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Lessons from the Great Lakes

In a race to achieve the highest reductions of energy consumption, everyone wins. In the United States, Michigan is poised to be a frontrunner in that race. Their demand response initiatives designed to reduce energy consumption in homes and businesses are set up to thrive in the upcoming years. So, just like runners look to their role models and fellow competitors for tips and tricks, what can we learn from Michigan’s efficiency success?

First, we need to understand what type of savings Michigan is geared toward in the future. The Advanced Energy Economy Institute report projects that Michigan’s lower peninsula will have a 2,000 megawatt increase in summer peak demand by 2026; state utilities are readying themselves by implementing demand reduction strategies to offset this electricity spike, which in turn could eliminate the need to build additional power plants. These moves could save consumers more than $53 million over the next decade, and the state could save anywhere from $482 million to $1.2 billion. Energy savings like that definitely sound like a win!

As its energy consumption patterns look toward the future, Michigan is facing the retirement of coal plants, reduced competitive generation supply, increased use of smart meters, and changes to electricity markets. These changes are being seen all around the country, which means that other states can and should start implementing similar steps to meet demand. This is especially applicable to states whose resource constraints are mainly due to heat and air-conditioning load. These weather-related conditions are predictable, which in turn makes peak-demands predictable.


As far as commercial and industrial sector options go, utilities can help customers plan demand response scenarios in advance thanks to more reliable weather forecasting technology. The report looked at two different demand response models:

  • The “day-ahead” model, which allows customers to shed load the following day during the predicted peak hours. This could result in a 1,000 megawatt savings with up to 40 hours of dispatch per year, creating a 10-year net cost savings of $316 million.
  • A “day-of” model, which allows customers to shed load during the morning in anticipation of an afternoon peak. The electricity and cost savings are roughly half of the “day ahead” model.


As trends have changed, Michigan has learned to change with them. Its utilities have traditionally relied on load-management programs that use switches to directly control high-energy appliances like air conditioners and water heaters. Now, the report suggests putting the power in the hands of consumers with smart thermostats that homeowners install themselves.

Based on interviews with thermostat vendors, the report estimates there are already more than 70,000 smart thermostats in Lower Peninsula homes. Thanks in part to $100-per-residence energy efficiency rebates offered by Michigan’s investor-owned utilities, that number could jump to more than 500,000 by 2026, saving 150 megawatts in peak demand electricity usage.

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Besides the installment of smart thermostats, another popular energy-saving option in the residential sector is advanced-metering infrastructure, or AMI, which encourages electricity load shifting to off-peak hours. Again, Michigan is ahead of the curve on this one, with one of the largest percentages of smart-meter installations in the country. They don’t plan on slowing down, either. One local utility plans to have 3.1 million smart meters installed in the lower peninsula by the end of 2017.

Once a utility puts AMIs in place, it can automatically roll out time-varying rates (TVR) with minimal cost. The report shows various TVR scenarios, concluding that opt-in rates deliver the largest reductions on a per-participant basis. The drawback to this is that opt-in rates reach significantly fewer homes than a default rate in which customers can choose not to participate.

The report concludes that the best electricity and cost-savings scenario, as displayed by Michigan and set up for the future, is pairing smart thermostats and other home-automation tools with dynamic rates. The report found that a combination of time-of-use rates with critical pricing reduces peak demand by an average of 15% per home. That number sounds great, but what sounds even better is the reduction that jumps to almost 50% when a smart thermostat is added to the mix without any direct set-point control.

By studying how the state of Michigan has set itself up for demand-response success and continues to implement new ideas, we are able to get a glimpse into the future of demand response. It includes more smart thermostats, letting homeowners take the reins on their savings, relying on weather forecasting, and seeing lots of savings! Seeing what is coming down the road is a great way for everyone to prepare and stay on top of trends and work to become and industry leader like Michigan.

For more information on how to stay ahead of the curve and prepare for the future of grid optimization, contact Franklin Energy today.


Eric Hatton
Written by Eric Hatton

Regional VP, Midwest
Eric Hatton specializes in seeing the big picture and helping to drive innovative programs forward into implementation. He is responsible for Franklin Energy’s Midwest Region, managing and leading 10 demand side management programs and nearly 200 staff members. Eric oversees all aspects of the program operations and ensures that the resources are in place to meet program goals, while driving the development and execution of innovative pilots and demonstration projects. His program management experience extends to serving end-use business and residential customers of investor-owned, municipal and cooperative utilities. Eric holds a bachelor's degree in marketing and business management from Franklin University and is a certified business energy professional (BEP).


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