By Michael B. Gordon, ConsumerPowerline
Editor’s note: This is the first in a series of special articles on the “ins and outs” of demand response (DR)–and one of two on DR for this issue. The following article is authored by ConsumerPowerline, a provider of demand response solutions with more than 1,500 MW under management in North America. This piece looks at DR from the facility point of view. Additionally, a second article on DR by EnerNOC, another DR provider based in Boston, follows and looks at the general topic of DR from a utility point of view.
Utilities have great knowledge about how power flows. They know which distribution points are most stressed, which points are most difficult to flood with power and which hours of the year cost them the most to procure power. Demand response enables utilities to immediately address these issues, while also determining long-term strategies to acquire real-time reliability and power, efficiently and cost-effectively for us all.
Utilities often contract with demand response providers to manage the sale and operations of these programs to electricity end-users. (Utilities partner with providers as they prefer not to be in the business of working directly with the engineering and facility managers at their many customer sites on their individual energy management plans and demand response participation.)
Smart demand response contracts, delivered through demand response providers, allow utilities to achieve the following:
- A more reliable power product,
- A less expensive power product, and
- A reputation in their community as a service company with a proactive and conscientious approach to delivering power and a better environmental track record.
In structuring demand response contacts, utilities need to ensure that they encourage maximum sale and adoption by providers and electricity end-users. Well-structured contracts should be coterminous (expire in the same year for all demand response providers), fairly long-term (three or more years), and fair (pay the same price to several providers, do not employ too few providers in sole-source deals, and do not pay less to providers than they are offering directly to end-users). This will enable utilities to contribute constructively to building a reliable grid with sustainable “green-collar” market participants. And, the demand response programs will offer just as much monetary incentive and system reliability to their end-users as free market demand response programs have offered to date. Such utility demand response programs have proved very valuable in electricity regions including Connecticut, Vermont, California and Ontario. But, selling that contract to a facility takes knowledge of how that facility works and what advantages DR can bring to both the utility and the facility itself, the program end-user.
Empowering Engineering and Facility Managers
Engineering and facility managers are constantly viewed by their organization as a cost center, struggling for adequate budget and resources to keep their facility operating smoothly. Selling to an engineering or facility manager can be equally thankless, as a maintenance contract or the installation of new equipment always costs money before it saves money. This is now changing, particularly in the use of energy. Over the past few years, opportunities have emerged for these individuals to earn their facilities a new stream of revenue through demand response and energy management. While markets and opportunities vary across regions, they can be classified as follows:
- Earnings opportunities that require no change in day-to-day facility operations or infrastructure;
- Opportunities that emerge from operating slightly differently than a manager has in the past; and,
- Earnings opportunities that come from new installs or upgrades of hardware or software.
These opportunities come from new thinking in well-designed electricity markets. Today, smart markets treat reduced electricity consumption or increased control over consumption, just as if that reduction in use is a power plant, feeding electrons into the power grid. These “demand-response resources” can bid alongside and earn in parity with power plants.
These markets are fair too–a MW that you choose not to use reduces system strain, lessens emissions that do environmental harm, and delivers a full megawatt of value to electricity markets. On the other hand, a MW produced by a power plant strains transmission lines, produces noxious emissions of multiple gases, and after “transmission line-loss,” delivers less than 93 percent of a megawatt of value to end-users of power in most electricity regions.
How can engineering and facility managers earn from these markets without becoming experts in the different programs and opportunities available from their utilities? Many are turning to demand response providers to help them take advantage of these opportunities, who in turn earn their keep by preparing curtailment plans, as well as managing the full enrollment, participation, and payment process on behalf of customers.
The best demand response providers become trusted advisors to the engineering and facility managers they work with, beyond delivering a check to them for their facility’s participation, they provide valuable engineering and energy management plans enabling more intelligent day-to-day operations, smart and unbiased electricity-buying strategies, and audit-grade facility upgrade advice.
Participating in Demand Response
There are a variety of revenue generating opportunities available from participating in demand response, each requiring a different level of involvement from the facility. They are listed here.
Opportunities that require no operational change: Often, a facility is operating or upgrading intelligently, but it may be missing out on available earnings as a result of this smart operation. For example, let’s say a facility can cool through a central plant that can use gas, steam or electric chilling equipment. Because of the rate structure (the electric supplier adds a surcharge based on the highest amount that a facility consumes in one hour, each month) a smart engineering or facility manager is going to run the electric equipment every day that is a bit cooler, because he or she doesn’t want to use as much central electric at the same moment that window air-conditioners may be adding to his load. He’ll use gas when the window units are likely to be on, even though it’s likely that his gas equipment costs more to operate hourly, the surcharge for the “peak-use hour” trumps this expense.
This behavior is valuable to the electric grid beyond the simple savings on the surcharge that the engineering or facility manager has seen. A smart demand response provider will work with the facility to bid this reduction of electricity use on a hot summer afternoon, into markets that pay for it. We have customers who are earning in the six and seven figure range annually from merely doing what they have always done. Previously, they simply failed to enroll and bid their demand response resources into the market.
Opportunities that require slight operational changes: Electricity prices are highest when the power grid is under stress. It is often smart to cool a bit more aggressively on a summer morning, and allow temperatures to float a bit in the afternoon. This may mean that a facility that may sit at 73 degrees, and remain fully lighted on a gray, 83 degree day, can produce earnings by changing these procedures on a bright, 90 degree day: cut some lighting, and cool to 68 degrees in the morning, then allow temperatures to rise to 75 degrees in the afternoon. Such small changes in the way a facility is run can mean a significant new stream of revenue.
Opportunities from new installs or upgrades: With these new energy markets, installing or upgrading an energy management system, controlling or installing dimmers or variable frequency drives, installing gas, steam, or ice chillers, installing or better loading an emergency generator, and many other efficiency or reliability improvements, suddenly offer cash paybacks that can be equal to, or even larger than savings opportunities achieved with these same measures. In many markets, a sales professional can now offer to pay engineering and facility managers to install his or her product because of the permanent energy efficiency and cash paybacks associated with the product.
Today, tens of thousands of engineering and facility managers are participating in demand response. Not only is this enabling them to produce a new stream of revenue for their organization–in the form of a check that can be presented to their chief financial officer–but by partnering with their demand response providers, they are able to benefit from sophisticated understanding and analysis of new demand response and energy management opportunities that will enable them to increase their future earnings, making their cost center a prospective asset for the organization.
Michael B. Gordon is chief strategy officer and founder of ConsumerPowerline. He is responsible for identifying strategic alliances, building the firm’s vision of how energy markets should be structured, and creating the new products and services within these markets. He founded ConsumerPowerline in 2001.