September 2007

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Four steps to make money from DR

Understand - Internalize - Plan - Execute


Anto Budiardjo
President & CEO,
Clasma Events Inc.

Contributing Editor

There is a new DR kid on the block.

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Control Solutions, Inc

No, he’s not that same one as the 70s or 80s phenomenon that was short lived; the relics of those days are gone, along with bell-bottoms and disco-trotting Travolta. The DR of the 21st century is focused on hard business propositions fuelled by the reality of today’s energy-hungry, environmentally-aware society, desperate energy suppliers and financially-driven building owners, keen to find ways to improve their buildings and financial bottom line while at the same time be socially responsible to the environment.

Step 1, Understand: The new DR proposition

It is vitally important that we understand the new DR opportunity today, why it exists, the size of it and the scope of opportunities for the many players involved with building automation.

First though, it’s important to understand that DR is not just about saving money. This may sound strange but the reality is that the cost of energy in North America represents only a small (around 2 percent) of the typical expenditure of building-owning organizations, for which saving a small percentage on a small amount of peak time amounts to almost nothing – the “emptiness” of DR promises of the past.

To appreciate DR today, it is important to understand that according to FERC (Federal Electric Reliability Commission) the forecast electricity demand in the U.S. will increase by 19 percent in the next decade from this year’s 757,000 MW (during the summer months). Anticipated growth of electricity generation and transmission capacity is nothing like 19 percent; the utility industry simply cannot build that much capacity for numerous reasons from environmental concerns to cost and location. This will create a significant shortage of electricity over the next few years.

While the details vary in different parts of the U.S. and Canada, approximately 10-20 percent of this capacity is only used for as little as 40-80 hours per year. Financial logic dictates that it is uneconomical to build (if you can) generation simply to satisfy these short peaks of electricity demands.

It is expensive to build electricity generation and distribution, and note that 1MW increased in generation capacity is worth the same as 1MW of reduction of demand at peak time.

The new DR proposition is this: if you as a building owner will agree to reduce demand by 1MW during peaks times when called upon (40-80 hours a year), the utilities (or regional utility co-ops) will pay you something equivalent to what it would have cost them to build 1MW of generation, annualized. Payments are typically made monthly regardless if the peak curtailment was taken up or not.

From the utility’s perspective, it’s a hedge bet that avoids building generation and allows them to meet federally mandated criteria for capacity to their clients. For the building owners, if they can cope with reducing peak energy consumption, it’s money for almost nothing!

And this is where the building automation contractors and integrators enter the picture. Buildings with most modern automation systems can easily be programmed to curtail energy usage for minor and generally inconsequential impact on the building’s performance and occupant comfort for the short amounts of time involved.

So if you can follow this seemingly strange logic, the utilities will pay the building owner money to use less energy at key times of the year, money that can be used to fund whatever they see fit, including installing the system that would allow them to participate in DR.

Step 2, Internalize: Leverage what you have

If you are a building owner, and you consume significant amounts of electricity (around 500kW of which 100kW could be shed, even in multiple locations), then it should not be rocket science that DR could benefit you very easily.

So how do control system contractors and integrators leverage this? There are two things required to participate in this enormous opportunity: firstly, the inherent skill and knowledge of controls, and secondly, a customer base of building owners that have load that can potentially be curtailed.

The basics of Demand Response are there in almost any control system from vendors today. While some refocusing may be needed to maximize the use of such features, DR is a tool that has been in the toolset of contractors and integrators for many years. The value of this tool has now become incredibly more useful in maximizing business opportunities and improving bottom line.

Demand Response requires that the building owners signup with a DR provider in a contract that will obligate the owner to curtail load when requested. In most cases, this cannot be done unless the control system in the building can react to such notice, and the preferred way of doing this is for load shedding to be automated. For building owners to do this, it is crucial that the control system contractor or integrator is involved to program the building for DR.

In short, the building system contractors and integrators are in the ideal position to help owners participate in DR and other future energy load response programs such as real-time pricing. In doing so, the contractor or integrator will be providing its existing and new customers with additional value for very little, if any, learning of new skills and technology.

contemporary Step 3, Plan: Organizing for DR

While the fundamentals of DR and future energy opportunities should be straightforward, it is important that building owners, contractors and integrators understand how DR programs work today and the right way to plan and implement successful participation.

The energy supply-side landscape in the U.S. and Canada is complex, as it has evolved over the 20th century in a mentality of abundant electricity supply. Many of the rules and policies in place are not conducive for something like DR, but thankfully organizations around this space are realizing these problems and are taking steps to make changes at the federal and state levels. This is thus a fluid landscape and with it lays the opportunities to create a solid early business position.

Also thankfully, there is a significant network of players that are now gathering, enabling building automation contractors and integrators as well as building owners to understand and participate in DR today and more sophisticated energy-shaping technologies in the future. The NewEnergy Alliance is being formed at press time, to create an alliance of technology providers, energy suppliers and related expertise to help drive new energy solutions. The Alliance will be a powerful force in the industry and will provide a way for contractors and integrators to ease their involvement in DR today.

DR-Expo The upcoming DR-Expo will be the first time a conference is convened that focuses on how building owners, contractors and integrators can participate in DR. The DR-Expo provides an agenda of practical and immediately actionable information on participating in DR programs. As part of the DR-Expo, experts from utilities and ISO (Independent System Operators) from around the U.S. and Canada will be describing how potential participants can enroll in a DR program. Vendors of control systems, connectivity technologies, middleware and service companies will be at the Expo to show contractors and integrators how to implement DR today.

Participating in the Alliance and attending the Expo are key steps for any building owner to understand the potential of DR for their buildings, and is key for contractor and integrators to understand how they can help their customers implement successful DR today.

Step 4, Execute: Reap the benefits of DR

With the understanding of today’s DR opportunity, and appreciation that participating in DR is substantially utilizing primarily existing skill sets and the resources being made available with the Alliance and DR-Expo in place and available, building owners and contractor/integrators now have the roadmap to increase their business by leveraging this opportunity.

For building owners, with this information and the resources available, implementing DR is now even more within reach, providing a way to reduce costs as well as satisfy directives of energy savings, sustainable responsibilities as well as steps toward reduction of carbon footprint.

For contractors and integrators, understanding this opportunity and using the resources of the Alliance and the Expo will provide rich and actionable steps to leverage this opportunity and help building owner customers achieve their goals.

For more information on DR-Expo, visit


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