Can your business be paid to reduce electric power consumption?

Does your business consume significant amounts of electricity?  Learn about how companies are being paid to reduce electric power consumption and the benefits of doing so. Photo: http://www.enlighten-initiative.org

NEW YORK, July 19, 2012 – As Cliff Claven would say, it’s a little known fact that your business can get paid to use less electricity.  In many areas of the country, business with an electric load of 100 kilowatts or greater can register their organization in programs generically called Demand Response, where they are paid a monthly payment by their utility or regional Independent System Operator (“ISO”) to be on standby to reduce their electrical consumption when called upon to do so. 

When the electric grid becomes stressed, these programs can be activated and the businesses take measures to reduce power consumption.  In most cases, they are paid a secondary payment for the measured reduction in consumption on top of the monthly standby payment.

Why does Demand Response work?  Well, first off, it’s important to understand why it is necessary.  Electric power grids are very complex and require coordination ahead of and during the operating day.  Generators must be scheduled ahead of time to meet forecasted load quantities, and adjustments must be made to account for weather, generator and transmission line changes as the operating day approaches. 

Once in the operating day or “real-time”, generators must match output to increasing load levels on a minute by minute basis.  When the load decreases, the generators must reduce their output.  If there is too little generation to match the increasing load, system frequency and voltage starts to drop.  Too much generation, and the system frequency and voltage increase. 

Neither case bodes well for electric loads that are consuming power. 

ISO’s across the country keep track of how much under or over-generation has taken place in a given day and work hard to ensure that their control areas are not under or over-generating at any given moment. 

Extremes in either case can result in blackouts due to protective equipment on the grid called relays.  If a relay senses a low or high threshold of frequency they will automatically open the circuit to protect the generator and/or the connected load.  The blackout of August 2003 was a result of under-frequency relays protecting generation. 

If these relays were not in place, generators across the northeast would have suffered irreparable damage.  Blackouts are sometimes necessary unfortunately.

In conditions where the load is exceeding the available generation producing a dangerous imbalance, ISOs call upon their pools of registered Demand Response.  Demand Response works because the effect of removing a megawatt (“MW”) of consumption from the grid is seen as injecting a MW of generation to the grid from an operational perspective.  Demand response can be targeted by location, or it can be called across an entire control area depending on the severity of the imbalance. 

Companies can participate in the program in a number of different ways.  The “purest” form of Demand Response is actually reducing power consumption.  Businesses can turn off lights, raise air conditioning thermostats, shut down processes, close down operations altogether or utilize a combination of those tactics.  This is the “greenest” solution in that the cleanest MW that can possibly be generated is the one that is never consumed.  The next greenest method is offsetting the usage.  This involves pre-cooling a building in the morning hours or moving production shifts to morning or evening hours, avoiding consumption in the peak hours. 

The power is still consumed; it is just consumed at times when the grid is less stressed. 

The least green method is using distributed generation.  This involves placing the businesses consumption on a generator at the premises.  The power is still consumed, and in most cases no changes to the businesses operations are affected.  Since the power is being generated locally, the effect is that the business’ load vanishes from the electric grid. 

This method has its disadvantages however.  Many of these generators are air permit restricted and cannot be ran when air quality is poor.  Typically demand response programs are activated when it is very hot and humid which typically brings air quality advisories or action days.  Some businesses use a combination of “pure” load reduction and a local generator to perform the overall reduction.  If the business is demand metered (their electric bill is based off of the highest consumption point during a given month) they will save money on their electric bill as well, which might have associated long term savings.

Companies who have made significant improvements to electric efficiency can also claim the savings as Demand Response.  These companies quantify the power savings over a period of years, and offer that savings into the marketplace because the peak electric load of the facility will be lower in coming years. 

This type of Demand Response is not activated during a power system event, since its reduction is occurring every day.  An example of this type of reduction would be a company that utilizes a fleet of lead-acid battery lift truck vehicles deciding to upgrade its fleet to fuel cell powered vehicles.  Since they no longer need the charging station (which are often enormous power consumers), the electric load at the facility now has been significantly decreased. That savings is offered into the marketplace to provide a monthly revenue stream. 

In this case, the monthly payment stream makes each fuel cell’s unit cost decrease, and they might lower other costs as well that were tied to managing a caustic battery charging room such as disposal and building insurance costs.

In every case, the economics of participation must be analyzed.  For example, companies must understand the costs of lost production if they are in manufacturing.  By participating they might actually incur costs, such as the cost of shifting labor to a later shift.  If they run their generator, they must understand the costs of fuel and maintenance on their generator.   The good news is that there are companies who specialize in Demand Response and can help the business undergo the cost/benefit analysis that is required, as well as help them accurately register the business in the marketplace in return for a cut of the payment stream.

The benefits to the business are twofold.  Companies can use the monies earned to offset operational costs, provide employee recognition events or year-end bonuses.  Typically, companies reinvest the dollars earned into further energy efficiency.  What may be more valuable is the intangible social benefit.  Many companies that are concerned about being environmentally friendly can add their participation in Demand Response programs to their list of green accolades, boosting brand confidence and customer loyalty. 

Grid operators like Demand Response as it is an ace in the hole when available supply is running low, it can help lower wholesale prices in peak periods and can offset the need for new generation or transmission line construction.  When administered properly, Demand Response programs are a win-win across the board and with the full support of the Federal Energy Regulatory Commission, Demand Response programs will continue to evolve across the country.


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Michael Jaeger

Mike Jaeger's column, Greater than Energy (">Energy") can be found under the Health and Science area of the Washington Times Communities and he has been writing this column since July of 2012.  He occasionally writes pieces on economics and politics as well.  He has expertise in energy, energy markets and energy production and holds a Bachelor of Science Degree in Applied Science and Technology in Nuclear Engineering Technology.

 

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