As the growth of Xcel Energy’s demand response programs in Minnesota lags a state target, some stakeholders say it’s time to expand the use of third-party companies to enroll customers.
Demand response refers to a broad range of voluntary programs in which utility customers agree to reduce energy use during periods of peak demand. The best-known programs involve smart thermostats or other technology that remotely switch off customers’ air conditioners in short increments when the electric grid is under stress.
The programs are expected to play a bigger role as the country transitions to more variable, renewable generation such as wind and solar power. Having the ability to shift customers’ energy use into hours when those sources are providing lots of clean and inexpensive electricity could help lower costs, reduce fossil fuels use, and improve reliability.
In Minnesota, Xcel Energy operates one of the country’s largest demand response programs. A 2019 analysis by the Brattle Group ranked its portfolio eighth in the country as a percentage of peak demand. More than half of that capacity comes from its “interruptible tariff” program, in which commercial and industrial customers are offered bill savings in return for committing to curtail electricity use if called upon by the utility. The next largest source is its residential air conditioning Saver’s Switch program, which has enrolled more than 60% of homeowners with air conditioning.
As of 2017, the company had 850 megawatts of demand response capability in its Minnesota territory, about 10% of its system peak demand. That year, Xcel and state utility regulators agreed to a target of growing demand response enrollment by 50% over six years — an increase of 425 megawatts by 2023.
Earlier this year, Xcel reported slow progress toward that target, saying it had added just 117 megawatts in the previous half-decade. The company said the COVID-19 pandemic made it harder to recruit new participants and caused some of those in Xcel’s programs to go out of business.
The company also expressed confidence that program growth would be robust in 2023 and that it would achieve the target. The company continues to install smart meters, allowing more market demand response programs such as time-of-use rates that encourage customers to shift energy consumption. Other demand response programs involve customer-owned batteries, electric vehicles, building control systems and grid-connected appliances.
“We are very close to meeting the target this year, incentivizing growth through creative marketing, sign-on bonuses and a variety of new demand response offerings that give our customers choices to best fit their needs,” Xcel said.
Meanwhile, some clean energy and industry groups say Xcel’s apparent struggles to meet the demand response target shows there is a need for competition in the space.
In August, the Minnesota Public Utilities Commission heard debate over whether to allow the use of demand response aggregators — third-party companies that sign up customers for programs and then sell the capacity into wholesale markets. Xcel and other utilities argued against permitting retail aggregators because of unease over how they would impact the grid.
The commission voted 3-2 to table the topic.
Commissioner Joseph Sullivan said utilities will need more resources than just solar, wind and battery storage to maintain a resilient grid as fossil fuel plants close. Demand response is a flexible resource that can be an alternative to a gas power plant, he said. Sullivan said he has been surprised by how little Xcel uses demand response. Xcel tested but did not use demand response once last summer, he said.
“I think there is a tremendous opportunity for Xcel to be doing more,” Sullivan said.
Xcel has told the commission that exercising demand response programs too often increases the risk of participants dropping out.
Frank Lacey, a founder and former chair of Advanced Energy Management Alliance, which represents demand response companies, said Xcel and other utilities don’t embrace demand response because building new generation is more profitable, offering a guaranteed rate of return. “Utilities have an inherent conflict in growing demand response,” Lacey said.
But the programs save consumers money, with programs sometimes paying six times their cost. They offer a way for utilities to balance loads when solar and wind production fluctuate and fossil fuel plants no longer exist to fill in the gaps. Lacey said he hopes Minnesota looks again at the aggregator issue.
“What’s the expression about shutting the barn door after the horse escapes?” he said. “If you wait until you need it, you won’t recognize you need it until you need it, and it’s too late at that point.”