Consider this scenario: The local utility just asked all power customers to cut back on power usage. Hot weather, combined with an unexpected power plant outage, is resulting in too much demand chasing too little supply. System voltage is dropping, and unless usage is cut immediately, the utility will have to initiate a rolling blackout to restore balance to the system.
You’d love to help out, but your building just doesn’t have any load it can drop right now without interfering with operations.
Finding and controlling such temporarily expendable loads may be easier than initially thought. The trick is to know which electric loads in commercial and institutional facilities are open to load control on short notice if proper preparation is taken. What’s more, making certain loads “demand responsive” might be profitable while also making the organization a good corporate citizen.
In areas where peak electric demand and peak electric supply sometimes come dangerously close, local utilities and grid operators — including an Independent System Operator (ISO) — may offer programs under which they pay end-users to cut demand and turn on customer-owned generators to temporarily widen that margin. Calls for such reductions typically come the day before or the morning of a period when the local power grid expects to have trouble meeting its peak load. Those signed up to participate then receive payments via reductions in their power bills proportional to their temporary reduction in load. Any demand that is reduced in response to such a call is termed price-responsive load.
Commonly called demand-response programs, these options have been expanding in the wake of the California power debacle and high wholesale prices in the Northeast. They are being used to both improve system reliability and to cut wholesale peak power prices, which skyrocket when the supply and demand margin becomes too narrow. At such times, even a small drop in demand can yield a major drop in wholesale prices, which eventually trickles down to end-users’ power bills, cutting the cost of power for all customers.
Such options should not be confused with either demand-side management, which involves mostly permanent reductions in demand by replacing old building systems with new efficient ones, or interruptible electric rates, which offer permanent rate reductions for the utility’s right to interrupt a customer’s power usage. With interruptible-rate programs, failure to comply with a utility’s request to shut off power results in steep fines or forced service interruption. Demand-response programs, however, may offer high incentives at irregular intervals with little or no financial risk.
While no two programs are identical, most offer retail power customers several levels of response with varying degrees of risks and rewards. At one end of that spectrum are payments for reductions of use during a short, typically a 3- to 8-hour period on a given day, with no penalty for failure to reduce. At the other end is a customer commitment to cut demand by a defined amount, accompanied by a utility or ISO commitment to pay, regardless of whether the service provider requests the reduction. Failure to respond, however, may result in a hefty penalty. This option differs from many interruptible electric rates in that it does not involve any threat to interrupt service, and pays an amount proportional to a customer-determined, demand-reduction commitment.
In their 3-year history, demand-response programs have been successful to varying degrees. Greatest participation has been by industrial customers having discretionary loads that can be shifted in time to periods beyond the need for a demand response. In most cases, demand-response programs offer a minimum price ranging from 35 to 50 cents per avoided kilowatt hour. Usually, the payment more than covers any costs related to overtime caused by delaying production to a later shift. Some programs offer up to the wholesale zonal spot market price, which in summer may reach or exceed $1 per kwh. In extreme cases, such as those experienced by aluminum smelters in the Northwest, it may be economical to shut down entire plants because of brief high wholesale power pricing when the cost of power is worth more than the plant’s output.
Based on the success of such programs, the Federal Energy Regulatory Commission (FERC) is pushing adoption of demand-response programs as a general rule under its proposed Standard Market Design. If successful, that Standard Market Design will then shape how power is supplied in many areas that never heard of demand response.
Even without FERC’s direction, the meltdown of the wholesale merchant power industry has resulted in a severe cutback in expected power supply around the country. That may create, to varying degrees, the potential for tighter supply and demand margins than seen in several decades.
If the economy suddenly picks up before new generation is built, demand-response programs may appear as a short-term answer. Smart facility executives should be looking at their options for making parts of their loads profitably responsive to calls for reduced demand.
While some industrial loads can be shifted without interfering with a firm’s operations, most facility executives operating commercial and institutional loads have avoided demand-response programs because of fears that any load cut could interfere with their business or that of their tenants. However, experience with such facilities has identified a variety of loads that may be interrupted or cycled to yield an overall demand reduction ranging from 5 to 20 percent.
The cost-effectiveness of making such loads demand-responsive will vary greatly with the level of incentives, if any, offered and the equipment and installation costs involved. Sufficient demand was usually found to merit an investigation of demand-response potential in buildings having at least 100,000 square feet of conditioned floor space. Where a reasonably sophisticated energy or building management system (EMS/BMS) exists and power-line carrier technology may be successfully applied, cost may be greatly reduced.
Several states presently offer partial funding to cover costs to make loads responsive. Where deregulation has occurred, many customers have been paying a small fee through their electric bills to fund a variety of programs that often include grants for energy efficiency projects. Called a universal service fee or system benefit charge, such funding is available to cover the costs of design, equipment, programming, new meters and other improvements needed to make loads demand-responsive and comply with program requirements.
In most areas where demand-response programs are active, an interval meter is also required. Large buildings might already operate under time-of-use rates that utilize such meters. Of paramount importance, however, is the communication link between the utility or ISO and the personnel responsible for effecting the response. Without a multilevel process — pager, phone call, fax — to ensure the demand call is received, processed and quickly acted upon, such investment could be worthless.
Coordination with tenants and occupants is needed to address any complaints and to provide advance notice that some change in building services may occur for a few hours. Even in supply-constrained areas such as New York City, demand response calls have not exceeded 50 to 80 hours per summer, so complying with such short-term calls has not been a problem, as occurred with interruptible rates in California.
Following is a list of loads that may be made demand responsive if incentives are sufficient to justify the expenditure. While cycling one or two loads may not be worth the effort or save much money, doing so for a variety of sequenced loads may cut peak-energy use without causing any interruption of business or major complaints. In some cases, just one summer of demand responses might cover much of the installation cost of needed technology, such as programming, relays and powerline carrier communication devices.
The least-cost way to make loads demand- and price-responsive is to design this capability into new construction and major renovations. At that point, the incremental cost to do so is typically much lower than retrofitting. That means writing and using specs options in the initial design that call for such things as multilevel or dimmable ballasts in new lighting systems, extra control point capability in the EMS/BMS, hybrid chiller plant options, flexibility in on-site generator use and probably some submetering of responsive loads. Even if demand-response programs are never needed, having those capabilities will allow easier peak-demand management that can help control power bills.
Lindsay Audin is president of Energywiz Inc., a New York-based energy consulting firm.
Facility executives interested in learning more about demand-response programs and how to maximize their benefits should visit the following Web sites:
