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For years, utilities have had to use a labor-intensive approach to demand response (DR) programs, by relying on operators at customer sites to manually turn off lights, equipment and systems in response to peak demand signals. For both utilities and end users, automating this process can eliminate a significant number of manual interventions that may not always be reliable, consistent, predictable and responsive.

Today, automated demand response (ADR) is an increasingly viable alternative to conventional, manual DR. According to a recent report from Pike Research, a part of Navigant’s Energy Practice, annual global spending for ADR will grow from $401 million in 2012 to more than $1.7 billion by 2018, resulting in total investment from 2012 to 2018 of $7.2 billion.

In 2012, Pike Research estimates that 27,430 facilities in the world will be enabled by ADR. Because of a robust pace of growth during the forecast period (2011-2018), the total number of sites that will be enabled for ADR will increase more than six fold to 169,847 on a global basis by 2018.

North America represents the lion’s share of ADR sites and spending. The region has been deploying ADR for many years and is, thus, starting out with a substantial investment base, the report says. Pike Research forecasts that spending for ADR in this mature DR region is forecast to increase at a compound annual growth rate (CAGR) of almost 24% between 2011 and 2018.

In addition, the research firm forecasts strong CAGRs of well over 100% in Asia Pacific, Latin America and the Middle East/Africa. This is mainly because these regions will not start to implement ADR until 2012 or 2013 and will ramp up very quickly from then until 2018, the report explains.

Pike Research says the OpenADR communications specification, which was first tested by Pacific Gas and Electric Co. (PG&E) in 2005, is increasingly becoming a key component of ADR programs - especially in California, where the California Public Utility Commission has mandated its use by utilities in the state. ADR programs with OpenADR are currently being deployed in pilots outside of the U.S., such as in Canada, the U.K., China and Hong Kong.

Because of the cost-effectiveness of OpenADR, coupled with its degree of reliability and predictability, Pike Research expects the number of ADR projects that rely on this specification to increase significantly in the years ahead - both in North America and internationally. OpenADR could eventually become the preferred approach for ADR implementations in most parts of the world. Pike Research anticipates that approximately $23 million will be spent globally on this type of ADR approach in 2012, increasing dramatically to $773 million in 2018.

Market drivers and inhibitors
There is a mix of market forces that fuel and inhibit the adoption of ADR, though the drivers tend to have a stronger impact on the market than the negative factors do. Pike Research says the most positive factor is the recognition of the significant benefits of ADR for both utilities and consumers.

One of the most important benefits is the increased speed of being able to execute load management, especially when a DR response is required within minutes or even seconds. As more utilities, independent system operators and curtailment service providers begin to offer these types of DR programs, Pike Research says it will become even more critical for business and building owners to retrofit their facilities for ADR in order to reap the financial incentives of participating in such DR initiatives. In many cases, these incentives can be quite lucrative, the report adds.

A fast response time is also necessary as utilities around the globe integrate more intermittent renewable sources, such as wind and solar power, into the grid. Thanks to ADR, Pike Research says utilities and grid operators can quickly respond to fluctuations and intermittency in the supply of this type of power.

In addition, the growth of smart meter systems throughout the world is likely to have a direct positive impact on the adoption of ADR and, more specifically, OpenADR. Although ADR is already being tested in the residential sector, it is not yet a significant trend. So far, utilities and grid operators have concentrated on the “low-hanging fruit” offered by the commercial and industrial sector, where just a few participants can shed a great deal of load compared to the limited load of 1 kW or 2 kW per household, the report says.

However, with the increasing deployment of advanced technologies, such as smart thermostats and smart home appliances, Pike Research believes that the residential market will eventually become a major target (as well as a driver) for ADR.

There are also inhibiting market factors that influence the ADR market: One major barrier for ADR is the reluctance on the part of business owners or facility managers to hand over the control of their mission-critical equipment or operation to a third-party provider. This is especially true in the industrial sector, the report notes.

Many vendors have tried to ease these concerns by enabling customers to override any DR signals or events. The report says the challenge is to reduce energy usage enough to meet the specific DR program requirements and achieve cost savings for the customer, but not enough to upset production managers, tenants, office workers or landlords.

The ADR competitive landscape currently consists of an eclectic mix of companies. As this market has evolved over the years, it has attracted different players from the manufacturing, IT, and energy management service industries. However, it has not yet become very crowded; only a few dozen players are actively pursuing ADR opportunities today.

According to Pike Research, the strongest competitors in the building automation and control system equipment space include Honeywell, Siemens, Johnson Controls Inc., Schneider Electric, REGEN Energy and Cypress Envirosystems. In the IT space, the competitive landscape is not yet led by any particular vendor, the report notes. Siemens, Echelon, Constellation Energy, Powerit Solutions and Vedero Software are all vying for leadership in the ADR market.

There are also emerging players on the horizon. Major retail chain stores, energy management and data analytics service companies, and global manufacturers are entering the space. For example, Best Buy recently teamed up with Constellation Energy to sell energy services in its stores. Also, Pike Research says France-based Alstom could become a force to reckon with in the ADR market. Its 2011 acquisition of Utility Integration Solutions, the software developer of OpenADR, could catapult the company on to the ADR market, the report adds.

Companies realize that it requires a complete portfolio of hardware, software and service offerings to become a major leader in the ADR market. However, because most vendors do not have the capability to address all of a customer’s diverse ADR technology and service needs, they will seek to build a partner ecosystem to supplement their portfolio with different offerings.

In the future, Pike Research expects to see a growing number of alliances and partnerships in the ADR marketplace between an eclectic mix of technology vendors, energy service providers, manufacturers of building automation and control systems, and major retail chain stores.

For more information on Pike Research’s report, click here.

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