In early January, I sat in my apartment as the winter’s first true cold snap ripped through Montana. It was negative 10 degrees out, with wind chills pushing temperatures even lower. I shivered at the idea of getting my next energy bill. I went through the usual energy-saving tricks for my apartment, like ensuring gaps in windows and doors were covered to reduce drafts, etc. One issue I kept coming back to that I couldn’t do much about was water heating. Most traditional water heaters, like mine, kick on automatically whether or not we actually need it — and whether or not we want to pay for it. As someone who uses a large amount of hot water only once each day for my morning shower, this regular on/off cycle doesn’t match my personal needs or budget.

This situation led me to look into my options, where I discovered addressable (i.e., “manageable”) water heaters. My colleagues at RAP have had a lot to say in recent years about water heating as a managed resource. As efficient home electrification continues to take off, it’s worth reminding ourselves of the potential in this technology — both to save customers like myself money and to help utilities more flexibly meet demand. Today, state decision makers can play an important role in enabling access to these benefits. As I’ll highlight below, some states in the West have already adopted legislation to do just that.  

What are Addressable Water Heaters?

Addressable water heaters are like standard water heaters but are equipped with technology allowing them to be controlled and run as needed. If they are also equipped with a low-cost internet connection, they can be controlled remotely by their owner or their utility. Standard water heaters heat water at regular intervals that may not meet the actual hot-water demand schedule for the household. The figure below illustrates how water heating typically works today in a home during the winter in the Pacific Northwest. The red spikes are the times of day when the water heater demands electricity. These spikes occur when the water tank temperature drops and are costly and unnecessary. Today, basic technology allows the water heating schedule to be shaped and customized to meet customer needs.

Illustrative electricity production and consumption for a Seattle residence (from Farnsworth et al, 2019, page 31). Grid energy shown in red; solar generation shown in green.

What are the Benefits of Addressable Water Heaters?

Addressable water heaters can save households money by reducing their everyday energy usage during times when they don’t need hot water. Water heating is typically the second largest energy expense in a household. In 2020, water heating made up nearly 20% of total residential energy consumption in the United States.

Addressability can also help reduce expensive utility system demand peaks. These are costly and we all pay for them. The next figure, from a 2017 analysis by the state of Rhode Island, shows just how expensive peaks can be. The top blue line — 1% of the hours that year — accounted for 9% of ratepayer spending. The red line, the top 10% of hours, represents over a quarter of utility ratepayer spending — over a quarter of the budget for just 10% of the capacity.

Rhode Island Power Sector Transformation (RIDPUC and RIOER, 2017, p. 14)

Addressing peaks by customizing our water heating provides households direct savings — through reduced demand charges and on-peak/critical-peak pricing — as well as indirect savings by allowing utilities to avoid unnecessary capital expenditures and costly market purchases, both of which are passed on to ratepayers. Importantly, addressable water heaters can do all of this without impacting day-to-day lives. Controlling when the water heater turns on can be a seamless transition that better aligns with household schedules and needs. 

How Can Addressable Water Heaters Benefit Utilities?

Planning for and investing in addressable water heaters can help utilities maintain reliability and address the increasing peak demands that they forecast across the country. The figure below is a snapshot from the Western Energy Coordinating Council’s forecast of load and demand growth through 2033. Every subregion is expecting tens of gigawatts of additional peak demand in the next 10 years.

2023 Western Assessment of Resource Adequacy (WECC, 2023, p. 12)

Other regional forecasts are much of the same. ISO New England, for example, specifically points to the contributions from electrification of the transportation and heating sectors, with heating electrification forecast to contribute nearly 3,000 MW to winter peaks by 2032-33. MISO is also forecasting steadily increasing demand over the coming 10 years. Electrification, even beneficial electrification, will add to these demand peaks. However, there is no economic justification to leave this demand unmanaged. Without action this demand will unnecessarily threaten reliability and affordability for consumers and utilities.

Solutions to managing peak demand can take many different forms. One approach is to treat this flexible load as a resource and move it to times of the day that are lower cost and beneficial for the power grid. Load shifting simply involves moving certain loads from periods of high demand on the grid to periods with lower demand. Water heating, in particular, is a prime candidate for load shifting. For a local success story, consider Great River Energy’s Load Management Programs, which have been running for decades. GRE’s programs shift water heating to overnight when the grid is less stressed. This ensures both grid reliability for the utility and hot water for the household. Between May and September 2022 alone, the utility reduced “hundreds of megawatts of electricity demand and avoided making costly market purchases — ultimately saving members upwards of $2.5 million.” That’s enough to pay the average annual energy bill for an American household (assuming average annual energy expenditures per household of $1,884) for 1,327 years.

What Can My State Decision-Makers Do to Make Water Heaters Part of the Solution?

State-level decision makers can support consumer access to better water heaters by enacting appliance standards that require addressability as a standard feature for all water heaters available for sale. As states adopt these standards, industry will adapt, and this cost-saving feature will become the norm across jurisdictions. Several states have already adopted addressable water heater standards. Legislation in Washington, Oregon, and Colorado provide templates for other states to adapt to their jurisdiction. All three states require electric water heaters to have a modular demand response communications port, which is the feature that enables addressability and allows the appliance to be controlled. Further, all three have similar language for the key definition of “electric storage water heater” and for the addressability requirement. This is helpful for decision-makers in other states who now do not need to start from scratch.

The Takeaway

Addressable water heaters save consumers money and can help utilities manage the needs of their systems, including reducing expensive peak loads. Using the examples from neighbors in the region, states in the West and across the country can adopt state-level standards and begin building a glide path towards making addressable water heaters the industry norm.

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Andrew Valainis