Beyond the "Hail Mary" Approach to Demand Flexibility

As we head into a new year, we’re seeing past energy and climate predictions play out. Renewables are cheaper than ever — and make up more and more of our energy supply. Climate change is fueling extreme temperatures and weather events that are in turn driving extremes on the grid. California’s grid eclipsed its prior system peak demand by 2 GW last year, blowing through a record that has held since 2006.

Regions with a higher reliance on thermal generators have been subject to the same forces. Texas, for example, experienced massive blackouts when winter temperatures took out power plants. And both in the US and abroad, we’ve seen the conflict in Ukraine push oil and natural gas prices to unsustainable highs, fueling inflation and hurting everyone’s ability to pay the bills.

On a more positive note, we’re also seeing massive adoption of electrified technologies. Consumers want cars that never need to go to the gas pump. We want homes we can control with our voices or our phones and smarter and more automated businesses. They’re more comfortable, cheaper, more efficient and greener. Recent policy measures like the  Infrastructure Investment and Jobs Act and the Inflation Reduction Act are going to accelerate this adoption.

These new technologies are also inherently flexible - a massive grid resource we can and should unlock. A quick thought experiment: The Alternative Fuel Data Center reported 1,454,480 registered EVs in the U.S. in 2021, and the Electric Vehicle Database lists 66.5 kWh as the average usable battery capacity across EV models. Altogether, that’s over 96 GWh of capacity available each day - enough energy to power the whole California system for four hours on a typical day. Enough energy to power all of New England for most of a business day.

And we’re not talking about just 1.5 million EVs. The International Energy Agency (IEA) projects 350 million EVs on the road globally by 2030. Truly massive growth. EV capacity will be multiples of our installed power plant capacity. Soon. Not to mention battery storage and smart buildings.

We have a massive opportunity to transform grid flexibility. But we’re underutilizing it. Big time.

To achieve a low-carbon (eventually no-carbon) grid, we have to make better use of these flexible assets. What better resource than the cars in our garages and fleet lots to ride through times when the sun doesn’t shine and the wind doesn’t blow? They’re already purchased, interconnected and ready. They don’t require environmental impact assessments, project financing, cluster studies or volatile oil and natural gas.

What they do need is a compelling value prop for participating as grid resources, market access at scale and technology to make it easy.

Frustratingly, we’re not rising to the challenge. In California, we’re pleading with customers via Flex Alerts to use less on peak days. Today, most demand-side flexibility initiatives are still emergency programs that are invisible to the markets and only utilized a handful of days each year. Emergency demand response (DR) programs help keep the lights on during periods of extreme grid strain, but they don’t enable distributed energy resources (DERs) to meet their full potential as resources to balance the grid throughout the year. 

With so many of our energy assets in homes and businesses now capable of bi-directional power flow, we are neglecting a key tool for energy system resilience. Why limit their usage — and earning potential — to grid emergencies? That’s not how we achieve the energy transition. We need our EVs and smart thermostats to be participating in energy markets day in and day out. As noted above, EVs are the fastest source of load growth on the grid and our largest untapped resource.

So how do we overcome the challenges and fully harness these resources?

Empower the wholesale markets

First, legislators and regulators need to stop making it easier and more lucrative to participate outside of and separate from wholesale energy markets. Federal and state funding often funnels through utility programs, which by and large bypass wholesale markets. Utilities do not generally schedule their programs in the wholesale market, making it hard for the market to take them into account. Innovative entrants like Leap directly participate assets into markets as virtual power plants, creating liquidity in the markets and giving visibility — and a market price — to demand flexibility. Market price signals are the most efficient and scalable way to incentivize the right behaviors. Instead of designing retail electricity rates that mirror the wholesale market, encourage customers to participate directly. The best proxy for the market is…well…the market.

The right incentives for performance

If we want to increase incentives to accelerate DER deployment, layer them on top of market-based constructs. Reward high-performing assets with more incentives for being grid resources, especially at times of high demand. Don’t structure incentives that pay them more for staying out of the wholesale market, which is effectively what the Emergency Load Reduction Program (ELRP) is doing in California. Give them capacity and energy kickers when they participate, not simply deployment incentives or rebates. Give a higher incentive for market-integrated assets since they’re more valuable and contribute outside of grid emergencies.

Facilitate innovation 

Make the role of third parties (i.e., companies like Leap) central. Demand response over the past ten years has stagnated via utilities. At best, utilities are agnostic to DR and at worst they see it as eating into their revenue. Time-of-use rates are great and should continue, but we need dynamic participation from EVs, battery storage and the like. Customer recruitment, management and support for tech-heavy, market-integrated programs do not play to utilities’ strengths. Innovative new entrants have been the major sources of technology innovation and customer acquisition - make sure they have a role. As noted above, give them a direct path to market and reward them for being available during emergencies and normal days. Let’s use demand-side flexibility to provide energy every day of the year, not just on peak demand days.

Our homes and businesses are actively buying and installing the key flexibility resources needed to win the energy transition. Let’s put them to better use.