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Page Three – Cost Reduction Strategies – Controlling Energy Use While Generating Revenue

Page Three – Cost Reduction Strategies – Controlling Energy Use While Generating Revenue

In this final part of the series “Cost Reduction Strategies Delivering Value Today and Tomorrow” we learn more about the bottom-line financial opportunities available with economic demand response.

What is Economic Demand Response?

While we may not be overtly aware of it, on occasion, the electrical energy industry experiences times when the demand for electricity is high and the existing production and delivery systems are strained. This stress on the power grid can be relieved if users cut back on the amount of electricity they request and use. Customers who cut-back on the amount of energy they use and are able to offer a portion of their electricity “back to the grid” can win big. This is especially true when the integrity of the grid is in jeopardy or when the wholesale price of electricity is high. This process of cutting load at periods of high system stress and receiving payment for consumption reduction is the basic idea behind demand response programs.

This type of program is not new or unique. Many organizations have participated in CURTAILMENT programs in the past. However, today’s innovations in these programs have to do with the variety of options available for payment and the number of providers that manage this exchange.

What’s the motivation?

Participating in or enrolling in a demand response program has multiple benefits. From a global perspective, voluntarily choosing to cut back on electricity consumption, results in reduced carbon emissions. Our global environment benefits when carbon emissions are lowered. The economic demand for more fossil-fuel burning, generating stations is lessened as the demand for electricity is controlled and our natural resources are impacted less.

Coming closer to home, the potential for electrical service interruptions decreases when system stresses are more manageable. Finally, at the individual site and/or building level, participation in a demand response program provides a way for the building managers to graduate from strictly a cost maker to a revenue generator.

Participants enroll in demand response program that are offered

  • by utility companies
  • by Independent System Operators (in an unregulated energy market) and
  • by 3rd party aggregators who contract with utility companies

Companies and organizations are compensated in demand response program in three primary ways.

Credits can be earned and applied to the customer’s monthly bill, or after a curtailment event.

According to the contract terms of the program, a customer receives a check issued from an aggregator after an event.

The participant becomes eligible for reduced kilowatt-hour rates for their total power.

The details….

Participants win when the need for a curtailment event occurs. Events occur when demand is high and when prices for energy are high.

Programs that pay when the curtailment is caused by a high demand and the energy supply is marginal are termed Reliability Programs. Alternatively, Pricing Programs aka as Demand Bidding programs are structured to capitalize on an anticipated need to “shed load”. The demand response program administrator advises participants to project their load shedding capability at a set time before an event occurs. In exchange for reducing consumption at the specified time, the administrator agrees to pay a certain rate.

Do your research….

In reliability programs and demand bidding programs it is essential that you ask questions to fully understand both the terms and the conditions under which you are committed to curtail your load. The length of curtailment, the frequency of events, options to participate or not and the rules for declining participation in an event are just a few of the contract specific issues that must be clearly understood and incorporated in your enrollment agreement.

Understanding the rules between your company and the program manger is just one side of the coin. As a facility manager, you must also understand how your organization operates and specifically you must be clear about how your company will reduce its load. Conversations and plans must be developed that spell out how and where load reduction can occur within your operation. Engaging your building engineers is essential. In situations when building engineering expertise is not available you should seek out external resources. Oftentimes program managers can help by performing comprehensive energy audits. Energy management companies and firms focusing on Energy Engineering can help you navigate the path to the best economic demand response program suitable for your organizational structure and culture. They have the resources to help get a handle on determining if, how and when to curtail your facility operations load.

As a final note, as you seek to cut costs and create revenue, you must remain fully aware that it is your responsibility to assure your facility remains safe and operable as you explore and utilize this energy management tool.