Why demand response is crucial to smart, renewable grids: the view from California

The following is an edited transcript of an interview between the CEO of Australia’s Energy Efficiency Council, Luke Menzel, and Commissioner Andrew McAllister of the California Energy Commission. The wide-ranging discussion included an explanation of the concept of ‘active efficiency’, which integrates traditional energy efficiency and demand response and is being championed by the US Alliance to Save Energy.

Luke Menzel: So Andrew, one of the topics that you’ve been talking about recently is ‘active efficiency’, which is not a term that has gained a lot of currency here in Australia but I can see has gained some momentum in the US. Do you want to unpack that for us?

Andrew McAllister: Sure thing. Traditional energy efficiency is the LED replacing and incandescent light bulb, doing the exact same service with less energy. That’s still absolutely valid if you’re a homeowner or a business owner, you want and need to make those investments. But increasingly we live in a distributed energy world in a time of changing climate with a much more urgent need for resilience.

Technology is shifting. With more EVs, and with more electric heating with heat pumps, we can move to more renewable generation over time, but all that requires investment in the distribution grid. We optimise that investment by having loads that can work with the system that’s there rather than just rebuild and gold-plate the network for rare peak loads.

In short, we need buildings with flexible loads. We want buildings to be able to drop load on a hot summer day when there’s not enough capacity, such as when you lose a power plant or transmission line. But we also want them to take more energy when we have a lot more solar available with nowhere for it to go.

So active efficiency is the combination of energy efficiency in the traditional sense and demand response. It is digitised, real-time, and bi-directional. A lot of it is automated in the background. It could be that the building tweaks the temperature a little bit, or uses the water heater as thermal storage, or quickly charges the car in the middle of the day rather than in the morning.

This creates opportunities to utilise no-carbon and carbon-free energy when its available in the system, which gives you the flexibility to not use more carbon-intense energy at other times of the day.

Active efficiency is good for the customer and good for the grid at large because it optimises the whole system. This is the time for this conversation because we have cheap communications, web-based platforms, and artificial intelligence. All these tools are routinely being used in many sectors of our economy,  but they aren’t being applied at any scale in the energy systems. We need that to change.

So active efficiency is a really compelling ‘two-for–one’, or even a ‘three-for’ or ‘four-for–one’ really – you get so many benefits by building in this capacity. This is especially the case if you are considering retrofitting a bunch of buildings as part of COVID-19 stimulus packages.

The incremental investment in active efficiency is relatively small in terms of a broader upgrade to an existing building. It’s just piggy-backing these flexible technologies while you are doing energy efficiency upgrades and allowing our buildings to be all they can be.

LM: Here at the Council we talk about active efficiency, but not in those words. I think it’s a nice phrase that really cuts through because it knits together the two sides of the conversation. Traditionally you have the supply side and demand side, and never the twain shall meet. But that concept of active efficiency facilitates a conversation with those folks who are passionate about the transition to renewables.

Of course, there is a lot of concern around how you deal with a grid with higher penetrations of renewables. The good news is we have a whole toolbox over here, called active efficiency, that can help deal with that integration piece, and allow us to transition the supply side more quickly and cheaply than we otherwise could.

AM: Yeah, the bulk power system is going through an interesting transformation right now. In the US we’ve seen more coal retired just since Trump took office than during all of the Obama administration, even though the Trump administration is trying to support it. It’s not happening and that’s due to market forces.

The reality is that we have an increasingly dynamic system and baseload power like coal is not really adequate for it. And we have all these renewables that we need to find a home for. We’ve seen renewables overtake even natural gas as the largest chunk of new capacity in the last few years.

The reality is that the marketplace is pushing us in this direction. Certainly, there’s been muscular policy direction in California – ‘there has to be 100%’ is a very clear policy.

So between the market and policy, the direction is clear. The practical challenge we now have is around optimisation, and active efficiency can really help with that. But we need to tell that story, and we believe active efficiency is a good term because it’s relatable.

LM: So there are a bunch of ways of describing this broad set of ideas… can you compare active efficiency to some of the other terms floating around, like energy productivity and digital energy efficiency?

AM: I’m a Board Director at the Alliance to Save Energy, and we went through all of the above and then some, and landed on active efficiency. But energy productivity was right in the mix.

In the United States, there were a couple of years where there was a purge of anything related to climate in the federal political discussion.

The Alliance focusses on the federal conversation, by and large, so energy productivity had the benefit that it’s more likely to be bipartisan. Who’s going to say that doing more with less isn’t a good thing? So energy productivity became and remains a focus, especially in the industrial context certainly.

However, in terms of having a marquee initiative, which is what we were brainstorming at the time, energy productivity didn’t quite get to the finish line because it’s a little too vague and not quite focussed enough.

If you’re focussed on units of productivity or GDP per unit energy, you can envision that turning into increased emissions or energy consumption if you’re always successfully growing your economy.

Clearly we need to change direction, reduce overall emissions, and be explicit about that. So for us, the productivity discussion doesn’t have the quite right framing for the long term, but maybe it works for the near term.

LM: And digital energy efficiency, which is a term coined by the International Energy Agency in its most recent market report?

AM: Digitisation is absolutely a great term in some contexts. It certainly sounds more European!

Active efficiency and digital energy efficiency are obviously kindred spirits. Active efficiency can’t happen if we don’t pull efficiency into the digital age and apply all these new technologies.

Bi-directional communication, automated control, building management are driven by algorithms back in the cloud. That is digitisation, no question about it. It’s just a matter of what has traction with your audience, more than anything. The IEA is a place where digitisation might be a better fit than, say, in the US. The IEA has a relatively sophisticated audience!

To listen to this and other episodes of the Energy Efficiency Council’s podcast, First Fuel, click here.