The energy world is undergoing a fundamental transformation. Renewable energy capacity is exploding. Renewables in 2015 represented more than half of global new power capacity, with record growth of 66 GW of wind and 49 GW of solar PV, the International Energy Agency (IEA) reports. Meanwhile, energy storage costs are plummeting, with lithium-ion battery pack costs having dropped from $1,000 per kWh in 2010 to less than $400 today, and on pace to drop to less than $300 per kWh by 2020, according to Bloomberg New Energy Finance. The Internet of Things (IoT) now enables energy service providers to connect to millions of smart thermostats, lighting systems, hot water heaters, CHP units and other distributed energy resources (DERs) in customers' factories, office buildings and homes. Deregulation has opened up the electricity market so that utilities are now seeing system operators, electricity retailers, aggregators and even energy consumers actively participating in the energy value chain.
These and other forces are placing tremendous pressure on utilities, electricity retailers and other energy service providers to figure out how to balance supply and demand on an increasingly distributed and multi-directional grid, keep up with the competition by finding new ways to lower expenses and launch services that generate new revenue streams, and improve customer engagement by offering customers more energy choice and flexibility.
One way that energy service providers have sought to address these challenges is with demand response (DR). Since the 1970s, energy service providers have been using DR to reduce peak load, helping them avoid building peaking power plants, reduce expensive peak demand electricity purchases, and defer T&D upgrade investments. Navigant Research finds that global DR capacity represents 39 GW of capacity today-much more than grid-scale energy storage-and is scheduled to reach 144 GW in 2025. Yet, despite this success, energy service providers have still struggled to convince their customers to embrace DR and make DR a reliable dispatch-grade resource.
A new way of thinking about and using DR, as well as energy storage and the myriad of other distributed energy resources (DERs) connected to the grid, however, is turning these connected energy assets into cost-reducing, revenue-generating, customer-engaging sources of reliable capacity-flexibility management.
Flexibility management enables energy service providers to predict, optimize and manage any energy resource, allowing it to be controlled, in real time and at scale. With the on-demand, flexible capacity delivered by DR and other DERs, utilities and energy service providers can smoothly navigate the transition from the traditional, centralized, fossil fuel-powered one-way grid to a modern, distributed, renewable energy-powered and multi-directional grid.
Flexibility management programs do not include just DR, but also DER management systems (DERMS) that manage smart inverters, energy storage systems, central heat and power (CHP) units and other DERs. They also include virtual power plants (VPPs) that can aggregate customer-owned energy storage, distributed generation and other demand-side resources and then monetize the capacity from these resources in energy markets.
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