Aiming to reduce greenhouse gas (GHG) emissions from coal-fired power plants, the Environmental Protection Agency (EPA) recently released its “new source performance standard” to sharply limit such emissions from coal plants that will be built in the future (the standard does not apply to plants constructed in the next 12 months).  The new rules will allow existing coal plants to continue to operate, though EPA could eventually issue standards to reduce carbon pollution from these plants, too.

In June 2011, the Supreme Court declared that the EPA has the authority to curb greenhouse gas (GHG) emissions under the Clean Air Act.   While the EPA determines new source standards, it shares the responsibility to do so with the states for existing sources.

The “new source performance standard” requires that new plants meet a specified emissions rate that is both technically feasible and economically viable. Although the standard does not dictate which fuels a plant can burn, it essentially requires that new coal plants cut CO2 emissions by 50% to match emissions from natural gas plants.

Coal power plants are the nation’s largest source of GHG pollution, emitting almost 1.9 billion tons of CO2 equivalent into the air every year.  Nevertheless, the EPA continues to be challenged by various political groups and factions of the coal and power industries who are determined to derail its new standard.  Some claim that EPA’s rules will cause power shortages and blackouts, but the Department of Energy has concluded that the nation’s need for increasing supplies of electricity can be met by a combination of renewable resources, natural gas plants, and much improved energy efficiency measures and demand response systems in commercial, industrial, and residential sectors.  The tools to meet our growing appetite for electricity are available; the question is whether the tough new limits on new coal plants will survive.

Demand response programs to date have largely relied on a labor-intensive approach that has required operators in different customer sites to manually turn off lights, HVAC equipment, and other energy consuming systems to control peak demand and balance loads on the grid.  Automated demand response (Auto-DR) systems have become an important alternative to conventional DR by automating the communication and dispatch systems to respond to event and price signals from a utility, grid operator, or a curtailment services provider (CSP) – often in minutes or even seconds.  Although it has already been used by the utility industry for many years, it has not been widely deployed. However, with the upcoming launch of a non-proprietary, open communications standard for Auto-DR, referred to as OpenADR, this situation is likely to change.

Developed by the Demand Response Research Center (DRRC) of Lawrence Berkeley National Laboratory (LBNL), OpenADR is designed to be a low-cost, speedy, and reliable communications infrastructure that would allow utilities and grid operators to send DR signals directly to building automation and control systems on customers’ sites, using a common language and existing communications technology, such as the Internet.  It was successfully piloted in 2005 by Pacific Gas & Electric (PG&E), and in 2007, the California Public Utility Commission mandated its commercial use by the state’s three main investor-owned utilities (IOUs).  In 2009, OpenADR 1.0 was donated to the standards organization, Organization for the Advancement of Structured Information Standards (OASIS) to be developed into a formal specification, i.e. OpenADR 2.0.

The standard, says Lawrence Berkeley’s Girish Ghatikar, the secretary for the OASIS technical committee that finalized version 2.0, “will enable scaled deployments and interoperability within Smart Grid technologies, thus reducing the cost of DR technology enablement and customer adoption.”

OpenADR 2.0 is expected to be ready for full-scale implementation in the coming months.  It is currently the only existing open data model to bridge communications between a utility and control systems in commercial, industrial and residential facilities.  It has been used by a number of utilities and independent systems operators in the U.S.  While California has been the primary state for OpenADR implementations, it has also been adopted by other U.S. utilities to enable their Auto-DR programs.  So far, OpenADR has been either piloted or implemented by Seattle Power & Light, NV Energy in Nevada, City of Tallahassee in Florida, Bonneville Power Administration in Oregon, and most recently Hawaiian Electric Company in Hawaii, which is undertaking a pilot with Honeywell to demonstrate how DR can help integrate intermittent renewable energy into the grid.  It has also been tested by software developers in Canada and Spain, and is currently being piloted by Honeywell for utilities in China and the United Kingdom.

The introduction of a uniform standard in the Auto-DR market will help lower the cost of technology as well as the services, including maintenance, associated with these tools.  So far, more than 60 building controls vendors have developed products with OpenADR. Second, it will improve the reliability and predictability of Auto-DR because using an Internet-based interface and communication standard will eliminate the reliance on person-to-person interaction between the utility’s personnel and facility management. Third, standardizing a message format will increase the interoperability, efficiency and reliability of DR systems. As a result, both the National Institute of Standards and Technology (NIST) and the Federal Energy Regulatory Commission (FERC) have endorsed OpenADR as a key smart grid standard. And the OpenADR Alliance, a nonprofit organization, has been created to promote the development, adoption and compliance of the standard across the utility industry.  “Through this member-represented organization, the OpenADR Alliance, and significant support, OpenADR 2.0 has certainly the potential of accelerating Auto-DR adoption across the globe,” said Barry Haaser, managing director of the OpenADR Alliance.

It seems only logical that demand response and energy efficiency should go hand-in-hand.  Both spring from concerns about energy usage and aim to accomplish the same outcome, i.e., energy reduction.  But reality doesn’t always follow logic.

Instead, often the two concepts are pursued by different departments and individuals within a utility.  What’s worse, the two organizations in some cases do not even speak to each other. Although demand response contributes to lower energy use, its main goal is not to achieve energy efficiency.  Rather, it aims to reduce the use of electricity on a temporary basis at a specific time (i.e., in times of peak demand, typically within hours or minutes) in order to balance the grid to avoid power shortages.  By contrast, the main objective of energy efficiency or conservation programs is to reduce electricity consumption on a long-term basis with the help of various energy efficiency measures.

Still, there is a strong interrelationship between demand response and energy efficiency.  In the residential sector, demand response is typically a standalone program that aims to achieve 1 kilowatt (kW) and perhaps up to 2.5 kW of energy reduction from the average household – sometimes through a smart thermostat or a load-control switch on an air-conditioning system.  This often requires incentives from the utility.  But when demand response is integrated with behavioral-based energy efficiency programs to raise customers’ awareness about energy conservation, interest in participating in demand response programs improves significantly.  According to Tendril, “When the ground is first seeded with behavioral-based efficiency programs that begin the energy awareness cycle of consumers – by delivering personalized, relevant information about energy use, the ability for them to set an energy savings goal and measure their progress towards that goal in an active learning environment – consumers can then opt in to more complicated energy management programs that include demand response.”

It is quite possible that the demand response and energy efficiency departments have more in common than they realize or are willing to admit.  Better-informed customers may be the link to integrate the two energy efficiency and demand response camps together.  By educating consumers about the benefits of participation and improving their access to detailed data about their energy use and performance, both groups will essentially seek to achieve the same goal – an educated, well-informed and motivated energy consumer.  Indeed, some utilities have already begun to take steps to bring the two initiatives closer together.  For example, industry sources tell me that some have recently appointed a director to head both the demand response and energy efficiency programs in order to coordinate efforts to benefit both and to leverage each other’s skills and know-how.  Instead of working at cross purposes, utilities should make every effort to create synergies between the two organizations so that they can truly work in unison to achieve new and improved energy efficiency and demand response behaviors.

The news that Comverge has accepted a private equity buyout of roughly $49 million does not come as a surprise to anyone who has been watching this company over the last couple of years and hearing rumors about its financial and resource problems.  According to The Wall Street Journal, a recent filing with the Securities and Exchange Commission reported that Comverge’s independent auditor had expressed serious doubt as to whether the company could continue to operate due to lack of cash flow and debt-related issues.

The buyout by the private equity firm H.I.G. Capital will address these immediate financial and liquidity problems, allowing Comverge to continue its operations and to execute its strategic plans.  H.I.G. Capital is offering Comverge shareholders $1.75 a share well below its 52-week high at $5.09.  The Comverge board has approved the definitive agreement, which enables the company to seek other offers during a so-called 30-day “go-shop” period. As of the close of trading on March 26, the stock was up at $1.79 indicating that investors are expecting a higher offer.

Despite its financial woes, Comverge still runs a viable demand response (DR) business.  As one of the largest curtailment service provider (CSP) and outsourcer of residential DR programs in the country, Comverge had $136.4 million in annual revenues in 2011, representing a 14% increase from the previous year’s revenue of $119.4 million. Moreover, the company added more than 800 new megawatts (MW) under management and increased adoption of its enterprise software platform, IntelliSOURCE, with 22 utilities.  Comverge was also chosen by Gulf Power to double the country’s largest residential dynamic pricing program from approximately 8,000 to an expected 16,000 participants over the next four years.  Perhaps most important was Comverge’s recent $27 million international deal with Eskom, the largest electricity provider in Africa, to create and co-manage its first open market for DR resources.

Despite these achievements, which resulted in the company’s best performance ever, it was apparently not enough.  As Comverge’s president and chief executive officer, R. Blake Young, noted on March 15:  “Despite the strongest operational and financial performance in the company’s history, we still require capital to fund our operations, and the Board and management are working diligently on strategic alternatives for obtaining the required capital and financing.”

Pike Research does not believe that Comverge’s financial issues mean that the DR market is in trouble.  Some observers have claimed that the major CSPs are reaching their saturation level, having to seek new market opportunities in order to continue to grow their business. This does not indicate a lack of interest among end-users to participate in DR programs.  Indeed, both Comverge and EnerNOC have been able to increase their customer base as well as MW under management in 2011.  Although it may become tougher to recruit new customers once the low-hanging fruit is picked, there is still ample opportunity in the United States and in other countries to grow a DR business.  Let’s not forget that DR is more than just curtailing loads during peak events; it can accomplish a lot more as it addresses all the different ways that a utility, grid operator or CSP balances supply and demand of electricity by responding to the needs of the grid.  And with the increasing application of automated DR (Auto-DR) by utilities around the world to make it more cost-effective, more reliable, more predictable, and easier to  execute demand response than ever before, the growth prospects look strong.