Negawatts: the answer to the volatile grid

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Can you imagine a day when electrical supply will meet demand – on demand - with minimal need for peaking plants? Or when “negawatts” are as important as megawatts, and are critical for balancing volatility from intermittent resources? That day will soon be a reality, if demand response can evolve.

What is a negawatt?

A negawatt is a unit of electricity demand taken off the grid through the reduction of consumption.

What is demand response?

Demand response allows consumers to play a role in operating the electricity grid to ensure its stability. By reducing or moving their usage during peak periods, consumers can alleviate demand by, for example, turning off air conditioning, and help defer the need for additional generation capacity.


Why must demand response change?

Demand response allows utilities to moderate electricity demand during peak times. By remotely controlling consumers’ electricity use, demand response has helped defer or avoid the expense of building extra peaking capacity.

But distributed energy has changed how energy is supplied and dispatched – and made it more difficult to maintain system reliability. Localized solar and wind energy has added a layer of complexity to managing the grid while the intermittent nature of these resources has introduced volatility. Meanwhile more electric vehicles on our roads – and charging in our garages – are creating highly localized and volatile demand surges.

This new instability on our grid cannot be effectively managed using existing demand response and grid balancing strategies. Without different solutions, we are likely to face power price hikes, outages and damage to customers’ appliances.

EY - Negawatts: the answer to the volatile grid: Infographic

What needs to change?

Demand response may be a solution to balancing today’s localized and volatile electricity supply and demand – but only if three key things can be achieved.

Establishing demand-side energy markets to value the negawatt

Most of the world’s energy markets currently lack the ability to value demand-side resources.

Creating new market structures which value the negawatt could incentivize utilities to efficiently manage distributed energy peaks through real-time demand response.

But this represents a fundamental change and will require significant regulatory changes.





Installing enabling technology to control demand in real time

Current demand response mechanisms typically rely on customers to react to pricing tariffs. But these tactics are not dynamic enough to solve the challenges of highly localized, volatile supply and demand. Reliable demand response in a smart grid-powered world requires technology that gives utilities the ability to remotely control users’ appliances quickly and without consumer involvement.

While the cost and logistics of installing such technology are considerable, innovative financing approaches, such as those used in home solar, could be the answer. Utilities could also leverage the opportunities of the smart meter rollout. Adding remote control capabilities to customers’ appliances at the same time that smart meters are installed would incur almost zero extra expense to utilities but deliver great value.

Attracting customer participation in balancing the grid

These first two actions make localized demand response technically possible. But unless customers are convinced to give utilities control of their load, reliably and where and when they need it, demand response will not be effective in managing localized and volatile demand peaks.

Creating an attractive value proposition for customers requires rethinking how they are incentivized and engaged. One option may be offering variable incentives for customers that adjust according to real-time need. For example, if utilities must shut down load now, they could send customers a SMS offering a reward of $10 – if the issue is less urgent, the offer could be just $1.


It’s time for utilities to choose their position

The future of demand response is on its way. Will your utility lead the way or let others take charge?

Making the most of your smart grid value with EY

Smart grids represent an unprecedented opportunity to improve the reliability, flexibility and efficiency of the network. But making the most of the value of smart will require investing in the right capabilities to address the unique operating challenges of your utility.

At EY, we have guided the world’s leading utilities to make the most of their smart grid investments. Our experience on over 40 smart projects equips us to support your entire smart journey, from helping define your business case, assisting with the optimization of your smart assets and advising on the transformation of your organization. Together, we can develop the tools your business needs to drive greater value from your smart grid.

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