluorescent lamps, HID, LED and incandescent lamps.
Since DALI gives each lighting fixture a unique IP address, it makes it possible to
control lighting costs in new construction and applications with shifting occupancies
or round-the-clock operations, such as office buildings and hospitals. DALI also
offers the possibility of true interchangeability between ballast manufacturers and
defines light output for all levels of dimming signals, ensuring consistent dimming
performance across all ballasts regardless of type or manufacturer. Advanced
dimming could save 30 to 85 percent compared to conventional fixtures.
With DALI, different ballast types can mingle in the same control area and
commissioning becomes simplified. Other advantages include greater design
flexibility, individual addressing and control of ballasts (zoning at the ballast level),
scheduling without an external time clock or control panel and two-way
communication, enabling monitoring.
With DALI, there will be more integration opportunities between lighting and HVAC
controls. For example, an occupancy sensor power pack could have a second lowvoltage switch for control of and interfacing with HVAC, security and the BAS.
People entering a building after hours, for example, would trigger not only the
required lighting, but also HVAC.
We also are likely to see DALI-enabled wireless lighting control networks to handle
the disparate parts of a full-scale lighting scheme, including motion sensors, daylight
sensors, remote switches and central switches, especially retrofit applications since it
doesn't require rewiring. One example is the technology developed by Adura
Technologies and LBNL. There are two issues, however. Sensors have to have
longevity (they must last as long 15 to 20 years as a ballast) and they must have
reliable sources of energy. Some sensors may use solar cells, or scavenged vibrational
energy. Other possibilities include the push-button switches powered by piezoelectric
elements (typically crystals that produce a voltage when they're under compression or
tension, or that cause compression or expansion when a voltage is applied).
Many new offerings using DALI can be expected, based on recent announcements by
companies such as Adura Technologies, Leviton, Lutron Electronics, Nextek Power
Systems, Osram, Phillips, Sylvania Lighting and Westinghouse Lighting. We also
note that there are more state standards calling for lighting controls. For example,
Title 24 legislation in California has required automated shut-off lighting controls
and daylight-responsive control for several years now.
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More lighting controls will allow BOOs to adopt more system-controlled daylighting,
including pipe lighting or solar light tubing, automatic shade controls and photocell
daylight dimmers near windows to control fluorescent fixtures. Buildings designed
with large expanses of glazing, including schools, retail stores and malls, atriums and
warehouses with skylights, are prime candidates for daylighting. Daylighting could
help save between 30 percent and 60 percent and is said to have paybacks of four to
five years. It is particularly true for schools where there is a strong focus for what is
called integrated school lighting. The California Energy Commission’s PEER
program has developed a free software package to aid designers who place
photosensors in daylighting designs.
There also will be more use of circadian lighting systems in control rooms, labs,
clean rooms, etc.
We also will see increased use of other lighting developments, such as white LEDs,
organic LEDS, smart combined fluorescent-LED applications, multi-photon emitting
phosphor lighting and use of fiber optics.
On average, lighting accounts for about 25 percent of a building’s energy use. DALIbased technologies could help cut lighting costs by 30 to 60 percent, while enhancing
lighting quality and reducing environmental impact. The potential impact is very
significant as confirmed by the more specific targets of 50 percent reduction in
existing buildings and 35 percent in new construction from the New Buildings
Institute.
More On-Demand HVAC Controls. Demand control ventilation (DCV) saves energy
by automatically adjusting building ventilation rates in real-time based on occupancy
and air quality. DCV sensors measure the carbon dioxide levels in the air to establish
how many people are in the space, then adjust the air conditioner's economizer so that
the air flow matches the per person ventilation requirements as established by code.
The result is better air quality, lower energy consumption and reduced peak demand.
To stimulate the demand for this new approach, New York State Energy Research
and Development Authority (NYSERDA) has a program that provides incentives of
$300 per sensor to participating contractors for applications in existing buildings.
Thus, we anticipate the deployment of several new DCV technologies and practices
embedded in Web-enabled BAS applications:
Networked variable frequency drives, (VFDs) are not only more
efficient at part-load operation, but also cheaper by 20 percent to
install and well-suited for any building varying occupancies
throughout the day or year, such as sports arenas, convention centers,
hospitals, office buildings and laboratories, both in the mechanical
system and individual fume hoods, and schools), electronic variable
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air volume box controllers, as well as automatic ventilation system
shutdown.
Networked electronic variable air ventilation (VAV) box controllers,
which provide temperature and air flow information directly to the
building automation system, ensuring that minimum supply air
ventilation settings are maintained during partial loads. VAV box
controllers generate the highest potential savings in hospitals,
laboratories and office buildings when used in conjunction with
VFDs.
Continuous indoor air quality (IAQ) and contaminant monitoring
using networks of CO and CO duct- and wall-mounted sensors. Poor
IAQ is associated with a range of issues, from complaints about odors
to respiratory illness, absenteeism and loss of productivity.
One interesting and innovative player in this field with several innovative
applications is the Hartman Company, which has developed and patented new HVAC
controls. We believe that a new generation of HVAC system designers will emerge to
address the new needs of the commercial sector, including more versatile floor plans,
more individualized zoning and the rise of green building designs.
New UPS Practices. We are finding the potential for many improvements on the UPS
front and, here again, UPS vendors are proposing to connect UPS devices to IP
networks via network management cards that can operate on either XML or SNMP
protocols.
This has allowed vendors to offer new functionalities and services (e.g., PowerChain
Management by MGE or the software suite of LanSafe, PowerVision and MultiView
by Eaton’s PowerWare):
Multi-site UPS
dashboards);
supervision
(through
enterprise-based
UPS
Customized settings for UPS operation that can be applied to all UPS
units in a company account through remote configuration tools;
Orderly system shedding, shutdowns and reactivations based on a full
system picture (especially if there are several servers). The UPS then
becomes a smart IT equipment switch, thus, allowing the remote
restart of a locked-up hardware device, if need be; and
Remote monitoring services to supervise the status of UPS systems
and thus, be able to provide direct e-mail/pager/short messaging
service (SMS) notification to building operators as needed.
There also is an emerging trend toward rethinking the design of UPS systems, instead
of AC systems, using distributed demand control (DC) systems. A company
specialized in critical power solutions, TDI, has been promoting this concept as a way
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to allow network companies to be able to accommodate higher and higher load
densities, thanks, in large part, to the increased penetration of so-called blade servers.
Such densities are now being reported to exceed 400 to 600W/ft2 and may even trend
toward 1,000 W/ft2, compared to design points of 150 to 200 W/ft2 just two to three
years ago. Densities of that magnitude pose significant challenges, not only to power
the equipment, but also to cool it. In fact, in many instances, as much energy may be
consumed to power the equipment and to cool it. Some are saying that high-density
blade server installations are generating so much heat that the savings in capacity and
space are being offset by the additional costs required to cool the servers and
cabinets.
One solution is to increase the efficiency of servers to have them use directly DC
mapped out in decentralized blocks on a -48 Vdc network. Likewise, a reputed
designer of critical facilities, EYP Mission Critical facilities, is advocating the
deployment of totally DC integrated data centers.
Otherwise, we will see progress on AC-based data center cooling techniques. So far,
about 10 percent have installed liquid cooling for high-density blade server
applications, but the trend is inevitable for many. Liebert's line of XD products,
shorthand for "extreme density," use a refrigerant-based system housed in cooling
units that attach to the top of a standard seven-foot, 42-inch rack. The XD units are
currently being used in more than 100 installations. Rittal and APC each offer waterbased cooling units fitted as an environmentally controlled chamber on the side panel
of a server rack.
The further enabling of DG. So far, the extent of DG development in commercial
applications has been limited in the commercial space. Most applications have been
gas-fired (using reciprocating engines, microturbines, small turbines or, to a lesser
extent, fuel cells) in the 0.25 to 25 MW range, generally in universities, hospitals,
military bases, government buildings and some private office buildings; they have
been. In addition, there are solar-based photovoltaic (PV) installations.
There have been many technical constraints limiting DG in the commercial market:
There is a lack of standards on how to configure, design and operate
DG packages, not just what constitutes the best elements of a DG
package from an end-user point of view but also from a network
operator standpoint (although many codes have been developed by
groups such as ASME, NEMA and Boilers associations etc.) but how
to assemble these components together and operate them.
In some markets, it is difficult to technically and cost-effectively
deploy DG technologies that meet what local emission regulating
boards are requiring and what local energy or utility commissions are
promoting. In California, many engine-based DG opportunities have
been thwarted by emission rules that require installing selective
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catalytic reduction (SCR) tail gas treatment. It is an issue not only
because it increases the installed cost of the system, but also it
complicates the operation and maintenance of the system (plus it
results in the production of a byproduct, which can be considered
hazardous materials, not acceptable in many building settings).
There is progress to be made in terms of interconnection
configurations and procedures, but several vendors (e.g., Beacon
Power Systems, EnCorp and Northern Power) have developed
interesting solutions.
There are few choices of load-following cogeneration-DG engine- or
turbine-based configurations (except for the Cheng cycle in small gas
turbines in the one to five MW range). From an economic standpoint,
a cogeneration DG system will offer substantial energy efficiency
benefits that can basically yield most of the base return for the
application. The ability to use the DG system for DR programs then
enhances the return. However, a cogeneration application must often
run at high loads, if it is not a flexible cycle, and that often means for
engine- or turbine-based system, a small DG unit. Fortunately, the
issue is much less acute for DG cogeneration fuel cells.
In addition, there are many regulatory constraints that impede the deployment of DG
in commercial building applications:
In many cases, utilities will charge a year-around standby charge or a
non-coincident, peak standby charge. So, the instant the DG unit is
down, it is hit with a demand charge. However, in many cases, DG
units are down because of problems on the grid, not caused by the DG
owner. So, there is a need to monitor the root causes of many DG
outages, but that requires time and effort.
There are many complaints that utilities have staying power. They can
kill new DG projects by arguing that this is proposed to be sited in the
wrong part of their distribution system or apply pressure in other
ways.
Very few utilities have been willing to consider “set asides” for DG,
stipulating, for example, that a certain fraction (e.g., 10 percent) of
their long-term power needs (say, over the next five to 10 years)
should come from DG. Sometimes, DG set asides are imposed by
public utility commissions but implementation can be slow and mired
in administrative regulations.
Thus, it is not a surprise if there is no real push by the largest vendors for which the
DG businesses for most of these players are small subs compared to their much
bigger assembly-line engine businesses. No supplier covers the entire DG size
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spectrum. Finally, there are often issues with the dealer and distributor network. Only
some of these are interested by the DG business.
Nonetheless, there is quite an active population of players, about 30 to 40 by our GF
Energy’s review. This includes many smaller players (e.g., Ballard Power, Plug
Power, Franklin Fuel Cells, Stirling Engine Systems and STM), in addition to more
mature players (e.g., Capstone and Waukesha Engines) or subsidiaries of larger
players (e.g., Caterpillar, Cummins, Ingersoll Rand, Siemens, Westinghouse and UTC
Power).
The future of DG will depend on many factors:
How quickly some of the capital costs for new DG technologies
(mostly fuel cells but also Stirling engines) can decrease;
The availability of well-packaged systems;
The relative cost of end-user delivered gas versus the prevailing cost
of electricity in the area;
The availability of grid-extension deferral credits; and
The attitudes of utilities.
Estimates have varied significantly over the years and have turned out to be generally
wrong. On the positive side, though, there are DG interconnection standards in place.
More packaged DG solutions exist. New technologies (e.g., by Northern Power) have
been developed to efficiently and faultlessly interconnect with the grid and there is a
fairly strong community of up to 50 to 60 DG solution providers, if we include not
only DG manufacturers and project developers, but also DG system packagers, some
DG utility subsidiaries and third-party DG facility operators). Even then, in its
current configuration, that community could sustain two to three times more DG
activity than we currently have.
Still, we did come across some attempts to integrate DG as part of DR schemes or
microgrid efforts. Several companies (many of them are DR companies) are trying to
assemble DG-based DR networks. This includes interests by companies such as
Comverge, Connected Energy, Enernoc, Northern Power and Real Energy. Yet, the
total load is small (a few tens of MWs at most) and, in most cases, these companies
tend to be small.
In spite of its high cost, PV usage is becoming more accepted as some BOOs
understand that installing a PV system is a way to demonstrate their commitment to
using renewable energy. It can help get a LEED (green building) rating for their
premises. It also can have aesthetic appeal (based on the deep blue color of panels)
and can be substituted for costly exterior cladding materials. It can be financed
through a third-party, can be funded through foundations when it is on a public
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building and it is eligible for tax credits. However, for now, the equipment is difficult
to order because there is a shortage in cell production.
New Building Designs. New commercial buildings will tend to be greener in their
designs. Currently, about 5 percent of buildings are surmised to be green, based on an
estimate from the U.S. Green Building Council. At this point, the highest propensity
to go green has been found among institutional buildings (e.g., universities, health
centers and government buildings), but more and more companies also are
considering building designs for their headquarters and large subsidiary buildings.
In fact, there is a lot of interest among architects, builders and BOOs to consider
green buildings, with several surveys indicating that as many as 35 to 40 percent of
new building decision-makers seriously consider some form of green building
designs. It is not unrealistic to assume that 35 to 40 percent of new buildings could
involve green building designs by 2015 to 2020. This implies a lot more focus on
smarter building exposure, natural shading, better natural ventilation, daylighting,
incorporation of PV systems in building facades, etc. The implication also is lower
energy use and peak demand.
Better HVAC technologies will involve for example hydronic dry floors, electrically
heated windows and floors, passive cooling, thermotunneling-base cooling (still in
R&D), Sheeco-cycle cooling, better desiccant systems (e.g., condenser heat
reactivated desiccant), two-stages heating, etc. In addition, we also can anticipate
better indoor air quality (IAQ) technologies, such as photocatalytic oxidation of
pollutants, ultraviolet germicidal irradiation and ion jet impact for air purification,
three technologies that are now becoming commercialized.
4.2.5 Commercial DR Opportunities
Thanks to the development of increased building intelligence and the deployment of
new energy- and power-use technologies, the commercial sector will become
increasingly DR-enabled.
As with the residential sector, opportunities could be numerous and even duplicative:
The DR program could be a private program (run by a third-party DR
service provider) or a regulated program run by the local utility.
The DR program could use private networked data or might transit
through a local advanced metering infrastructure (AMI) system.
A user may be involved in more than one DG program (e.g., one for
peak period and one for other periods).
A user will be able to change on a day-to-day basis its DR
participation (level of MWs and MWhs involved, type of load,
location, timing and override preferences). In an increasing number of
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cases, these day-ahead choices may be automated or algorithmic or
managed by a third-party source.
Many new DR service providers are emerging to pursue opportunities in the
commercial market including Comverge, Connected Energy, Electric City, Enernoc,
Energy Connect, Enerwise Global Technologies, Infotility and Real Energy. For
example:
Comverge, for example, has more than five GW of load control under
its oversight.
Enernoc has amassed a 300-MW DR capability out of a one GW
facility portfolio.
Enerwise manages 500 MW of load.
In many cases, these loads are managed under programs or initiatives sponsored
either by the local utilities or the local ISOs or RTOs. For example, Enernoc is
involved in three California-based programs, plus the New York installed capacity
(ICAP) program and the PJM Demand Response program.
Nonetheless, many of these DR providers tend to be small so far, as confirmed by
analyzing the list of the 50 or so “demand curtailers” (as the DR providers are called
in that case). However, there also are several regulated or unregulated delivery or
retail subsidiaries of utilities such as, ConEd Solutions, Constellation New Energy,
Dominion Retail, Duquesne Light, Exelon, Pepco Energy Services, Strategic Energy
and UGI. Furthermore, there are a few independent wholesaler retailers (e.g.,
Tractebel Energy Services is the largest in that category).
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Example of DR Provider
Comverge
(multi‐angles, 5 GW under control)
Consumer PowerLine
Focus and offerings
•Superstat controls
•Maingate Home Gateway (2‐way communications)
•PowerCAMP Load Management
•iSCADA (wireless)
•Virtual Peaking Capacity •Focus on multiple family buildings, universities, cities
Enernoc
(curtailment service provider and DR load aggregator) •Capacity on Demand (300 MWs out of 1 GW under control)
•Connecticut Real Time Demand Response
•New York ICAP program
•PJM Demand Response
•California Demand Reserve Partnerships
•San Diego Clean Generation Program Enerwise Global Technologies
•Manages over 500 MW of DR load
•Getting involved in green power tracking
Site Controls
•Focus on restaurants and retail outlets
•Getting into O&M optimization and environmental accountability Potentially, DR companies bring powerful value propositions to their target
customers:
They identify the best geographic areas where DR reductions can
have the most value to the reliability of the local grid.
They identify the best commercial sites to harvest.
They develop workable DR programs with the end-users, bringing
their technology savvy, understanding of local power grid issues and
possibly proposing to install some DR equipment at their cost.
They develop a customized DR-sharing program with their customers.
They make it easier for end-users to participate in DR programs
without having to learn the intricacies of each program and having to
monitor how these programs may change over time.
They can (within reason for a reasonable compensation) offer to
offset individual DR penalties for participants that failed to react
according to their commitment. (This is a big issue for end-users that
register on their own.)
They have developed their own IP-based communication black boxes
that allow them to talk to various DR control devices set up
throughout the end-user interfaces.
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They also can interface with end-users’ utility accounting and
monitoring systems, if need be, to verify the impact of DR on their
bills with their energy providers.
They invest in sophisticated command control centers (e.g., COMSYS
for Connected Energy) with innovative software to be able to dispatch
their DR resources in time.
They have sophisticated energy and demand tracking capability (both
physical usage and financial terms).
They provide Web interfaces to each participant (e.g., enerView used
by Connected Energy) so that they know what has been their
performance to date, how much their earned in DR credits and what
are the next DR opportunities.
So far, most of the activity is concentrated in four regions, the Northeast, New York
Independent System Operator (NYISO), PJM and California where there are DR
markets managed by local grid operators and where the congestion and DR credits are
high enough. Together, these regions comprise the densest population centers, a
significant factor.
We believe that some of the leading DR companies will grow portfolios with loads of
multiple GWs. If these leaders can achieve 15 to 20 percent DR load response rates,
between five and eight of them could control 15 to 20 GW of DR load by the early
2010s.
As the DR market evolves, there will be more and more opportunities to site DG
capacity at the right place (i.e., where loads have less DR potential, where there is
congestion, where there are structural grid weaknesses, where there are cogeneration
opportunities and where proximate sites can be bundled up).
4.3 Emerging Business Opportunity Templates (BOTs)
In the commercial sector, the four basic BOT blocks found in the residential sector
also will apply. However, in the commercial sector, the decision-making process is
more structured. Applications are more complex and there are already strong
established business models in place. So, we anticipate the emergence of more hybrid
BOTs (listed in increasing frequency order):
Type one - Intelligent turnkey building intelligence solutions that
perfectly tie fully Web-enabled energy management systems with
other building automation applications.
Type two - Intelligent turnkey Perfect Power block solutions. This
would involve specialty system integration services aimed at focusing
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on decentralized UPS, storage and DG Perfect Power protection block
solutions.
Type three – Perfect Power (energy/power concierging) a la carte in
multi-tenant office buildings. This offering would involve a new
building where the building owner and operator offers a full menu of
building intelligence services (i.e., full Web-enabled energy
management combined with wireless sensor networks) plus DR
management and high power reliability through:
Type four - Corporate DR Service Provider. This is, in essence, the
new ESCO of the 1980s. This type of player would help manage,
under a multi-year contract, the entire DR potential of a corporate
account with multi-sites in multi-states. The load and energy usage
information would be acquired and monitored through the Web and
the service provider would coordinate all the DR responses in all the
relevant states, providing a transparent accounting of all the DR
savings and credits earned through the coordinated corporate
program.
Type five – Full commercial Perfect Power retailing. This would
involve an energy retailer offering to commercial customers not only
a conventional commodity contract, but also a DR service combined
with active (i.e., grid-interactive) storage and DG investments to
provide the equivalent of Perfect Power sold on a net metered basis.
The retailer would have the option to, within contractually pre-set
limits, shed load, shift load, storage power, produce power and
exchange power with the grid.
We believe that types one and four will be prevalent in both new and retrofit
applications. Type three BOTs will develop if large building owners and operators
get sufficiently involved. Types two and five will be the ultimate BOTs but may take
longer to deploy.
Companies offering these BOTs will include new entrants such as:
Network companies (e.g., Cisco, HP);
Intelligence solution providers, which will include new specialized
integrator installers and diversified equipment control companies;
Enhanced facility managers; and
Retail providers.
We describe each commercial building BOT in more detail below.
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New Entrant Type
Network Companies
System Integrators
Facility Managers
Energy
Retailers
++
++
++
+/++
Type 2 ‐ Turnkey perfect power block solutions 0/+
++
++
+/++
Type 3 ‐ Perfect power concierging 0/+
0/+
++/+++
+++
Type 4 ‐ Corporate DR service provider 0/+
0/+
+/++
+++
0
0
+
+++
Business Opportunity Type 1 ‐ Integrated building intelligence solutions Type 5 – Full commercial perfect power retailing Likelihood and Fit: 0= unlikely; +=low; ++=moderate; +++=best
Source: GF Energy
4.3.1 – Integrated Building Intelligence Solutions
This offering will be increasingly provided by specialty system integrators, which can
be vendor-neutral and help specify the best intelligence solutions for the building
owners. The contractor may develop options, run the bid process and act as the
building owner’s representative to oversee the implementation and commissioning of
the new IT/BAS solution.
4.3.2 – Intelligent Turnkey Perfect Power Block Solutions
This would involve specialty system integration services aimed at focusing on
decentralized UPS, storage and DG Perfect Power protection block solutions. The
service provider would:
Design the best decentralized power configuration based on analysis
of energy and power usage data from the user’s BIS and energy
management system.
Manage the procurement and installation of the system.
Arrange for the financing (possibly).
Oversee the commissioning of the protection block.
Structure an O&M contract to put to bid.
Act as an owner’s agent to monitor operations and performance.
It would be unlikely that the service provider would invest in the block equipment
itself.
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4.3.3 - Perfect Power (Energy/Power Concierging) a la Carte in Multi-Tenant Office
Buildings
This offering would involve a new building where the BOO offers a full menu of
business intelligence system (BIS) services backed up by high power reliability
through:
The set up of wireless submeters on local HVAC units and sensor
networks in the various tenant suites (configuration to be discussed
with each tenant based on their needs);
Provision of a Web-based energy/power dashboard for each major
tenant (with some customization possible, as negotiated) providing
data usage archival, bill estimation for each tenant (based on
measured proxies) and DR-related information;
Management of DR measures within each tenants’ suite through the
building central energy management system;
The set up of decentralized UPS units in some tenants’ space if
desired;
Sharing in the building central UPS and energy storage resource
through the installation of critical wiring circuits as required by major
tenants; and
Access to a DG energy and storage island for a specified amount of
load.
The building owner will use a service price list to calculate his fee for all concierging
services. The fee would include a capital recovery charge for equipment installed by
the building owner at the request of a tenant.
The building owner may or may not act as an energy agent by charging or not
charging for the energy commodity and delivery charges. Some tenants may want to
have their own meters.
4.3.4 – Corporate DR Service Provider
This is, in essence, is the new energy service company (ESCO) of the 1980s. This
type of player would help manage, under a multi-year contract, the entire DR
potential of a corporate account with multi-sites in multi-states. The load and energy
usage information would be acquired and monitored through the Web and the service
provider would coordinate all the DR responses in all the relevant states, providing a
transparent accounting of all the DR savings and credits earned through the
coordinated corporate program.
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In some instances, the DR service provider would invest in some new technologies
(including DG) on the client site and be repaid through some form of conventional
ESCO-type deal.
4.3.5 – Full Commercial Perfect Power Retailing
This would involve an energy retailer offering, in addition to a conventional
commodity contract, a DR service that would be sold as the equivalent of a net
metering service based on what load the user may shed or shift and/or what the user
may produce if it wants to install an active storage device (that can exchange power
with grid) or a DG unit.
To that end, the energy retailer would make available an integrated net metering
decision-making software engine, which would be fed by the tenant’s energy portal,
would embed all the characteristics of the local DR market, would estimate the
amount of load that can be shed or produced (e.g., on a day-ahead basis) and would
calculate the day-ahead options for the user’s decision (some of the user’s options
may also be defined contractually). In addition, the software would include any user’s
operating costs. If the user’s DR resource is used, it would show as a calculated net
off the retailer’s commodity bill. The energy retailer also may provide the fuel used
in the DG unit.
The energy retailer would be able to resell the DR value via account aggregation to
the local energy delivery company.
In addition, the retailer also would propose investments in storage and DG as seen fit.
4.4 Potential Deployment and Benefits
Overall, in our view, it is not unreasonable to project that:
Close to 60 percent of all commercial users will have a Web-enabled
utility account or energy management capability by 2010;
35 to 50 percent of the new buildings will be IT convergent or
intelligent within 10 years;
Up to 20 percent of all existing buildings will be IT convergent by
2015; and
By 2015, about 30 percent of the new buildings will involve new
players who also will serve about 15 percent of the existing building
base.
All this new intelligence capability will mean that commercial buildings will be able
to increasingly participate in demand response, with a participation rate that could
exceed 10 percent in 2010 and approach 30 percent in 2015. This could have a
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significant impact in terms of energy savings (five to seven percent reduction
nationwide), peak reduction (six to nine percent) and reduced congestion and outages,
especially in heavy-load areas (e.g., urban centers).
At the same time, we anticipate that 25 to 30 percent of new buildings in 2015 will be
green and smart (up from five percent now) and the proportion of wholly-designed
buildings will exceed 15 percent by then (up from four percent now).
GF
ENERGY
LLC
Timeline for deployment in the commercial sector
5
10
Years
Convergence IT/BAS
Customer‐centric demand trend
New Wireless Sensors
New facility management offerings and business models
Regulatory trend
Net metering and DR schemes
Push for green and smart buildings plus “whole building” design
New building specification protocols (e.g., SpecBuilder.com) and new HVAC designs
New Building Trends
Power Quality, Storage technology improvements
Technology
Trends
DG and micro‐grid technology improvements
Overall, we project investments in the commercial building sector for the decade at in
the range of $13-20 billion, yielding by 2015 annual incremental benefits of about
$7.5 billion. Depending on the discount rate used, this implies a benefit-cost ratio in
the 4-5 range.
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Section 5: The Potential for Improved Network Infrastructure
While we expect a growing wave of smart energy management investments in both
residential and commercial applications, we also anticipate that utilities will invest in
advanced metering infrastructure (AMI) as well. AMI is the next step beyond what
has been called advanced meter reading (AMR). At a minimum, AMI means a
metering system, which records customer consumption (and possibly other
parameters) hourly or more frequently and that provides for daily or more frequent
transmittal of these measurements. But, in many cases, it will involve true two-way
communication with the meters. The AMI technology was explicitly recognized in
the 2005 Energy Policy Act as one which required increased attention because AMI
will create the pre-conditions for both customers and sellers to manage load together
in a more real-time environment. The incentives to do so are not yet sufficiently
robust, but the technology base is slowly being constructed. AMI technology is in full
evolution and many competing solutions are being proposed. At the same time, more
utilities are looking at AMI as well.
This increase in AMI activity is based, in large part, on the anticipated lower cost of
the new generation of utility-owned advanced metering infrastructure. AMI prices are
coming down with new technology and larger utility orders. Meter prices could come
down from $75 to $50 to $60 for a two-way meter. Installation costs also will drop so
that we may not be very far from the time when a fully equipped digital meter can be
installed for around $100, according to some sources.
However, there are other drivers such as the need to replace older meters whose life
has been extended because of reductions in replacement spending, the advantages that
AMI offers, increasingly AMI-friendly regulatory requirements in some states (e.g.,
California) and a recognition that electricity pricing is likely to move in a real-time
direction. Some utilities like Southern California Edison believe new meters can
remotely turn service on and off, a significant cost savings and a way to deter nonbilling. This trend will be accelerated as vendors adopt more interoperability
standards.
Still, AMI networks can be capital intensive and utilities may have to endure lengthy
regulatory proceedings (e.g., 12 to 18 months) before getting approval to recover the
cost of installing them. Even then, a survey by Utilipoint found that only 35 percent
of the regulators would allow full AMI cost recovery and another 39 percent would
only allow partial recovery, while about 10 percent would not support any recovery.
Once they have secured the regulators’ approval, for many utilities, an AMI roll-out
can take one to five years depending on the number of meters involved. Furthermore,
many utilities are concerned that an AMI network could eventually mean a loss of
control as customers gain access to the meter data stream. Finally, we will most likely
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continue to see the deployment of a variety of AMI solutions given the different
vendors involved and the utilities’ propensities to choose their own approaches. In
California, for example, Pacific Gas & Electric and Southern California Edison are
intending to deploy very different systems, both of which will comply with the state’s
AMI rules, but may not be compatible or fully open architecture.
Nonetheless, AMI will allow utilities to better manage their grid restoration and
management efforts as well as reduce the cost of their customer care activities. AMI
also will enable demand response on a larger scale at both the residential level and
the small commercial level (where end-user motivations may not be the strongest).
Furthermore, a well-designed AMI system, based on open data and protocol access,
means that the same metering infrastructure could be tapped by various stakeholders,
such as end-users, their facility managers, network managers and energy retailers,
obviously subject to security and contractual rules. AMI has the exciting potential to
become a measurement and response management backbone that can increase the
ability of all market participants to optimize their operations. The utility’s AMI does
not have to be the only backbone, since there is likely to be a lot of other privatelyowned or private label measurement and demand response networks as well, run, for
example, by demand response (DR) service providers or corporations with their own
multi-site monitoring regional or national capability.
For all these reasons, we anticipate a growing number of utilities investing in large
scale AMI deployments. By 2008, as many as 30 million AMI meters may be in place
based on pending commitments, up from the 15 million or so that were in place at the
end of 2005. And that number could increase to 65 million meters (about 60 percent
penetration) by the end of 2015. Part of that growth will stem from the need to “catch
up” on meter replacements, which means that many utilities that have been replacing
three to four percent of their older meters each year will step up replacements to 10
percent or more. Overall, that would imply about $7.5 billion of AMI investments for
the 2006 to 2015 period, assuming total installed costs dropping from $150 a meter to
the $100 a meter level.
However, we should note that a 60 percent AMI meter penetration level does not
imply that 60 percent of the AMI potential will be tapped by 2015. It may be more
like 45 percent instead. As current data show, utilities are only tapping a fraction of
the potential benefits offered by AMI and this ability to fully capitalize on AMI
technology will continue to lag by a few years behind the pace of new meter
installations. In many cases, it may take three to four years for a utility to learn how
to optimize the use of its new AMI backbone.
In addition, more utilities will invest in a broader range of smart-grid technologies,
including fault current limiting, phasor measurement, variable VAR support and
advanced network operations monitoring software. Utilities also can be expected to
continue to improve their asset management practices through broader condition
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monitoring, the deployment of more sensors, more reliance on data-rich predictive
maintenance and the use of faster grid simulation software.
However, for the full effect to happen, full system interoperability will have to be
achieved at least among new deployed technologies (retrofit situations may remain a
problem for a while). Fortunately, several industry groups (e.g., the GridWise
Architecture Council and GAC) have launched promising initiatives and the goal
(i.e., 95 percent interoperability at the AMI, DR and distribution generation (DG)
levels) may be at hand within a decade.
The outcome will be cheaper, more reliable and more versatile network operations.
Although there is a lack of estimates on the level and timing of such investments, we
would expect that they could represent up to 20 to 25 percent of future utility
distribution investments by 2015.2 This could mean about $20 billion of smart-grid
investments between now and 2015. Most of these smart-grid investments are likely
to be rate-based, but there is the potential for joint or merchant financing in specific
“separable” premium-power locales (e.g., a downtown business district, an enterprise
zone a R&D park). In some cases, such non-utility involvement could be spurred
through smart-grid request for proposals (RFPs) that would specify areas where
smart-grid investments would make sense and let consortia bid for these “grid
enhancement packages.”
The prospect of that increasing demand for both AMI and smart-grid investments has
resulted in the emergence of a broader and stronger group of vendors and service
providers, including:
Project management and advanced software companies, such as Cap
Gemini, e-Meter, IBM, KEMA, SAIC, SAP and Siebel;
New equipment start-up companies (e.g., innovative meter companies
and distribution equipment venture companies);
Infrastructure network companies that can design, roll-out and
manage a network or a subset of network improvements (e.g., Cellnet,
Echelon, Hexamar, Hunt Technologies, Itron, Landys & Gyr,
Lodestar, SensorLogic Solutions, Sensus Metering and TWACS);
Telecommunication companies (e.g., Motorola Enterprise Mobility
Solutions Group and SkyTel);
Consistent with the assumptions used by the Rand Corporation in its nominal scenario shown in its May 2004 report for Pacific Northwest National Laboratory, titled “Estimating the Benefits of the GridWise Initiative.” 2
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Wireless communication software implementers (AMDS Connect);
and
Web and data server hosting companies (e.g., Qwest Cybersolutions).
It also is worth noting that utilities are once gain more involved in new product
development, even if the dollars committed to such efforts remain quite limited,
compared to what they may have been in the 1980s. Nonetheless, the dire period of
the early 2000s may be over. Utilities such as AEP, Consolidated Edison, SCE, WE
Energies and Xcel Energy are quite active in GridWise projects. Municipal systems
also are involved (e.g., San Antonio City Public Service and Anaheim Public
Utilities).
In addition, we believe that some financial organizations may want to invest in
enhanced network infrastructure if they can pursue new business templates (see
below). Finally, it remains a question of whether some distribution systems could be
spun off in the future. Should spin-offs occur more often, some network specialist
companies could emerge (e.g., National Grid and N-Star are early precursors). Such
specialist companies will see it as their core business to systematically look for
financially-justifiable innovative technologies.
Given that new entrant activity, new business templates could develop to help deploy
perfection at the interface of the utility network and the end-user community,
including AMI turnkey solutions, AMI concessions and regional smart-grid funds.
5.1 Potential in Advanced Metering Infrastructure
Utilities have invested in automated meter reading (AMR) at a modestly increasing
rate. Now, however, the trend is toward advanced metering infrastructure (AMI).
Broadly described, a future, state-of-the-art AMI infrastructure will involve:
Two-way meters;
Utility communication gateways capable of handling programmable
logic controller (PLC), broadband over powerline (BPL), 2-way RF
mesh network or even signals from home area networks (using Zigbee
or Z-Wave); and
System software and protocols. The functional capabilities that an
AMI system can deliver include kWh usage, kW interval data, billing
on actual reads, read on demand, tamper detection, outage monitoring,
monitoring of service quality, reads of dispatchable rates and
selectable billing rates (e.g., real-time pricing, critical peak pricing
and time of use rate), customer usage profiling and demand response
enabling (remote curtailing of power).
With all these functionalities, AMI can help (source: Itron):
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Perform highly accurate load forecasting to minimize energy
imbalance penalties and reduce the risk of hugely expensive spotmarket purchases.
Improve outage detection and system reliability, reduce outage
response times and fulfill performance-based rate-making criteria for
system reliability.
Develop and implement more effective load curtailment, demand
response and conservation initiatives to balance energy supply and
demand and enhance environmental stewardship.
Market and deliver new, more dynamic customized rates and valueadded services, such as outage notification, customized billing and
Internet access to energy usage data and enterprise energy
management services for commercial customers.
Successfully manage customer choice and retail competition for both
residential and commercial customers.
Manage bad payer and pre-payment management.
Improve asset utilization by ensuring distribution equipment is
properly suited to a load requirements it must support.
Improve efficiency and effectiveness of distribution system planning,
infrastructure buildout and maintenance operations.
Integrate operations and achieve transformational improvement in
business processes.
Tie together and manage distributed generation assets and alternative
power sources, such as distributed generation and microgrids.
The number of AMI deployment variations can be quite dazzling. It can involve a
fixed-wire infrastructure or a wireless one (using either BPL, general packet radio
service [GPRS] or satellite or FM radio). It can use new smart meters or meters fitted
with add-ons. It can get into demand-response or not and the software running the
AMI network can provide a wide range of functionalities. In addition, there may be
overlapping several AMI systems within the same service areas, one for dense areas,
one for specialty loads and one for rural subareas.
In any case, it is going to be important that these AMI projects meet certain
conditions (input from Hunt Technologies):
AMI systems are interoperable (at a minimum with an independent
system operator [ISO], utilities, regulators and also among all the DR
stakeholders) using the design and organization principles of the open
AMI group (standards that are developed by users and not imposed).
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Their endpoints are reprogrammable without interruption of service to
the customer or having to break the meter seal, recalibrate the meter
or remove the glass.
Remote reconnection is made possible.
The AMI system should help the utility (or network manager, if it
were a separate third-party) identify the faulty distribution equipment
and thus, improve reliability.
AMI data can be made accessible and actionable by several parties
subject to security and contractual protocols.
AMI data should be usable to provide phase identification and loading
information, which the utility (or network manager) can use for
engineering analysis and load balancing.
AMI data should be usable for the purpose of calculating better and
more localized reliability indices.
The AMI infrastructure is fully expandable and could accommodate
other types of meters (e.g. gas and water).
The AMI system is using an open standard to communicate inside
customer premises (e.g., Z-Wave or Zigbee).
On the demand side, penetration for AMR has reached 35 to 40 percent and AMI’s
penetration is estimated at 14 percent (but AMI usage is only at six percent). Since
1996, there have been 13 AMI roll-outs3 for power involving around 15 million
customers and utilities such as KCP&L, Duquesne Light, Ameren, Xcel Energy,
Puget Sound Energy (PSE), United Illuminating (UI), Indianapolis Power & Light,
Exelon, Wisconsin Public Service, PPL, Jacksonville Electric Authority and WE
Energies. In addition, many small utilities also have implemented AMI. Five of these
roll-outs involved more than one million meters and the largest (Exelon) involved 2.1
million meters.
However, to date, very few AMI roll-outs (e.g., only UI) have included demandresponse and very few have Internet access (KCPL and PSE). They have focused on
utility business process improvement mostly (i.e., improved accuracy, better outage
response, theft detection, facilitating distribution services, making it easier to offer
several rate and billing options and measuring service quality for reporting to the
public utility service commissions).
Some large scale AMI investments are on the drawing board, most notably in
California, Texas and Ontario. In California, SCE is biting the bullet with a five-
3
Data from Levy Associates presented to the MADRI Group.
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million meter program ($1 billion) to be deployed by 2010 to 2012. PG&E and
SDG&E will most likely follow suit, although they may propose more flexible
approaches. For example, SDG&E will go after a 10,000 meter beta test in 2006 and
begin deployment in 2007 for C&I and inland its service area (600,000 customers).
Completion, if it goes to full scale, would take place in 2009.
In Texas, TXU also is launching a BPL-based network to serve eventually two
million homes and businesses, using technology from Current Communications. TXU
will pay $150 million over 10 years for access to the network and to use Current’s
suite of applications, including outage management, distribution automation and
advanced metering. TXU also receives an equity stake in Current, which will have the
right to offer broadband Internet service to TXU customers. Deployment begins this
year.
A month after Dallas-based TXU announced its roll-out, CenterPoint said it also is
testing a BPL-base approach. IBM’s Energy and Utilities Industry division is
providing overall project management and eMeter will supply the meter data
management software.
In Ontario, all utilities (with 4.3 million customers) are supposed to deploy AMI. At
this point, Hydro One is committed to an 800,000-meter program and Toronto-Hydro
just selected the vendor for its AMI program.
In addition, Duke is in a negotiation for an 800,000 meter program. Portland General
Electric has announced its intent to issue an RFP
for a two-way, fixed-network, advanced metering system that will ultimately cover
the Oregon utility’s 840,000 residential and commercial meters. Other utilities with
AMI plans include City of Anaheim, Avista, Bangor Hydro, Commonwealth Edison,
Florida Power and Light, Colorado Springs, PPL, Progress Energy, Sacramento
Municipal Utility District and Salt River Project.
In many cases, it seems that AMI projects can be justified on a joint value
proposition―on one hand better grid and account/customer management and on the
other hand, opportunity to manage and channel DR efforts for the utility itself or for
third-parties under protocols that would remain to be designed. Several studies (e.g.,
business case studies presented to the California Energy Commission) seem to show a
50/50 split between the two types of benefits.
For example, data from Utilipoint shows the basic value of AMR (without data
mining and DR activation) at $2 per meter-month for the utility but only 27 cents per
meter-month for the customer. This covers the following benefits (* indicates that the
customer also gets that benefit): avoided costs of locking rings, meter replacement
and testing avoided, reduced call center, easier customer change of address (move-in/
move-out,*), corporate overhead savings, read meters at will*, no more estimated
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bills*, reduced load research costs, fewer billing mistakes*, reduction in write-offs,
improved cash flow, single no-lights trips avoided, meter inaccuracy, remote outage
detection*, no customer self-meter reads*, on demand re-reads and ability to
implement prepay metering*.
With data mining, AMI customer benefits could increase to almost 50 cents per
meter-month to cover additional advantages, such as shorter outage reduction, more
accurate estimation of outage duration and the ability have an energy profile posted.
However, the utility sees a lot more benefits (rising from $2 to $3.25 per metermonth) including outage mapping, faster restoration, ability to verify power restored
after repairs, better power quality, identification of dead meters’ ability to provide
information to customers, possible identification of DR customers (and their potential
contribution to peak demand management), better sizing of distribution equipment,
improved load forecasting, lower theft/line losses and better vegetation management.
With proper data mining, network managers can “dashboard” the true condition of
their distribution networks (Xcel Energy experience).
Finally, the full value of AMI is with DR activation, with the average consumer and
utility benefits both around $4 per meter-month.
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Overall, we project a strong growth in new AMI roll-out as shown below.
Projected AMI Penetration
90
Electric Accounts (Millions)
80
70
60
50
40
30
20
10
0
Already Committed by
2008
AMR
2015
AMI
In response to this new interest for AMI, vendors have started to propose several new
types of products that are add-ons to meters and wireless solutions.
An example of meter modification is what muNet® proposes―the WebGate® iCISINT Option Board for the GE Encompass Family of Electronic meters (GE kV2c) as
the first in a series of products that bring a Web connection to meters employing
ANSI C12.19 tables. Installed “under-the-glass” in a GE kV2c meter, the WebGate
iCIS-INT acquires interval metering data from the current register table in the meter,
adds a time stamp, stores the data in non-volatile memory and transfers the data via
IP and XML protocols over 10/100BaseT Ethernet broadband networks. With its full
two-way communication capability, the WebGate unit can provide full “instant”
reading and demand information. Historical data can include anything programmed to
be stored by the GE metrology into the ANSI C12.19 tables. Further, the WebGate
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iCIS-INT can be equipped to record data from water and gas meters via a short-hop
wireless connection.
The muNet solution allows a utility to collect data stored in the meter, such as current
register data including demand values, and perform the demand reset all without a
visit to the meter location.
Another example is that Siemens Communications just announced the release of its
new wireless Residential SmartMeter™ using GSM-based communication cellular
networks that now blanket the U.S. Siemens teamed with SmartSynch to provide the
network transaction management system that sweeps, synchronizes and updates the
meter data. The new meters can transmit power status and usage data to help the host
utility to eliminate estimated bills, provide more frequent power information to its
customers, develop accurate invoices and provide emerging enhanced services. In a
wireless network, there is no single point of failure since each meter includes its own
radio and is capable of immediately reporting, updating and billing at the end of a
power outage, in contrast to other systems that can take time to repair and return
online. SmartSynch is a strong player in AMI since it has technology rolled out in 50
North American utility service areas, together providing more than 25,000 MW of
energy and generating more than $9 billion of revenue annually.
It is fair to say that the vendor landscape is chaotic, with more than 30 to 40 key
players. Many vendors have changed ownership with Itron and Bayard Group leading
the acquisition trail. The metering business is probably facing a phase of more
consolidation, as the demand goes away from electromechanical meters to open
protocol-based digital meters which will soon be commoditized. After all, more than
50 million advanced meters have been deployed worldwide, even if penetration has
been more limited in the U.S. so far. So, it is reasonable to expect that metering
prices are headed down. Currently, an AMI system can cost about $100 to $180 per
residential meter but prices could drop by 50 percent over the next three to four years.
In fact, we have heard several meter prices (for large RFPs currently under
negotiation) more around $60 to $90. The average per commercial customer is around
$500 but, likewise, could drop to the $350 to $400 level. Finally, there are ways for
utilities to claim faster depreciation for their AMI installations.
Meanwhile, several start-ups have entered the business providing new wireless
sensor, communication and software protocols. One growing AMI business segment
will be the AMI data management side, where annual revenues are projected by
consulting company UtiliPoint to increase from a current level of about $25 million
to more than $200 million by 2008 to 2009.
Several companies are moving in this space to develop AMI networks or provide
services once AMI has been enabled. This includes:
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Companies involved in AMI project management and
billing/monitoring activities such as Alliance Data, Cap Gemini, eMeter, IBM, KEMA, SAIC, SAP, SensorLogic, Siebel and SPL;
New smart meter developers (e.g., Triacta Technologies for highdensity applications, such as apartment buildings, condominiums,
office buildings);
Companies offering modifications to existing meter lines (e.g.,
Broadband Energy Networks and Munet);
AMI infrastructure development and management companies such as
Cannon Technologies, Comverge, Echelon, EKA Systems, Elster,
Hexamar, Hunt Technologies, Itron, Landys & Gyr, Lodestar, Sensus
Metering and TWACS;
Companies interested in tying the AMI activity to asset management
programs (e.g., Enspiria Solutions and SPL);
Telecommunication companies (e.g., Cellnet, LGC wireless, Motorola
Enterprise Mobility Solutions Group and SkyTel);
Wireless communication software implementers and managers (e.g.,
AMDS Connect and SmartSynch);
Web and data server hosting companies (e.g., Qwest Cybersolutions);
AMI data mining companies (e.g., WACS that can handle various
systems from Cellnet to Echelon, Elster and TWACs, to name a few);
Metering outsourcing data services (e.g., Olameter working with Itron
in Ontario and overseeing data collection for 2.5 million meters in
130 services areas in North America); and
Information signal companies (e.g., e-Radio USA, which is offering
the idea of selling price and alert signal information using FM radio,
including HD FM technology).
In addition, we note that some companies (e.g., e-Meter) are willing to offer “design,
build and operate” AMI projects, acting as independent system “specifiers” focused
on identifying the best solutions for the network customers.
5.2 Potential in Smart-grid Investments
There is a broad list of smart-grid technologies, which include both hardware and
software technologies and new grid management business processes and approaches.
Examples include:
Distribution Center in a box (Exelon);
Intelligent Universal Transformer (IUT);
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Intelligent substation monitoring;
Active harmonic filters;
Fault-current limiting technology;
Distribution feeder circuit automation ;
Phasor measurement;
Advanced fault detection and restoration technologies;
Variable VAR support through generator additions and coordination;
Better voltage restoration devices;
Energy storage shock absorbers;
Solid state technology capacitors and smart capacitor bank
controllers;
Use of ultracapacitors combined with FACTS technology for voltage
stability;
Better automatic feeder switches;
Use of sodium-sulfur batteries for peak shaving at the distribution
level (e.g., NAS offering by NGK);
Use of flywheels for frequency regulation (e.g., Beacon Power under
funding from NYSERDA);
Monitoring technologies (e.g., transformer and substation equipment);
New software to simulate DG additions (e.g., from Optimal
Technologies); and
Substation preventive maintenance.
More and more vendors are concentrating on that segment including large vendors
such as ABB, AMETEK, Cooper Power, Eaton, Emerson, GE, HICO, Hitachi,
Kohler, Mitsubishi, Schneider Electric, Siemens, Thomas & Betts and Tyco.
Many of these vendors anticipate significant increases in sales, based on customer
feedback, as well as various incentives contained in the Energy Policy Act (EPACT)
of 2005. The EPACT contains many incentive provisions to stimulate investments in
transmission and distribution. The impact could be an added $2 to $4 billion in
annual distribution investments. Some of that incremental investment will
increasingly be directed toward the implementation of smart-grid technologies.
Overall, we project about $20 billion of investment in smart-grid technologies over
the 2006 to 2015 period.
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But there also are smaller companies with interesting product and business models.
One such case is Beacon Power, which covers a large front of potential energy
storage applications, using its proprietary fly wheel technology:
Residential applications with its Solar inverter solutions;
Small high-power quality applications with its six kWh flywheel unit
(which has been marketed to telecoms);
Small (25 kWh) commercial UPS-focused applications (with a focus
on smaller data centers where back-up generator configurations may
be more difficult to set up);
100 kW units for storage and DR management in mid-market
commercial applications (in modules that could yield applications
between 100 kW and one MW);
One MW application for frequency regulation at the distribution level
(the first one MW unit, called a Smart Energy Matrix, will be
commercial in 2007); and
Twenty MW for frequency distribution at the wholesale level, directly
selling to the ISO.
This is an impressive array of smart-grid and Perfect Power solutions for a small
company, which is not shy to attack the largest applications for grid frequency
regulations with its Smart Energy Matrix (SEM) product line. Beacon Power is
already involved in two 100-kW SEM projects (1/10th scale), one with PG&E and
one with Consolidated Edison.
Beacon Power anticipates a SEM capital cost dropping to $1 million per megawatt
unit, after it has deployed the first four to five SEM projects (i.e., probably within a
couple of years). On that basis, Beacon Power thinks that the SEM technology could
fit about 30 percent of the national frequency market, which has been estimated at $2
billion. Using recent prices for ancillary services in PJM, the company figures that
SEM installations could generate $350,000 to $400,000 of revenues per year and
thus, offer a 15 percent rate of return to their investors. Such returns could be
improved as unit costs drop even further. SEM units also could be effectively
deployed in areas where a fair amount of wind capacity is being developed and where
frequency buffering is going to be dearly needed.
To capitalize on that market opportunity, Beacon Power intends to develop merchant
frequency regulation plants that would sell directly to their local ISO markets. One
estimate would put the potential SEM deployment at 600 to 900 MW within the next
10 years, involving as many 40 to 60 sites (with a mix of 15 and 20 MW units) across
about 15 to 20 service areas.
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Finally, Beacon Power is working with New York State Energy Research and
Development Authority (NYSERDA) on the concept of a green box flywheel that
would act as a bridge between the end-user and the DG unit, to make sure that DG
units do kick in large outages (like after what happened on August 14, 2003).
In parallel, we expect to see more utilities getting involved in smart-grid R&D and
new deployment activities, many of which already received the support of the DOE,
national labs (e.g., PNL) and state agencies (e.g., PER). For example:
AEP owns and operates its own R&D facility which is going after the
new concept of premium power parks and new methods for reactive
power and voltage control. AEP also participates in several smart-grid
collaboratives such as GridWise, GridApp and various EPRI efforts.
SCE is working on the Distribution Circuit of the Future, with first
operations later in 2006.
Con Ed is working on new substation designs and fast simulation
modeling to take action before grid problems occur.
Xcel partnered with major vendors on the Utility of the Future
program focused on enhanced grid monitoring and outage detection.
WE Energies is working on new high-availability premium-power
office park configurations (as part of its Distribution 2010 program).
Bonneville Power Administration is involved in several GridWise
activities.
The total level of R&D funding remains limited, overall, probably less than $75 to
$80 million per year. That’s less than 0.2 percent of U.S. power distribution revenues
for the investor-owned utilities (IOUs) alone. Some utilities have to become
extremely adept at leveraging their meager R&D resources. For example, SCE is only
spending only $1.5 million in R&D per year but it is overseeing almost $10 million in
R&D programs.
5.3 Potential New Business Opportunity Templates
We foresee five potential network enhancement BOTs:
1.
AMI turnkey solutions (for mid-size roll-outs). For example, eMeter proposes that type of offering. One scenario is to see
groups of utilities, vendors and system integrators forming
consortia that would operate under the oversight of the local
public utility commissions (probably hiring a third-party project
manager to handle the roll-out effort). This type of approach
(probably subject to bid) could be a solution to ensure more
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independence in the ways AMI data is collected, managed and
shared among various DR stakeholders.
2.
AMI concessions, whereby a utility would form a consortium with
new entrants to design, roll-out and fund new AMI systems. This
would spread the financial risks, put the vendors at risk and thus,
make them more committed to see the success of each AMI
initiative and may satisfy the regulators’ concerns for the large
outlays that AMI initiatives can entail. Investors could be repaid
through the combination of a financing charge and usage charge.
3.
Regional AMI Independent System Operator. This is a case where
a third-party would oversee the effort of “syncing” the
management of separate AMI systems across utility ownership
(e.g., IOUs, municipalities and co-ops) in select geographies
where utility service areas are operationally very dependent on
each other. Besides achieving economies of scale, this would help
bring consistency among DR programs in effect in proximate
service areas.
4.
Enhanced Distribution Reliability Zones, where a utility secures
the approval of its commission to design and implement a
program of network enhancements backed by special cost
recovery provisions and/or investment credits or subsidies. The
program would include specific performance targets and could
call upon the involvement of third-party turnkey providers.
5.
Regional Smart-grid funds, where a utility develops a smart-grid
plan, following a state-of-the-art and a methodology approved by
the public utility code (PUC) and various proposals are being
sought from legitimate/qualified players to implement the plan.
Some of these proposals may be made on a turnkey basis and may
involve long-term, third-party operations and maintenance contracts.
One could expect that these new Business Opportunity Templates (BOTs) could
capture 30 to 40 percent of the new AMI activity by the early 2010s.
Companies involved in these new BOTs will include network grid managers, project
and software management companies, smart meter developers, AMI infrastructure
development and management companies, companies interested in tying the AMI
activity to network asset management programs, telecommunication companies
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(including wireless communication software implementers and managers), Web and
data server hosting companies, data mining companies, metering outsourcing data
services and information signal companies.
We show below how the four main groups of new entrants will be able to support the
roll-out of each of the five BOTs that we have identified in this section.
New Entrant Type Project and software management companies
Technology solutions vendors
Telecomm
Companies
Network Grid managers
+++
++
+/++
++
AMI concessions
+
+
0/+
+++
Regional AMI Independent System Operator
++
+/++
+
++
Enhanced Distribution Reliability (EDR) Zones
++
++
0/+
++/+++
+/++
++
0/+
+++
Business Opportunity AMI turnkey solutions
Regional Smart Grid Funds Likelihood and Fit: 0= unlikely; +=low; ++=moderate; +++=best
Source: GF Energy
5.4 Overall Deployment and Benefits
Together an increased investment level (e.g., up to $30 billion in the next decade) in
both AMI systems and smart-grid technology, along with increased system
interoperability, should have the potential to:
Provide much better information on the state of the grid, its
weaknesses, its investment needs (how much and where) and ways to
optimize it;
Yield better and more accurate meter information (especially
compared to electromechanical meters);
Reduce outages and speed up and improve grid restoration efforts;
Improve power quality; and
Enable large DR programs in complementarily with end-user DR
efforts and other private label DR activity.
We have estimated that these investments could yield annual benefits of $7 to $11
billion per year by 2015, including $5 to $8 billion in annual DR benefits from
utilities’ AMI investments and $2 to $3 billion in annual benefits from smart-grid
investments.
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Section 6: Constraints to Deployment
There are constraints to the rapid and optimized development of Perfect Power
solutions for behavioral, institutional, regulatory, financial and technological reasons.
In particular, the status quo can often be perpetuated by incumbents who do not want
to lose the level of control they have today, the existing business model to which their
management techniques have adapted over a century and the existing incentive to sell
kilowatt hours given a fixed, regulated price. In spite of the major changes in the
utility industry in the last two decades, selling kilowatt hours remains the primary
source of revenue and profit for most players. Even for some of the most
competition-driven companies, market share pushes them to expand kilowatt-hour
sales as their core business. Their reliance on this business model feeds into their
interaction with regulatory institutions and encourages the utility to persuade
regulators that expanding kilowatt hour sales at a fixed rate is in the best interest of
end-use customers, particularly residential customers who also are voters.
As a result, even for innovative new entrants with great solutions, it can be difficult
to break into the market, reach their target customers (even if they have been
correctly identified), gain market share, market a standard product and services and,
thereby, achieve critical mass where they can benefit from economies of scale and see
their investment pay off.
Nonetheless, the pervasive nature of many of the new technologies that will enable
Perfect Power solutions is such that we expect many of these constraints to be
eventually overcome, even if it happened in an uneven manner across service areas
and market segments.
6.1 Customer Behavior
In many instances, customers may not be willing to invest in Perfect Power solutions
because they do not understand the value of these solutions, do not perceive how they
could adjust their behaviors to take advantage of such solutions, do not have access to
capital to deploy these solutions, or believe the payback is too long or are too
conservative or enough savvy to invest in and manage new technologies.
In many market segments, there will be a fraction of early adopters, but they may
only represent 15 percent or so of the market. However, early adopters help kick the
market by being willing to take more risk, being more engaged in the success of their
purchase and thus, provide success stories that can then help propel adoption by other
more risk adverse customers (“followers”). Still, higher market penetration will be
achieved only if the new value propositions yield quick paybacks, often in the one to
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three year range. There are many differences, though, between the residential and
commercial sector.
Residential Sector. The value proposition to a homeowner may not just be based on
dollars and cents or payback. It also may involve judging the new offering or solution
based on what it does for security, convenience, comfort, satisfaction, etc. As has
been the case with green power sales, there is an affluent segment willing to pay more
for better or Perfect Power, especially if it has positive social attributes, such as
reducing overall emissions, using advanced technology, giving the customer control,
etc.
In addition, the ability to Web-enable many of these solutions wirelessly is a major
facilitator to penetration because it is an inexpensive, plug and play approach that can
help overcome customer reluctance in the residential sector, for example:
Well-designed intelligent controls have a way to “engage” the
consumers by providing the right price, energy usage or
environmental signal in the right format. Branding may be an
important element.
A well-designed energy portal can have default profiles that can make
energy management more automatic and almost self-managed. In
some instances, the software can self-learn (for example, a smart
storage system will learn the energy usages of the building where it is
located and can thus, be programmed to adapt its response
accordingly). There is a debate about the use of PC interfaces,
remotes and dedicated energy handheld controllers.
The use of powerful graphics and communications interfaces can help
illustrate the value of these propositions by reinforcing the message of
how quickly and how often savings, productivity gains and enhanced
customer service are indeed being achieved. Some energy
management offerings are designed to convert in dollars, the impact
of every single control strategy, demand response action or fault
clearing. Several vendors are talking about “a 10 foot” presentation of
the results of a residential energy management system. For example,
by having these results emulated under an icon labeled “My Energy”
on the same plasma TV screen used for calling the cable subscription
or video-on-demand services).
Web-enabling also can allow the quick mobilization of entire groups
of customers via a variety of communication means (e-mails, cell
phones, PDAs and digital signage). In some of the pilots that are
currently going on, pilot participants e-mail each other to exchange
ideas or compare results.
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In addition, as is the case in the commercial sector, the development of efficient,
green building standards will be needed to provide vendors and customers with a
solid benchmark against which to measure their performance.
As a result, we believe that the residential demand-response pilots of tomorrow will
have much more impact because, if they are well designed, they will engage,
empower and reward their participants much more than they ever did in previous
pilots, too many of which were conceived from a utility-centric perspective and were
too administrative in nature.
For example residential-aimed pilots and demand response programs of the future
could:
Have electricity savings directly deposited in a savings account that is
interest bearing, like the credit cards have started to do.
Savings could be tied to environmental causes or converted into free
green energy including greenhouse gas credits.
Savings could give rise to smart power points, redeemable for other
services.
Such motivation tools may be increasingly used by energy retailers. For example,
Direct Energy has had for a while a loyalty program that allowed customers to earn
mileage points.
Commercial Sector. Fortunately, many building intelligence solutions can meet that
test but more capital intensive solutions such as HVAC retrofits, energy storage
systems or DG applications have in most cases longer paybacks of four to five years
or more.
Nonetheless, even when it involves quick paybacks, some segments will be more
reluctant than others. For example, the leased real estate market is a very
conservative segment of the commercial real estate market. For this reason, we can
anticipate, at first, a much higher market penetration in owner-occupied buildings or
in buildings owned by Real Estate Investment Trusts (REITs), rather than in leased
buildings under the supervision of property managers. Such managers are the first to
recognize that they have no particular energy management vision as it is difficult for
them to reflect their tenants’ often very diverging needs and desires. At the same
time, property managers do not always make the effort to provide the right level of
accountability to empower the tenants. That is why submetering has encountered
considerable opposition.
There are other factors that hamper quick adoption of new technologies and
approaches in the commercial sector:
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Lack of key performance metrics to gauge the perfection, intelligence
and performance of buildings;
A dysfunctional building specification and construction process;
A limit to how quickly new business intelligence system (BIS)
technology can be adopted;
A lack of building management and maintenance follow-through; and
The fragmentation of the industry.
On the first front, there is a need to have better and more acceptable metrics to help
define the level of performance of a building, whether one attempts to measure the
building’s intelligence, greenness or Perfect Power fit. Accepted metrics can then
morph into standards that can then be industry-recognized and enhance the value of
the building. At this juncture, metrics for intelligent buildings are just being
developed by CABA. The ability to rank the greenness of a building (e.g., using the
LEED ranking system developed by the U.S. Green Building Council) is still quite
new and we do not yet have a standard for Perfect Power buildings. Unfortunately,
the development of such metrics takes time, even more so since, as we noted before,
some of these approaches will probably have to converge at some point. Without such
metrics, it is hard to make compelling cases about the superior value of an intelligent,
green and Perfect Power building, especially given the conservatism of building
owners and operators (BOOs). We found that not many of the large BOOs have their
own energy groups and many focus on first costs rather than long-term building lifecycle costs.
In addition, the process by which a commercial building is being planned, designed,
specified, constructed and then operated is very dysfunctional. In many cases, it is
design-build, which means that much is under the control of a general contractor and
it is then hard for a new entrant to propose a superior solution. Often, that vendor
does not have access to the real customer, i.e., the future tenant, or if it does, it is too
late or many years later, during a retrofit.
Still, there has been a lot of talk about “whole building” design and in its 2003 DOE’s
High-Performance Commercial Buildings Roadmap, the DOE sets up an ambitious
goal to have within 20 years some 70 percent of the new buildings and major
rehabilitation projects employ whole-building design. It will take a while for “whole
building” design practices to take hold and have building designers figure out (and
convince their customers) that whole building design does not have to cost so much
more or be so difficult to implement.
There also is a lot of wariness about building intelligence:
There is a need to have more open protocol configurations.
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New software solutions (using recent codes such as JAVA, XML and
SOAP) need to be rolled out to help spur the development of wireless
mesh networks.
Many users are afraid of the amount of new BIS technology that is
entering the marketplace.
Some BIS solution providers are too cavalier, importing a dot-com,
“virtual” mentality in an environment where many energy managers
are more of a brick-and-mortar type.
There are some real challenges to constructing an intelligent building.
In some cases, suppliers don't carry all the products needed for the
full implementation. Even more common is a lack of design and
construction firms that have an understanding of all the systems.
“There's a gap between somebody who understands the electrical and
the mechanical and the networking systems and can design those to
work together. If one goes within an engineering firm, it's
traditionally organized with a mechanical group and an electrical
group and the data guys are in a different firm altogether.”
Once a developer or owner finds a firm that can handle the job, the
task of coordinating subcontractors can be overwhelming, even on a
project as simple as installing a door (in an intelligent building, it may
be equipped with a panic bar and a card reader so the door would
have to work mechanically, electromechanically and with IT as well).
There is a need to have more contractors that are multi-disciplinary to
be able to effectively deploy building intelligence systems.
Finally, the building construction and supply industry is fragmented, apart from a few
sectors (e.g., insulation). There are hundreds of designers, construction companies,
contractors, vendors and building operators and communications among these groups
is reported minimal, even when they work on joint projects. There are few entities
that can span several trades and have the size and capability to influence much of the
industry at once. Although industry groups have multiplied, there are often several
groups in the same space.
Overcoming all of these barriers require that regulators allow customers to choose
how much price risk to bear and select from a menu of retail contracts that may
involve different prices and product differentiation. However, there also is a need to
educate customers and this will take time.
6.2 Utility Attitudes and Regulatory Constraints
Utilities argue that they have many reasons not to embrace the whole spectrum of
Perfect Power solutions enthusiastically. For the most part, utilities intend to remain
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“on their side of the meter,” engaging in only limited ways in managing customer
demand and use profiles. (The industrial sector is an exception.) And, however, they
still, in many cases, assert the property right over the customer use data. In many
cases, these excuses have to do with the way utilities are regulated as we will discuss
later.
However, utilities are often not the ideal “mover and shaker:”
They do not have that much capital and certainly not a lot of
discretionary capital.
They often exhibit an unwillingness to take risks with new
technologies.
They are reticent to get involved in sales of hardware and services to
customers based on the failure of most efforts over the past 10 to 20
years.
They have a lack of experience in joint venturing and teaming with
partners, facilitators, retailers, etc.
They often lack the communications infrastructure to manage load,
either proprietary or open protocol.
As a result, utilities are not the most obvious Perfect Power player to team with. The
vast majority of those in the home and building automation sector, who GF Energy
has interviewed, are not actively engaged in business discussions with utilities, nor do
they seem very eager to do so.
Instead, we have heard many discouraging experiences from vendors and end-users:
Utilities lack interest, as many express no deep motivation for
electricity saving technologies, no inclination in investing in energy
management technologies or no consistent propensity to provide “inkind” strategic or “best practice” input to their customers.
Utilities are not knowledgeable (or comfortable) about current home
automation, sensor and Internet protocol (IP)-based communications.
Utilities are generally opposed to open control and data
communication systems, arguing that they have always relied on
proprietary approaches and for security reasons want to continue to
maintain their own control systems.
Utilities are very slow in making decisions, often taking two or more
years to make decisions that entrepreneurial organizations make in
weeks or months.
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Many activities utilities do require regulatory permission or
notification and significant data has to be made public beyond what
most more competitive industries would consider appropriate.
Compared to other industries, where joint ventures and team are
common ways of leveraging resources, utilities generally lack
experience in working with other players in teams.
There are too many small players, meaning there are few players with
sufficient scale to take advantage of mass market opportunities and
working with multiple players is time-consuming and expensive.
Much of the existing utility infrastructure is old and incompatible
with IPs. For example, only a small number of meters have serial port
connectivity, so it would be very expensive to collect whole-building
electricity demand data.
Very few data are available from utilities about market demographics
compared to customer-information available in other industries.
Regulatory privacy restrictions limit the amount of information that is
available from being effectively utilized.
Business model incentives are lacking since most utilities view
demand response as a negative revenue proposition, because
maximizing kilowatt hour sales is generally seen as advantageous, but
this has not become a practical matter since there are few projects.
Likewise, in the commercial market, we hear the following complaints:
Utilities do not want or like third-party vendors to install parallel
metering and appliance dispatching approaches for fear it adversely
impacts their operations and client account services.
Utilities have no incentives to implement energy management
approaches themselves. In many cases, customers are being switched
to real-time-pricing default rates or have negotiated their own supply
agreements with competitive suppliers. There is no incentive for them
to promote such smart energy network development unless they can
dispatch load themselves to their advantage.
It still remains difficult and cumbersome in too many cases for a
multi-site corporate customer to implement a multi-site energy
management approach (having to deal with various utilities, all
having their different protocols and conditions for accessing data).
However, the biggest problem remains, in final analysis, the way utilities are
regulated. They basically have little motivations to engage in aggressive energy
efficiency and demand response, as well as DG solutions because they fear that they
interfere with their operations and will mean lower throughput and therefore less
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revenue, cash flow and earnings. In large part, the root cause is the way that utility
rates are set up.
There are, however, many ways to remedy this as shown in the table below, which
lists examples of potential fixes to address utility resistance to demand response,
distributed generation and investments in AMI and smart-grid technologies.
Type of Utility Resistance
Potential Fixes
To Demand Response (which is seen as a threat against revenues) •Increase the fixed component of distribution rates
•Allow utilities to earn an incentive per kW of deployed DR capacity. Could be a fixed, indexed or variable incentive. Most useful to jump start DR.
•Permit utilities to rate base all their DR‐related capital and program costs in the rate base and earn a return premium for high benefit DR
•Have utilities negotiate special DR rates
•Set up a mechanism to share between DR customers and utilities the DR savings that can be attributed to deferral of new distribution investments. To Distributed Generation (DG) •Use variable or performance‐indexed standby rates
•Better monitor DG unit performance to avoid unfair penalties and improve coordination between DG operators and utilities/network operators
•Develop DG RFPs that are the result of collaborative efforts (e.g., somewhat inspired after the recent targeted DR RFP issued by Con Ed)
•Promote joint utility‐third party development of DG units, especially for adjacent sites (and microgrids). To AMI and smart grid investments
•Offer return premiums for qualified investments
•Mandate higher grid reliability and performance standards
•Set special delivery surcharges if benefits flow to certain parts of a network service area where operation improvements are necessary •Award Federal or state loan guarantees to support smart grid investments. On the DR front, for example, one approach would be to prescribe a sharing of the
DR benefits between the end-users and the utilities. The utilities’ share could be set
in proportion to 1) the DR management services they provide; 2) the amount of
capital investment that they may incur; and 3) the value, form and timing of such
savings. Such sharing mechanisms, however, require partial rate reforms and
proceedings with local PUCs.
Examples of DR fixes include:
Increase the fixed component of distribution rates.
Utilities are allowed to earn an incentive per kW of achieved DR
capacity deployed. It may be a fixed, indexed or variable incentive.
May be most useful to jump start the market in some jurisdictions but
it may not be the most efficient mechanism.
Utilities rate base all their DR-related capital and program costs in the
rate base and earn a return premium for high benefit DR.
Utilities negotiate special DR rates.
Share DR savings that can be attributed to deferral of new distribution
investments between DR customers and utilities.
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The most enabling change, of course, is retail competition, especially in the
residential sector, which, except in Texas, has not yet taken off and incumbents
believe will not do so in the near future.
Another approach is to have the utility act as a DR aggregator, forcing DR responders
to be represented by the utility, acting as a DR agent with the local independent
system operator (ISO). The utility then shares the ISO proceeds with the contributing
end-users. A 70/30 sharing is an example of what has been considered.
This way, end-users do not need to understand the rules and the utility can carry out
all the necessary performance and billing verification, as well as compliance audits.
In addition, because it now manages an aggregator DR portfolio that should be
diversified, the utility may offer to offset (within reason) penalties associated with
end-user non-performance. In doing so, the utility would compete with independent
DR harvesters, which tend to market similar offerings.
Even more complaints are cited when it comes to DG opportunities where project
developers and DG operators most often say that there is no “level playing field,” for
the following reasons:
1.
Utilities make it difficult by imposing high standby rates.
2.
Utilities impose expensive demand-rate tariff structures.
3.
Utilities can make developers drag their project development
activities and developers then give up. Utilities also have their
preferred sites or service area locations.
4.
Often utilities are the ones that trigger DG system outages and yet
it is difficult to prove it, but the building owners end up paying
unfair demand-charge related utility claims.
5.
Many utilities do not have a strategic DG plan. Their attitudes
change from one executive to another. In any case, when DG is
promoted by a utility for a while, it seems to reach a plateau
quickly with a few installations (at most a few tens of MW).
Beyond that point, utilities become reluctant.
Existing regulations in all states prohibit anyone from constructing infrastructure that
crosses a public byway, except for the utility. If you own buildings on opposite sides
of the street and want to share energy systems on both, you can't, under existing law.
Yet, there ought to be ways to solve this, including:
The use of variable or performance-indexed standby rates (e.g., rates
calculated based on the actual timing and length of the DG system
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outage characteristics and their measurable impacts on the local loads
and network operations);
Better monitoring of DG unit performance to avoid unfair penalties
and improve coordination between DG operators and utilities/network
operators;
The development of DG RFPs that are the result of collaborative
efforts (i.e., somewhat inspired after the recent targeted Con ED DR
RFP); and
The joint utility third-party development of DG units, especially if
they involve adjacent configurations.
Finally, investments in AMI or smart-grid technologies could be encouraged through
the use of:
Return premiums over and beyond the average approved return;
Special delivery surcharges if benefits flow to certain parts of a
network service area; and
Awards of loan guarantees from state or federal funds.
In addition, in some states there has been a de-linking of the electricity delivery role
and the commodity sales, creating a greater potential for non-kilowatt hour driven
business dynamics to emerge in some utilities. Especially where the commodity is a
pass-through with no markup or margin for the utility, managing loads become a
more acceptable proposition, especially if there are cost-effective opportunities to
defer or obviate the need for transmission and distribution system upgrades to meet
expanding needs. The Consolidated Edison 123 MW demand-response solicitation in
2006, is a good example of how a utility can find it cheaper to share DR savings,
rather than invest in more expensive distribution upgrades.
6.3 Barriers Against New Entrants
Many of these constraints end up slowing or stifling the activity of new entrants
because they result:
In poorly designed rates that do not provide the right incentives to
end-users;
In under funded grid improvement programs with worse financial
consequences later (and poor service meanwhile); and
In unaccountable behavior by the utilities, which do not feel the
pressure to seek the most optimal technology solutions.
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Arguably, there is a lot that new entrants can do by bypassing the utilities altogether,
going directly to consumers and selling them intelligent Web-enabled and remotely
managed, energy management efficient solutions, signing them up for ISO DR
programs and offering them storage or DG installations whenever it is economically
attractive. That first wave will occur almost regardless of what utilities do and
quickly rather than slowly if energy prices stay high or worse, increase.
However, this is only a fraction of the opportunities that new entrants can go after
and help implement toward the emergence of a Perfect Power System. New entrants
also can offer to:
Team with utilities to offer intelligent management solutions and run
DR programs;
Act as outsourcing agents to run parts of the grid and own/manage
microgrids;
Deploy AMI concessions (as described in section four); and
Co-invest with utilities in microgrids.
6.4 Implications
These constraints have the potential to delay the adoption of even the best designed
Perfect Power solutions. Yet, we continue to believe that the pervasive nature of
many Perfect Power enabling technologies described in this report will overcome
over the next decade many of these constraints, even if it happens in an uneven
manner across service areas and market segments.
In particular, we subscribe to the idea that around 2015, we may reach a tipping point
where the entire system will have been sufficiently digitally enabled to allow a true
“plug and play” environment where new control, storage and DG technologies can be
brought in effectively, on time and at reasonable costs in both the residential and
commercial sectors.
In our opinion, this tipping point will be reached when:
Home automation systems have become a staple offering from
hardware retailers, home contractors, telephone companies and energy
retailers;
Building intelligence is implemented in more than half of the new
commercial buildings;
A whole new breed of system integrators has proved itself in the
commercial sector;
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Active demand response programs are in place in all key load centers,
their track record has been established for a few years and results
have fostered the emergence of large-scale DR service providers with
customer bases that represent combined loads of several gigawatts
(GW) each;
A large number of Fortune companies have their multi-site facility
portfolios fully Web-enabled and monitored and have subscribed to
extensive and sophisticated demand-response services;
Submetering has started to be widely and successfully implemented in
the commercial leased space and is becoming a valid option in multifamily and office buildings alike. Tenants can too benefit from DR
programs;
About 40 to 45 percent of aggregate load is served in areas equipped
with advanced metering infrastructure (AMI);
Grid interoperability has been mostly achieved (for more than 85
percent of the load); and
More than 20 percent of new network investments are smart-grid
related.
Once that tipping point is reached, further market penetration and enabling of the
Perfect Power System will accelerate as more “follower” type customers overcome
their risk aversion, the AMI potential is being fully tapped and smart -grid technology
becomes the prevailing way to invest.
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Section 7: Deployment Priorities
Section 7: Deployment Priorities
7.1 Overall Deployment Roadmap
Enormous progress can be achieved over the next decade toward deploying a Perfect
Power System, with the eventual result being almost universal advanced metering
infrastructure (AMI), most applications demand response (DR) capable, the
deployment of smart-grid technologies in most service areas and the emergence of
well-planned microgrids.
However, this will happen in waves. The first wave is certainly the “smarting up” of
the customer application base. Whether it happens faster in the residential or
commercial sector could be debated. On one hand, the commercial is much more
dollars and cents oriented and more structured, but there is a lot of institutional
inertia and the sector’s dollar and cent mentality is of no help if the calculated
payback is more than three to four years.
On the other hand, the residential market will value many other benefits besides just
Perfect Power and energy savings. It will consider comfort, convenience and the ease
of integration of the new solutions in the household schedule and way of life.
Although this sounds like it involves more complex decision-making, the right energy
management portal at the right price could sell like a mass market appliance and there
will be enough channels ready to deliver if the Best Buys of this world support
market entry and system installation and maintenance.
As discussed in the previous sections, we anticipate that, with the right regulatory
incentives, a third of the market could be DR-enabled by 2015. However, much of
that DR enabling will vary state by state and will involve overlapping offerings, some
managed by independent system operators (ISOs), some aggregated by local utilities,
some private-labeled by a new breed of DR service providers and finally, some selfenabled by large multi-site corporations with national footprints. In that parceled
distributed generation (DG) world, some customers may participate in more than one
DR program and have several DR partners.
A strongly DR enabled power sector would already yield considerable benefits and
might soon enough tend toward more convergent offerings and prices, especially
since we also think that strong AMI penetration will have become a fact by 2020 and
that the penetration of smart-grid technologies will take off around 2008 to 2010 to
reach 20 percent by 2015 and 40 percent by 2020.
The development of end-user-based DG and storage applications will depend on how
quickly prices can come down, even though certain types of renewable-based DG will
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benefit from incentives found in the 2005 Energy Policy Act. Fossil-based DG is
having a more difficult time, especially with high gas prices but it will become more
competitive in some areas where utilities will see their rates unfrozen after the end of
the transition period to deregulation. DG also will become more relevant in service
areas with consistent congestion issues although it will compete for awhile with nonDG DR participation. However, it is clear that in a DR-enabled environment, where
net metering becomes a fact, the value of DG and smart-grid-interactive storage will
increase significantly. We also believe that the commercialization of better packaged
units, fully operable and reliable interconnections and the emergence of new entrants
specialized in mass customized DG, will make a big difference.
Finally, it will become possible to develop microgrids more effectively and
systematically (i.e., at the right locations, of the right size and the right
configurations), once the first pioneer applications have proven their value in a
landscape where DR, AMI and smart-grid investments not only co-exist but capitalize
on each other.
7.2 Potential Benefits
For the purpose of this section, we have patterned our estimates after the
methodology used by the Rand Corporation in its 2004 report on the benefits of
smart-grid improvements. We also consulted Electric Power Research Institute
(EPRI’s) estimates of the future benefits that could accrue from wide scale grid
enhancements. Our estimates, however, are more short-term, since they focus on the
next decade, i.e., through 2015. Finally, our estimates are based on the analysis of our
four deployment scenarios and contingent upon the assumptions that we listed in
section one.
In that context, we estimate future investments of about $45 to 60 billion in smart
home energy controls, commercial building intelligence, AMI and smart-grid
technologies over the next decade. We also forecast that such investments could yield
between $14 and $22 billion in annual benefits by 2015. This would include:
The “smarting up” of premises in both residential and commercial
sectors, which could result in more than $6 to $8 billion of benefits
per year by 2015 for an investment of about $20 to $30 billion
through 2015.
The enabling of DR and deployment of AMI could add $5 to $8
billion per year by 2015 (and closer to $15 billion per year by 2020 as
AMI usage gets more prevalent) for investments around $7 to $8
billion over the next 10 years.
The deployment of smart-grid technologies should yield annual
savings of $2 to $3 billion by 2015 (and growing higher in the
ensuing years), for investments up to $20 billion through 2015.
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DG and smart interactive storage for residential and small commercial
applications could add another $1 to $2 billion per year for 10-year
investments in the $2 to $4 billion range.
7.3 Technology and Deployment/Demonstration Priorities
We think that there is a value in engaging a certain number of progressive utilities in
showcase projects such as:
The roll-out of fully open AMI initiatives;
The sponsoring of various DG aggregation efforts by local utilities;
New microgrid projects around select campuses, involving a
consortium of the local university, the local utility, a real estate
developer willing to increase his brand image and a brownfield site;
and
The development of several smart-grid implementation plans, using a
systematic new methodology well-vetted (see last section on quality
management). That methodology could then serve as reference for
replication in other service areas. The methodology could then be
rolled up at the ISO level to ensure best results.
7.4 Regulatory Priorities
Unfortunately, it seems that the regulatory battle will be mostly at the state level. The
only federal front to pursue would be the demand-response initiative that the Federal
Energy Regulatory Commission (FERC) is sponsoring under the aegis of the 2005
Energy Policy Act. So far, three town hall meetings have taken place, which have
revealed again, the very wide diversity of stakeholders. However, the effort is worth
pursuing. In addition, the FERC recently issued its recent Assessment of Demand
Response and Advanced Metering, which included the first ever national survey of
electric utility demand-response and advanced metering. The survey provides very
insightful data thanks to a high voluntary response rate of about 55 percent.
At the state level, the battle is public utility code (PUC) by PUC, although there are
glimpses of hope to do some of that evangelism work at the regional level. One
example is the work that the MADRI group has been doing, trying to bring about a
consistent set of DR policies across mid-Atlantic states that are in the PJM footprint.
Likewise, regional efforts could be pursued in New England, New York Independent
System Operator (NYISO) and Midwest Independent System Operator (MISO) and
this may be worth investigating the desirability of developing MADRI analogs. Still,
the hope that similar DR protocols are being adopted remains slim. However, the goal
would be to pursue the type of rate reforms evoked in section five. Regulators are
busy and are not technologists, so we should focus attention and resources on
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Section 7: Deployment Priorities
education and outreach to them if we want this vision to happen. It also has to take
place in a layperson-friendly language, beyond the usual engineering-heavy language
common in this industry.
7.5 Outreach Priorities
To promote the development of Perfect Power solutions will require a significant
amount of outreach activities. Fortunately, there are several organizations that are
already in place and can be effective partners and advocates for progress.
For example, in the residential sector, strong industry groups have formed to promote
the development of home interconnectivity. This includes working with groups like
the Home Plug Power Alliance.
In the commercial sector, examples of outreach activities to consider would include:
The development and roll-out of a Perfect Power commercial building
index, which could be rolled in other existing or pending indexes
(e.g., LEED or BIQ);
Close work with some key stakeholder groups, such as BOMA and
CABA, most especially to foster the deployment of best practices
among top building owners;
An advocacy campaign for the inclusion of Perfect Power clauses in
leases and a reach-out campaign to Real Estate Investment Trusts
(REITs) and large building owners;
Work with the General Services Administration (GSA) and other
federal agencies to instill the notion of Perfect Power Systems in their
existing programs. For example, work with the GSA Energy and
Maintenance Network (GEMnet);
Promote the formation of a golden circle of large building owners and
operators (BOOs) that would sponsor their own “dos” and “don’ts”
and implement quality standards for their in-house energy
management groups (the way they evaluate system configurations,
how they procure for them and how they operate them, or outsource
their O&M);
Federate commercial real estate developers around proper DG best
design and system integration practices;
Quickly push focus on small to mid-size commercial building market
(e.g., in building sizes between 25,000 square feet and 100,000 square
feet) where Perfect Power configurations will be more difficult to
design (possibly), sell and implement. In that market, one potential
issue will be to find integrators of small scale applications (need to
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Section 7: Deployment Priorities
have multi-disciplinary contractors, same problem as in residential
sector, to some extent);
Consider funding case studies targeting small and mid-size
commercial applications (where the economics of Web-enabled
energy management may be harder for potential users to perceive);
Focus on developing DR programs that are best suited to small and
mid-size commercial applications (e.g., in the service industry);
A strong education campaign with specialty designers and integrators
with the funding of a special label program. For example, team with
companies like EYP and Syska Hennessy. In that same vein, one
promotion activity could involve the funding of a yearly prize for the
best designed Perfect Power building; and
A focus on some downtown urban areas to create Greater Local
Energy or Perfect Power Councils in cooperation with some utilities
that face difficult fault current situations. Such councils would obtain
waivers to share energy facilities, exchange power at the area level
and co-fund reliability enhancements with the local delivery
company. In some cases, a special purpose company may be set up to
oversee local investments.
7.6 Quality Management Implications and Priorities
Finally, progress toward a Perfect Power System also implies the development of
quality-based processes to help us design buildings. Based on our analysis, we list
below a slate of twelve processes or initiatives to help promote quality design, quality
regulations and quality implementation toward a Perfect Power System:
Promote the use of “whole building design” and life-cycle costing in
commercial buildings;
Develop Perfect Power building metrics and ratings for office
buildings;
Promote the quality practice of “urban power/energy planning;”
Promote the practice of continuous building commissioning in
commercial applications;
Support grid system interoperability;
Promote certification of home energy automation installers;
Develop a certification program for demand-response companies;
Promote best energy management and DG practices among top
building owners;
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Develop design guidelines and a quality design process for
microgrids;
Develop a reference framework to develop smart-grid funds;
Develop standards for critical facilities (inc. data centers); and
Educate PUCs on demand-response and automated metering.
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Appendix A: Data Sources
Appendix A: Data Sources
This list of data sources is organized in 10 sections:
1.
Smart Homes
2.
Building Trends
3.
Intelligent Commercial Buildings
4.
Critical Facilities
5.
Demand Response
6.
Distributed Generation
7.
Microgrids
8.
Energy Storage
9.
Advanced Metering Infrastructure (AMI)
10. Smart-grid Technologies
A. 1 - Smart Homes
Association of Home Appliance Manufacturers (AHAM)
BPLIA (Broadband over Power Lines Industry Association),
www.bplia.org
CableLabs
CE Pro magazine, 2005-2006 issues
CE Pro magazine, Buyers’ Guide 2006 – Statistical Report,
www.cepro.com
CEA TechHome, by the Consumers Electronics Association
CEDIA (Custom Electronic Design & Installation Association)
Centralite,
Jetpak
www.centralite.com
Consortium for Energy Efficiency (CEE)
Consumer Electronics Powerline Communication Alliance (CEPCA),
www.cepca.org
Consumer PowerLine
and
StarLite
product
specifications,
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Appendix A: Data Sources
Control4,
collateral
www.control4.com
materials
and
specification
DALI
DSL Forum
Echonet Consortium
Energy Information Administration (EIA)
Consumption Surveys (1997, 2001, 2003).
Electrical Products and Solutions, “Wireless Systems Light Way to
Increased Revenue,” by Dan D. Harrell, March 2006 issue
Emerson, Survey of Homeowners’ attitudes toward and use of
programmable thermostats, Emerson press release of January 25,
2006
Energy Users News, 2005-2006 issues
GridPoint Web site materials, ConnectSeries and ProtectSeries fact
sheets, www.gridpoint.com
Ethernet Users Alliance
Exceptional Innovation, LifeWare Backgrounder, collateral materials
and spec sheets
Home Gateway Initiative
HomePlug Powerline Alliance, Inc.
Honeywell collaterals, including Honeywell HomMed offerings,
2006, www.hommed.com
Intel’s Digital Home Fund, Web site materials
Intel ViiV Product brief, 2006
Internet Home Alliance, Chairman’s Roundtable materials
Lagotek, collaterals and specification sheets, 2005, www.lagotek.com
McGrawHill Construction and National Association of Home Builder
Survey, 2006. www.analyticsstore.com
MagicHome Forum, www.magichomeforum.org
MSNBC.com, “Smart Homes go mass market,” by Michael Rogers.
April 10, 2006
On-Q Legrand collaterals and spec sheets, www.onqlegrand.com
Park Associates Web site and industry news postings
Residential
sheets,
Energy
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Appendix A: Data Sources
Park Associates: Outlook for Home Management Systems, A White
Paper, 2006.
Park Associates, Home Builders: Key Channels for Consumer
Electronics, 2005
Park Associates, 2005 State of the Builder Technology Market Survey
Park Associates, “Home Control Systems: State of the Market,” report
by Bill Ablondi, 2006
PLC Utilities Alliance
SmartLabs, Insteon collaterals, www.insteon.net
The Connected Home Roadmap,
http://www.automatedbuildings.com/
United Power Line Council, www.uplc.utc.org
Universal Power Line Association (UPA), www.upaplc.org
UPnP (Universal Plug and Play) Forum
Vantage Controls, Infusion
www.vantagecontrols.com
XML Standards Subcommittee/Obix
ZigBee Alliance, www.zigbee.org
Zigbee Alliance, Zigbee Alliance Overview by Deepak Kamlani,
Executive Director Zigbee Alliance Inc, December 2005
Z-Wave Alliance, info@z-wave.com
Z-Wave Alliance, Catch the Wave, 2006, www.z-wavealliance.org
Web sites of and contacts with companies including AMX, Applied
Digital, Aprilaire, Audio Access, Axis Caneras, CasaWorks,
Centralite, Control 4, CorAccess, Crestron, DSC Security, Elan,
Exceptional Innovations (Lifeware), I-Touch, H.A.L., Home Central,
Home Logic, Honeywell EnviraZone, GE Security, Global Cache,
HomerSeer (software), Insteon, Intermatics, JDS Stargate, Lagotek,
Lantronixs, Leviton, LifeTouch, Lutron, Motorola Premise
Engineering, NetStreams, NuVo, On-Q (Legrand), Panasonic IP
Cameras, Phillips, Proximis (software such as NetRemote), RCS
Climate Controls, Tripplite Power Products, TronArch, Sony,
Vantage, Xabler, Xanboo and Xantree.
sponsored
collaterals
and
by
CABA
spec
at
sheets,
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Appendix A: Data Sources
A. 2 - Building Trends
AIA Integrated Practice Strategy Working Group, “Integrated Project
Delivery Models,” by James R. Bedrick, AIA.
AIA Center for Building Performance and Environment
Alliance for Sustainable Built Environments
American Council for an Energy-Efficient Economy (ACEE)
American Institute of Architects (AIA)
Associated Builders and Contractors (ABC)
Associated General Contractors of America
Association for Facilities Engineering
Association of Energy Services Professionals (AESP)
Association of Energy Engineers (AEE)
Air Conditioning and Refrigeration Institute (ASHRAE)
BOMA
Building Performance Institute, website materials at www.BPI.org
Canada Green Building Council (CaGBC)
Center For Building Performance and Diagnostics
Center for Smart Energy (newsletter materials)
Center for the Built Environment (UC Berkeley)
Center for the Built Environment, “LEED Post-Occupancy
Evaluation: Taking Responsibility for the Occupants,” by Charlie
Huizenga and his research team, November 2005
Council on Tall Buildings and Urban Habitat
Design Build Institute of America
FACILITY MANAGERS ENGINEERS INSTITUTE OF AEE (FMI)
FIATECH (new construction techniques)
Health Care Facilities Symposium
Illuminating Engineering Society of North America (IESNA)
Interface Engineering, “Engineering a Sustainable World” and
application to the Oregon Health & Science University center, March
2006
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Appendix A: Data Sources
Interface Engineering, “A New Sell for Photovoltaics,” by Jerry
Yudelson, LEED AP, Vice Principal and Sustainability Director,
February 2006
International
www.ifma.org
IFMA, “Green Building Practices Growing – Recent Study Reveals
trend Toward Eco-friendly Commercial Buildings,” results from the
FIMA 2005 Sustainability Study
National Research Council of Canada, The Institute for Research and
Construction, “A Summary of NRC-IRC Building Research
Initiatives,” by John Burrows and Jim Gallagher, as published in the
Spring 2006 issue of Homes & Buildings
National Institute of Building Sciences (NIBS)
National Institute of Sciences and Technology (NIST)
NIBS Facility Maintenance and Operations Committee
Open Consortium for Real Estate (OSCRE)
The Real Estate Roundtable
Society for College and University Planning, “Looking Forward to the
Campus of the Future,” by Terry Calhoun, 2005
Sustainable Buildings Industries Council
Real Estate Board of NY
The Turner Construction Company, 2005 Green Building Market
Barometer
The Turner Construction Company, Surveys of attitudes toward green
buildings in office buildings and schools, 2004-2006
The Urban Land Institute
US Green Building Council, www.usgbc.org
XML Standards Subcommittee/Obix
ZigBee Alliance
Z-Wave Alliance, info@z-wave.com
Facility
Management
Association
(IFMA),
A. 3 - Intelligent Commercial Buildings
ABB, ABB Drives for HVAC Applications, 2006
Advanced Buildings System Integration Consortium
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 176
Appendix A: Data Sources
Automated Buildings.com Web site, wide range of materials
including many interviews of key players by Ken Sinclair, 2005-2006
Automated Logic, CtrlSpecBuilder materials
BACnet
International,
www.bacnetinternational.org
BIQ Consortium, CABA’s Intelligent Building Ranking Tool, 2006,
www.building-iq.com
Broadband Energy Networks collaterals
Building Intelligence Tour 2006, “The Future of Integrated Buildings:
From Myth to Math,” joint document sponsored by Cisco Systems,
Richards-Zeta, Panduit and Intelligent Buildings
Continental Automated Buildings Association (CABA), Web site and
posted research materials, www.caba.org
CABA Connected Home Council
Cisco Systems, Connected Real Estate Initiative materials
Computer World, “The Rise of Smart Buildings” by Robert L.
Mitchell, March 14, 2005.
Control Design (from
www.controldesign.com
Cyrus Technologies Inc, “Building Freedom with Web Services” by
Matt Horton, 2005, www.cyrustech.net
DALI
Distech Controls, EC-Net collaterals, www.distech-controls.com
DOE, “Advanced Controls for Net Zero Energy Buildings”
DOE’s Office of Building Technology (several reports) including
“High-Performance Commercial Buildings Roadmap,” 2003
Echelon, i.LON e3 Internet server collaterals and spec sheets, 2006,
www.echelon.com
Echelon, “Radio Frequency Control Networking – A Technology
Assessment” by Abhay Gupta and Michael R. Tennefoss,
www.echelon.com
Energy Control Inc, “The Next Wave of Performance Contracting” by
Jack McGowan, August 2005
Energy Information Administration, Survey of Non-Residential
Buildings (2003)
Entelec Control Systems, Sky-Walker collaterals, 2006
Web
Putnam
site
Media),
materials
magazine
at
issues,
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 177
Appendix A: Data Sources
GridLogix, EnNET collaterals and spec sheets, www.gridlogix.com
Harbor Research, M2M/Pervasive Internet Venue Segmentation
Map:Intelligence Device Networking, 2006, www.harborresearch.com
Harvard Business Review, “Four Strategies for the Age of Smart
Services,” by Glen Allmendinger and Ralph Lombreglia, October
2005 issue
Homes & Buildings, “What is an intelligent building?” by Paul
Erlich, Winter 2005 issue
Homes & Buildings, “Using a Wireless Utility to Manage LargeBuilding Wireless Environments,” by Ed Cantwell, InnerWireless,
Summer 2005 issue
Homes & Buildings, “RFID-Based Building Automation: Hype or
Reality?” Spring 2005 issue
Homes & Buildings, “Building for the Future: A look at the TIA-862
BAS Cabling Standard,” by Jerry L. Bowman, Global Director
BAS/IBS at SYSTIMAX Solutions.
In-Building Wireless Solutions 2006, conference collaterals, www.iirinbuildings.com
Intelligent and Integrated Buildings Council (sub. CABA)
Intelligent Buildings Summit
www.strategyinstitute.com
Intelligent Buildings, “Powered by the Fourth Utility,” collaterals and
case studies, www.intelligentbuildings.com
Intelligent Community Forum (ICF)
Interval Data Systems Inc, Innovating the Business of Facilities
Operations, July 2005, www.intdatsys.com
Jennic, collaterals and spec sheets on JN latest offering (Zigbee
network stack), May 2006, www.jennic.com
Lighting Controls Association
Lighting Research Center (LRC)
LonMARK
magazine,
www.lmimagazine.com
oBIX (Open Building Information Xchange)
OPC Foundation
Pacific Northwest National Laboratory, “Controls and Sensor
Planning Crosscut: Baseline Information,” information developed to
from
2006,
conference
LonMARK
collaterals,
International,
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Appendix A: Data Sources
support the Zero Energy Buildings (ZEB) Initiative, PNNL-SA47010, October 2005
Plexus Technology Limited collaterals, www.plexus-technology.com
Richards-Zeta collaterals, case studies and building installation
references, www.richards-zeta.com
RFID Society, www.RFIDsociety.org
Security Industry Association
Sun Labs, “Sun SPOT System: Turning Vision into Reality,” 2006,
www.sun.com
Sensors,
magazine
www.sensorsmag.com
Sensus MI, collaterals, www.sensusmi.com
The
FocalPoint
Group
www.thefpgroup.com
The Hartman Company (new ventilation design and on-demand
techniques)
Trane Global Controls and Contracting, “The Future of Facility
Management,” by Paul Erlich
Siemens Building Technologies Inc, Apogee collaterals
Siemens Building Technologies Inc, Wireless Field Network
Technical Specification Sheet
Siemens Building Technologies Inc, “Compatibility by Design,
Integration through Services,” including a detailed compatibility
guide across energy control vendors’ offerings
Siemens Building Technologies Inc, “Siemens Introduces First
Wireless Building Automation System,” November 2005
Valcros Inc, collaterals as a Premier Certified partner of Cisco
Systems, www.valcros.com
Web sites of energy/utility account monitoring companies including
Apogee Interactive Inc, Automated Energy, Cadence Network Inc,
Cimetrics, Circadian Information Systems, eLutions, Enerlink,
Enernex Corporation, Enerwise Global, Good Stewart Software LLC,
Infotility, Interval Data Systems, Maximum Performance Group,
Metrix, Obvius, Power Measurement, Save More Resources Inc.
(SMR), Tridium and WebGen Systems.
Web sites of and contacts with building energy control system
companies such as Alerton Controls, Broadband Energy Networks,
issues
and
LLC,
Web
M2M
site
White
materials,
Paper,
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 179
Appendix A: Data Sources
Echelon, GridLogic, Johnson Controls, Honeywell, Invensys, Kiyon,
KMC Controls, Lynxspring, Tridium, Siemens Building Technologies
and Staefa Controls.
A. 4 - Critical Facilities
7x24 Exchange, Web site materials, www.7x24exchange.com
CRISP Web group - Critical Infrastructure fro Sustainable Power,
www.ecn.nl/crisp/links.html
Critical Power Coalition
Data Center Journal, “Houston, we have a problem,” by Chris
Johnston and Vali Sorell, issue of April 10, 2006
Energy & Power Management, “APC uses Airflow Simulation to
Solve Data Center Cooling problem,” January 2006 issue
Energy & Power Management, “Eaton Teams with HP to Support
Mission-Critical Computing”
Energy & Power Management, “Modeling in 3 D: Modern Solutions
to Avoiding Data center Hot Spots,” by Jun Yang and Joe O’Sullivan,
both of Syska & Hennessy Group’s Critical Facilities team
EPRI
EPRI Solutions
EYP Mission Critical Facilities, firm offerings and credentials
EYP Mission Critical Facilities, “The Future is DC. Tomorrow’s Data
Centers – Completely Integrated,” March 2, 2006
IDC, “Server Innovations: Examining DC Power as an Alternative for
Increasing Data Center Efficiency and Reliability,” white paper
sponsored by Rackable Systems Inc.
MGE UPS Systems, “UPS-Genset Compatibility”
“Total Costs of Ownership for Real World Power Infrastructure”
Rackable Systems, “Dc Power Technology,” www.rackable.com
Structure One, “Cost of Reliability,” 2006
Syska & Hennessy Critical Facilities Team, firm credentials and case
studies
Syska & Hennessy, “The Critical Levels of Facilities, Defined and
Balanced”
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Page 180
Appendix A: Data Sources
TDI, “Optimizing Uninterruptible Power for Modern Data Processing
Equipment,” by G. Mulcahy, White Paper TW0051, January 2005
The Uptime Institute
Wall Street Journal, “Data Centers go Solar,” by Donna Fuscalino,
May 2006
Web sites of companies including APC, Eaton/PowerWare, Liebert
and MGE.
A. 5 - Demand Response
California Energy Commission PIER Program
ConEd, New 126 MW DR RFP issued in Spring 2006
Demand
Response
Coordinating
www.demandresponseinfo.org
Demand Response Research Center (University of Berkeley)
DRAM (Demand Response and Advanced Metering) Coalition
EEI, “Review of DR Business Models,” by Eric Ackerman, MADRI
Business Case Committee, March 10, 2006
EPRI
EPRI Solutions
Environmental Change Institute, University of Oxford, “Making it
obvious: designing feedback into energy consumption,” by Sarah
Darby, 2005
Forbes, “Mavericks – Power Brokers,” article on EnerNOC, May 8,
2006
Lawrence Berkeley National Laboratory, “Findings from the 2004
Fully Automated Demand Response Tests in large Facilities,” by
Mary Ann Piette and her team, drrc.lbl.gov/drrc-pubs1.html.
Lockheed Martin, “Advanced DR Control Technologies for
Small/Medium Customers,” by Bill Steigelmann, April 2006 (includes
discussion of Dencor Pilot Program)
Madison Energy Consultants, “Is there a Business Case for C/I
Demand Response in the MADRI region?” prepared by Jim Torpey
and presented September 2005 before MADRI.
Mid-Atlantic Demand Response Initiative (MADRI), Web site
materials
Committee
(DRCC),
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Appendix A: Data Sources
MADRI, “Pricing to Induce Customer Demand Response,” March 21,
2006
MADRI, “A Workplan for developing a DER Capacity Option,” by
Jim Torpey, Madison Energy Consultants, prepared for MADRI,
November 2005
National Association of Energy Service Companies (NAESCO)
National Association of State Energy Officials
Nexus Energy Software, materials about EnergyPrism
Nexus Energy Software and Southern California Edison, “Interactive
Web Bill and Meter Analysis Helps Customers Respond to TimeBased Pricing,” by Harvey Michaels of Nexus Energy Software and
mark Martinez of Southern California Edison; presented at
Autovation 2005.
Nexus Energy software, April 2006 report on 2004 California Bill
Analysis Pilot, joint final report with SCE, PG&E and SDG&E, April
2006
NRECA, www.nreca.coop
Peak Load Management Alliance
PIER Program (CEC)
PJM’s Distributed Resources Program
Plexus Research, “Benefits of AMR”
Solar Energy Industries Association (SEIA)
Summit Blue Consulting, “DDR Valuation and Market Analysis:
Assessing the DDR Benefits and Costs,” prepared for the
International Energy Agency Demand-Side Programme, January 2006
State Technologies Advancement Collaborative (STAC), Proposals
under the STAC Energy Efficiency, Research, Development,
Demonstration, Deployment, and Rebuild America Projects
Solicitation, November 2005
Touchstone Energy Cooperatives, touchstoneenergy.cooperative.com
Web site of companies like Comverge, ConEd Solutions, Connected
Energy, Electric City, EnerNOC, Energy Connect, Enerwise Global
Technologies, Infotility and RealEnergy.
A. 6 - Distributed Generation
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
Page 182
Appendix A: Data Sources
Advanced Energy Solutions Inc, www.AdvancedEnergyOnLine.com
DISPOWER (EU), www.dispower.org
Distributed Energy Financial Group, LLC, 2006 Distributed Energy
Market Survey, www.defgllc.com
Distributed Power Coalition of America
DOE’s Office of Electric Transmission and Distribution (OETD),
“Practical Strategies for making Grid 2030 a Reality: A Distributed
Energy Resources (DER) Perspective,” by Tim Daniels, NREL
EPRI PEAC
Gas Technology Institute – GTI (DG planning and energy community
planning)
Interstate Renewable Council, www.irecusa.org
Mid-Atlantic CHP Application Center, www.chpcenterma.org
National Fuel Cell Research Center
National
Renewable
Energy
www.eren.doe.gov/distributedpower
NERA Economic Consulting, “Distributed Resources: Incentives,”
prepared for EEI, April 2006
Nextek Power Systems, “New Digital Power Gateway Supports DG
Applications,” June 2005.
New York Department of Public Service, “New York’s DG/CHP
Experience to date,” February 2006
Northeast CHP Application Center, www.northeastchp.org/nac
Passive Solar Industries Council
PlugPower, Presentation to USAEA, June 4, Washington D.C.
Real Energy, Enterprise-Wide
Management System fact sheet
The Solid Oxide Fuel Cell (SOFC) Commercialization Association
(SOCA)
US Combined Heat and Power Association (USCHPA), Guide to US
CHP Companies, 2005-2006.
US Combined Heat and Power Association, www.uschpa.org
US Fuel Cell Council, www.usfc.com
Laboratory
Distributed
Generation
(NREL),
Energy
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Appendix A: Data Sources
Web sites of and contacts with companies including Ballard Power,
Capstone, Caterpillar, Cummins Power Generation, Franklin Fuel
Cells, Ingersoll Rand, Plug Power, Siemens Westinghouse, Stirling
Engine Systems, STM, Waukesha Engines and UTC Power.
A. 7- Microgrids
American Electric Power Company, “AEP is embarking on a $3
million test of 'distributed energy' systems”
Beacon Power, Web site materials and corporate presentations,
www.beaconpower.com
California Energy Commission PIER Program
CERTs Distributed Energy resource Integration (DERI) team
DTE Energy, “Detroit Edison Advanced Communication & Control of
Distributed Energy Resources,” by Hawk Asgeirsson, April 19-20,
2005
EPRI PEAC
EPRI Solutions
Navigant Consulting, “Unlocking the Value of Technology and
Innovation in Power Delivery: A Case study on Microgrids,” by Stan
Blazewicz, presented to the Southern States Energy Board Meeting,
August 27. 2005
Robert H. Lasseter, “Autonomous Control of Microgrids,” IEEE PES
Meeting, Montreal, June 2006
Northern Power, “The Rise of MicroGrid Power Networks,” by
Jonathan Lynch, February 1, 2006
STEP (part NYSERDA)
A. 8- Energy Storage
Advanced Energy Solutions Inc, www.AdvancedEnergyOnLine.com
Electricity Storage Association (ESA), www.electricitystorage.org
EPRI
EPRI Solutions
GridPoint Web site materials, ConnectSeries and ProtectSeries fact
sheets, www.gridpoint.com
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Appendix A: Data Sources
Millennium Cell
Web sites of and contacts with companies including Active Power,
AFS Trinity, Beacon Power, Energizer (St. Louis), Evonyx Inc.,
GridPoint, Maxwell Technologies, Millennium Cell, Ovonic Battery
Company, Sony Corp and UltraLife Batteries Inc.
A. 9 - Advanced Metering Infrastructure
AMI Meter Data Management group, AMIMDM, including several
articles by Patti Harper-Slaboszewicz, www.amimdm.com
AMRA www.amra-intl.org
Broadband Energy Networks, A Smart-grid to serve the Community,
2006
e-Meter Executive Brief, “Advanced Metering Information Systems”
Harbor Research, “Wireless Networking Approach gets Results,” with
focus on Eka Systems and Dust Networks, 2006
Hunt Technologies Inc, collaterals,
Hunt Technologies, Recommendations for General AMI System
Functionality, 2005
International Alliance for InterOperability, www.iai-na.org
PG&E, “Making the Case for AMI at PG&E,” by Gary Fauth, May
2005, prepared for MADRI’s AMI Workshop
SCE, “SCE’s Advanced Metering Assessment,” May 2005
SDG&E, “Advanced Metering Infrastructure Proposal,” May 2005
Web sites of companies including Alliance Data, AMDS Connect,
Broadband Energy Networks, Cap Gemini, Cannon Technologies,
Cellnet, Comverge, e-Meter, Echelon, EKA Systems, Elster, Enspiria
Solutions, Hexamar, Hunt Technologies, IBM, Itron, KEMA, Munet ,
Landys & Gyr, Lodestar, Motorola Enterprise Mobility Solutions
Group, Olameter, Qwest Cybersolutions, SAIC, SAP, SensorLogic,
Sensus Metering , Siebel, SmartSynch, SPL, Triacta Technologies,
and TWACS.
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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Appendix A: Data Sources
A. 10- Smart-grid Technologies
Consortium for Electric Reliability Technology Solutions (CERTS)
Distributech Conference materials, 2005-2006
EPRI
EPRI Solutions
GridApp Consortium
GridWise, “The Smart-grid Passes first Tests,” by John McGowan,
2005
GridWise Alliance
GridWise Architecture Council, www.pnl.gov/gridwise
GridWise Constitutional Convention, 2005
GridWise Architecture Council
Whitepaper, October 19, 2005
IntelliGrid Initiative
International Alliance for InterOperability, www.iai-na.org
Pacific Northwest National Laboratory (PNNL)
Power
Systems
Engineering
www.pserc.wisc.edu
Rand Science and Technology, “Estimating the benefits of the
GridWise Initiative,” Phase 1 Report, May 2004, prepared for the
Pacific Northwest Laboratory
Smart Grid Newsletter, from www.smartgridnewsletter.com
Interoperability
Research
Constitution
Center
(PSERC),
The Path to Perfect Power: New Technologies Advance Consumer Control – January 2007
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