By: Joey Anderson

Peak demand relative to consumption

Over the past several months we’ve been having more discussions with utilities about residential demand charges. In a series of posts, we will delve into what demand charges are, share our outlook on how residential demand charges may evolve, and think about how we can leverage technology to help utilities and customers benefit from these new rate structures. In this post, we will look at what demand charges are and why they’re important.

To understand demand charges, we first need to understand what demand charges are put in place to address – peak demand. Peak demand on the grid occurs during hours when generation, transmission, and distribution resources are being used at maximum capacity. Peaks tend to occur at extremely hot or cold moments, when power reserves are called upon to sustain the excess demand that homes and businesses need for cooling or heating. These homes and business generally pay for two components of electricity: the amount of electricity consumed, measured in kWh, and the rate at which this electricity is consumed (referred to as “demand”), measured in kW.

Demand charges are meant to address this second component. Customers who consume energy at a higher rate require a larger pipe to deliver that electricity, raising costs to supply energy to them. Utilities put demand charges in place so that customers pay for their individual contribution to the cost of supplying electricity and maintaining the infrastructure needed to sustain demand during these peak moments. This includes building enough generation capacity to provide electricity at peak times, maintaining the transmission infrastructure that ships electricity from power plants and converts it into low voltage, distribution grade power, and finally, maintaining the distribution level infrastructure that brings power into our homes. Demand charges for residential customers are new, but are quickly becoming a popular way for utilities to recoup costs.

Until recently, volumetric rate structures more or less treated residential customers equally in terms of their demand. Discrepancies between customer consumption patterns (known as load profiles) were only treated at a high level, with different tiers to account for differences in home size, energy consumption, and the like. This method applies a general rule to homes rather than measuring the actual peak demand of each home. Historically, residential customers paid a variable charge, proportional to their monthly consumption of kWh and a fixed charge imprecisely related to their kW threshold.

But this model is rapidly evolving in favor of more detailed demand charges. What’s going on and what’s driving this change?

Most prominent is the proliferation of distributed energy resources. As customers put solar panels on their roofs, purchase efficient lighting, install smart thermostats, and take other steps to consume less from the grid, they use a smaller volume of the service utilities have historically charged for—electrons.  Utilities, however, still need to maintain the grid and meet peak demand reliably when many customers all turn on their AC and other appliances at the same time. Under current volume-based rates, with less total electron purchases, they aren’t getting as much income leading to the need for an updated rate structure.

Additionally, as advanced metering infrastructure penetrates the residential sector, it is becoming much cheaper to measure and prove differences in how each home uses energy. Advanced meters can pinpoint the 15 interval each month where demand at an individual premise is at its highest point, and from there assign a demand charge to cover the infrastructure needed to service that demand. Without smart meters, it would not be possible to accurately measure peak demand and therefore assign demand charges. This generally involves lowering volumetric rates and increasing demand charges.

The problem with residential demand charges is that many homeowners are often unaware that they exist and how to manage them to their benefit. An instantaneous, coincident use of loads in the house—an air conditioner, dryer, and stove, all running at once—can set the peak demand (and demand charge) for the home, regardless of how energy usage fluctuates thereafter. When this individual home’s peak demand (local peak) occurs at the same time as a peak on the overall grid (system peak), demand charges can be even more severe.

To help residential customers better manage demand charges and come out ahead on their energy bill, EcoFactor and several of our peers have developed technologies like smart thermostats to help residential customers intelligently manage their energy usage to avoid spikes in demand in general but especially during system peaks. Using data from advanced meters, HVAC systems, and weather feeds, we can predict when a customer will hit their peak, send notifications to that consumer to turn off appliances, or even automatically adjust those appliances on the end users behalf.

As we look deeper into these rate structures, however, we’re seeing that there is not one model for a residential demand charge. Across different jurisdictions, utility territories, and demographic areas, demand charges can be structured differently. Over the course of the next posts we’ll look at a few different examples of residential demand charges and flesh out the implications of these models.

By Tamer Adel

An important development on the energy efficiency frontier took place last month when the California Legislature passed Assembly Bill 802 (AB 802). One of the main mandates of AB 802 requires California Public Utility Commission (CPUC) to update the rules for measuring energy efficiency to start using normalized metered energy consumption as the basis for measurement.[1]  In other words, to calculate the savings achieved by any energy efficiency program, this new rule mandates that pre-enrollment meter readings be compared to post-enrollment readings, after adjusting for external factors that could impact readings from period to period such as weather conditions.

You might be wondering: so how is it measured today? There are three methods of measuring energy savings: Deemed Savings (DS), Measurement and Verification (M&V), and Large-Scale Consumption Data Analysis: [2]

1.  The DS method estimates the energy savings of any program by using algorithms that predict the average savings per energy efficiency measure, and then multiply these averages by the number of measures installed in a given program. These algorithms use historical market research data and buildings simulation models to predict the average savings per measure, taking into consideration other input variables such as weather conditions and buildings schedules.[3]
For the most part, no actual measurement happens in the DS method; it relies mainly on estimates, which makes it more suitable for simple projects that have historical precedents with well-documented results.

2.  The M&V method is usually used for more complex programs with high uncertainty or large expected savings. In this method, the baseline energy consumption that would have occurred in absence of the efficiency program is calculated. This baseline is then compared to the actual energy usage during the efficiency program. To come up with the net savings, the difference between the baseline and actual energy usage is adjusted for any external factors. These are factors that occurred during the reporting period and weren’t part of the baseline period, but are not caused by the program, such as weather conditions.[2]
The M&V method usually calculates the energy savings of a program based on a sample of the program participants, not the whole group. This is because M&V is a rigorous method that involves daunting activities, such as field data collection and meter calibration and installation,[4] which adds to the cost of the evaluation process.[2]

3.   The large-scale consumption data analysis method compares the energy use of the participants of an energy saving program in a specific period to that of a non-participant group over the same period. The two groups have to be similar demographically and in usage patterns. The difference in usage between these two groups roughly represents the net energy savings of the program.[2]

The common feature among the three methods is that none of them collect actual readings from the whole population participating in an efficiency program. They either use predetermined average savings per measure, or collect data from samples of the participating group for a limited time and extrapolate the data for the rest of the group. Due to administrative and financial barriers, it is hard to run these methods for longer periods and to include actual readings from the whole participating group. AB 802 is about to change this.

The new mandate of the AB 802 in California will pave the way for more efficient, accurate, and timely energy efficiency measurements. As normalized meter results will be readily available for all facilities, it will be cheaper to collect field data. These readings will be available for the whole population, not just a sample of it; and for the whole duration of the programs, not just for the evaluation period. This, in turn, will make the large-scale application of higher quality measurement methods, such as M&V, more affordable.  These improvements will result in more thorough and enduring savings measurements.

With such improvements in the accuracy of energy efficiency measurements, the door will be wide open for faster adoption of performance-based energy programs. Energy utilities and companies usually hire third party vendors to help them plan and implement efficiency programs. Typically, payments for these vendors are based on the implementation of the programs. While there has already been a shift towards performance-based payments, the improved measurements infrastructure will speed up this trend, allowing energy providers to better manage their energy efficiency budgets, and motivating vendors to optimize the impact of their programs.

As valuable as the AB 802 mandate could be, there are still many details that need to be sorted out by the CPUC to realize the potential of that change. Issues such as how to identify the different impacts of different programs installed at the same facility, how to normalize meter readings, and what factors will be taken into consideration in the normalization process are just a few of the issues that the CPUC has yet to figure out. However, this rule still represents a big step in the right direction.

California has always been a leader in energy efficiency initiatives and it is likely that we will see more states following California’s steps and adopting similar policies in the near future. AB 802 could be instrumental in establishing a robust infrastructure for better energy efficiency measurement nationwide.

Sources:
[1] AB 802
[2] SEE ACTION – Energy Efficiency Program Impact Evaluation Guide
[3] Texas Technical Reference Manual
[4] International Performance Measurement and Verification Protocol Guide

By: Phil Dawsey

Panel on IoT platforms, standards and winner take all at the GMIC Silicon Valley conference in SF

We have all heard of the promise of Mobile, the Internet of Things (IoT) and Big Data in transforming our lives. While mobile surpassed desktop usage a while ago, the IoT using big data to personalize our lives is certainly still in the early stages of development and it will be what I focus on in this post. At the GMIC conference in San Francisco this past week, panels delved into what the future might look like given the massive potential of these technologies and several themes were repeated throughout that I’d like to explore here.

Interoperability was a buzzword I kept hearing. With so many new devices coming online, it will be important for each of them to talk and share data to fully take advantage of the potential value of each device. With Zigbee, Thread, Z-Wave, and other protocols competing to communicate data, software often compatible with only specific hardware and chips, and numerous platforms like HomeKit, Brillo and SmartThings competing to be the IoT OS, it makes sense to worry about interoperability. The expectation at GMIC was that things would eventually shake themselves out with a couple communications protocols becoming standard, interoperable hardware being developed, and big players like Google and Apple likely winning the platform wars (who else has the resources and trust to manage your devices?). In the short term though, hardware and software should be engineered to be as flexible as possible until standards shake out. While not the definitive answer we’d all like, this makes sense and is a phenomenon we’ve seen in technology races in the past (VHS or BetaMax?).

Multi-faceted value propositions are expected to win the day in the long run. Home security has been the top sales pitch thus far for IoT devices, but as consumers become more comfortable with IoT devices, they will demand more of each product. Once our devices can seamlessly speak with each other (interoperability), they will be able to do so much more and do it so much better! Imagine your thermostat, security system and phone working together to keep you more comfortable, safer and better informed about your home. Each could operate better with data from the others, but more on that in the next theme. Telling stories of all the things that each IoT device can do and how easily they can work together is what will truly unleash the IoT in the future.

Personalization was another theme of the conference. Building on the multiple value propositions that will be needed in the future, consumers will increasingly demand these value streams in a personal manner. Big data analytics will enable us to more quickly, accurately and proactively make recommendations for each individual and take action on those. EcoFactor has led this charge to personalize the home experience with our home energy management services that learn from the home’s thermal profile and user preferences. We feel vindicated to hear that our perspective is catching on!

Privacy and data security are also key challenges that we are not yet comfortable with in the IoT space. While it would be tempting to require minimal encryption for a light switch in the home, any slip-up will set the industry and brand responsible back significantly. Everyone at the conference agreed that best in class standards used for connecting mobile and PCs should be implemented for IoT devices as well. It was also brought up that a central hub that all communication goes in and out of was significantly more secure than many devices of varying quality communicating separately. Finally, there needs to be some kind of regulation set up for how private data is handled while not restricting the value that sharing data could unlock. This will take time to shake out, but to become fully mainstream and trustworthy, the IoT must solve user concerns over the issues of data security and privacy.

Partnership as part of business model innovation is the last theme we heard as a key driver of the IoT. It was interesting to hear out of the box ideas like taking direction from non-tech/product companies who could benefit greatly from the IoT like Airbnb who should have great use for connected locks, thermostats, and other security devices. Panelists saw many opportunities with a very broad spectrum of partners to really build out the IoT as well as pioneer different methods for monetization. Going through retail isn’t the only way to market, and tapping into the value that partners see in IoT devices will be a significant path to market in the future.

These themes among others will build the future of the IoT, which we can expect to be pretty interesting. Some thoughts on what the future will look like included:

•   – The way we think of devices powered by electricity today (all of them… duh!) will be how we think of connected devices in five to ten years
•   – It will be common to speak and gesture to things (knobs/dials/displays will fade)
•   – Driverless cars will comprise about 20% of vehicles on the road by 2030
•   – Many jobs will be performed as a human/machine hybrid – machines doing mainly diagnostics and humans doing more of the decision making and execution based on those diagnostics (with the help of machines again)
•   – Distribution will be completely disrupted as barriers to entry fall
•   – Significant data literacy will be a requirement for all leaders
•   – Data interpretation will be what separates good from great

Let us know what we missed!  What do you think the world will be like in 10 years and what themes and trends you think will be critical to getting us there?

ACEEE’s biennial conference on energy efficiency is just around the corner on September 20 in Little Rock, and we’re excited that our own Matt Tolliver, VP of Business Development, will be speaking on why it’s important to leverage the assets a utility has in the field to offer multiple services.

The conference is one of the premier events for examining energy efficiency as a strategic and critical utility system resource. Utility and industry leaders will discuss the latest developments in the use of energy efficiency as a key resource for meeting customer and utility system needs and for addressing other critical economic and environmental objectives.

We look forward to learning as well as sharing our industry experience. Look for Matt presenting “Why Bundling Makes Sense: EE, DR and the Smart Grid” in section 5E at 1:15pm on the 22^nd. Please reach out to us and marketing@ecofactor.com if you would like to meet at the conference.

by Monica Gomez

As concerns about climate change and the rising cost of electricity continue to mount, government, industry, and consumers look to the green building industry as a leader in sustainability. In fact, industry analysts at McGraw-Hill Construction have estimated that $120 to $145 billion will be spent on eco-friendly green construction/renovation projects for commercial buildings in the United States by 2016. Residential green building has lagged behind commercial, representing just 15 percent of new construction versus 40-48% for commercial in 2015. This should change as more people become aware of the benefits of upgrading a home with sustainability in mind.

While new construction and renovation requires some initial investment to reach LEED certification, with more incentives and education, we can aim to involve more residents in sustainable building practices. Fortunately, governments in many states already incentivize homeowners with property tax credits, and the environmental movement is becoming more accepted by the day. Here are three of the most effective ways that home construction projects can up their green status and qualify for one of the industry’s most lauded environmental certifications, LEED: 1) upgrade or replace your heating ventilation and air conditioning (HVAC) system 2) use smart thermostats and 3) participate in demand response (DR) programs.

1. Efficient HVAC Systems

Energy efficiency is a major factor in LEED certification. Since heating and cooling accounts for about 50% of the average home energy bill, reducing electricity used by upgrading your home’s HVAC system is one of the best ways to work towards LEED certification in energy. In fact, there are two categories directly related to HVAC that, combined, can account for a significant amount of points: Energy & Atmosphere and Indoor Environmental Quality. Upgrading to an HVAC unit with top energy efficiency standards might require a good amount of time, energy, research and capital investment, but the payoff is significant in the long run. Outdated HVAC systems not only waste energy, but poorly kept systems are also known to compromise air quality. When upgrading an HVAC system, you can get nearly halfway to LEED certification just by installing a modern, sustainable HVAC unit that is optimized for energy efficiency—and you’ll certainly recoup costs by saving on utility bills in the long run. A win/win!

2. Programmable and Smart Thermostats

Smart and programmable thermostats are another great way to increase sustainability and work towards LEED certification. Programmable thermostats allow homeowners to set an HVAC system to turn on and off on a schedule. Simply programming a 10 to 15 degree more efficient temperature for eight hours when no one is home, or when people are sleeping can save 5% to 15% on a yearly energy bill. Since the average energy bill for an American home is over $2,200 per year, a 10% savings (about $220) is substantial.

While programmable thermostats allow you to schedule temperature settings, “smart” thermostats go several steps further. Because smart thermostats are internet-connected, they let you change the temperature at anytime from anywhere! For instance, if you’re on vacation and there is an unexpected shift in the weather, you can change your home thermostat to save energy. Third-party reports have shown that EcoFactor’s smart thermostat with home energy management services provides an additional 6% home energy savings over programmable ones – that’s an extra $100 per year or more over a programmable thermostat.

When it comes to using thermostats toward LEED certification, you can earn one credit for simply having a thermostat. You can really get LEED points by minimizing the amount of energy the home uses. Overall, between 1 and 10 points can be earned for optimizing energy performance. Smart thermostats maximize these savings by targeting the biggest energy user in the home – HVAC. The cost savings over a year alone make the investment well worth it for your pocketbook as well as being green and reaching your LEED certification.

3. Demand Response

Participating in demand response programs can also garner you more LEED points. Demand response is a voluntary program in some utility territories where consumers reduce their electricity usage during peak periods in response to financial incentives and utility signals. This allows utilities to reduce the use of expensive and polluting “peaker” power plants that are used rarely on very high demand days. It also reduces the need to build additional electrical grid infrastructure if these peakers are not needed. For the consumer, they turn down the thermostat – or let the smart thermostat do it for them – for a couple hours a few days each summer and often receive additional compensation for this! The fourth and newest version of LEED certification also offers up to two points for projects that participate in demand response programs.

In an effort to increase participation in demand response and smart grid programs, the U.S. Green Building Council and the Environmental Defense Fund created the Demand Response Partnership Program, which connects utility companies and technology solution providers like EcoFactor with the owners and managers of LEED-certified structures. The goal of the program is to increase participation in demand response and smart grid programs, thus saving energy on a large scale. Southern California Edison and NV Energy are the official utility hosts of the program. If your building is LEED-certified and you are a customer of either utility, you can take a short survey to learn more about the financial incentives of participating in the program to see how you may benefit. Overall, participation in demand response is a low-cost, low-effort way to get closer to LEED certification that many customers don’t take advantage of.

Greater Savings with Smart Home Systems

While upgrading and installing energy saving systems comes with an upfront cost, the money you save over time will make the investment well worth it. LEED certification is a good guide for what high impact projects might be right for you and provides options you may not have known about. If your home or office isn’t LEED-certified yet, you should consider taking advantage of these and other smart home heating and cooling technologies to save money on your utility bill and reduce your carbon footprint. Check out all the different ways to upgrade a home for LEED status, and consider the benefits that LEED offers for both the planet and your pocketbook!

LEED Certification Background

The nonprofit U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) program sets the standard for the best green building strategies and practices. Certifications for construction projects are offered at different levels: Certified, Silver, Gold and Platinum.

When applying for a LEED Home Certification, there are different categories for different buildings, and you earn points for different sustainability categories. The type of home and number of points determines your level of LEED certification. The minimum for home certification is generally 40 to 45 points, depending on building type.

The benefit of being a LEED member is that your sustainable building will be recognized as being legitimately green, you’ll receive property tax credits, and you’ll become a part of a large network of people all advocating for a more sustainable world. You’ll also receive technical support, customer service, updates about cutting-edge technology, and the option to upgrade and improve within a verified network of standards.