September 2007

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Next Generation Demand Response
the Readily Available Green Energy Solution

  Steve Schaefer,
Senior Vice President Sales & Marketing,
EnergyConnect Inc.

Demand response participation is growing in awareness and popularity, as this is a sustainable, green energy solution which leverages existing building automation investments, can pay for capital intensive energy reduction initiatives, and at the same time reduce carbon emitting generation.

New Products
Past Issues

Securing Buildings News

Around for decades, demand response has been offered by utilities packaged as interruptible rates, where in return for discounted electricity prices, the utility had the right to interrupt electric use a few times per year for 4-8 hours per event.

Electric industry restructuring is providing new opportunities for building operators to participate in the electricity markets, previously the domain of the power generation community. In place of generators getting paid increasingly more money to meet escalating electric demand requirements, electric markets are paying building operators for short term electrical use shifts to keep the electric grid in balance at the same hourly price generators are paid.

As electric energy use changes on an hourly basis due to ever changing energy use patterns, so do hourly market electricity prices. When electric use increases during the day, so do hourly market prices. During the August 2007 East Coast heat wave, market prices exceeded $1.00 per kWh during the late afternoon when air conditioning use was peaking, while in comparison, the average annual retail price was approximately $.06 per kWh.

Service Plans

New companies are emerging that specialize in providing demand response services. These companies are generally different than the electricity commodity supplier. These new Demand Response companies provide a much higher level of service than traditional utilities in tailoring unique customer demand response solutions, and in the process, provide greater financial value to building operators and owners.

Two different categories of demand response plans are now available in most restructured electricity markets. Each is designed to meet different customer needs. Traditional interruptible plans, often called event driven plans, are now offered by some new demand response companies, but since these companies are not selling commodity, they are not discounting the commodity price, but rather they are paying the customer for the option to interrupt their electric use according to a customized contract commitment. Like the traditional interruptible plans of the past, these new offerings generally include non-performance penalties, since the building operator is being paid a commitment fee to standby to reduce energy use, on call, with 10 minute to multi-hour hour notice, for a duration of anywhere from a few minutes to several hours. The demand response companies resell these options to the electricity markets, much like a bank resells mortgages in the financial community.

Next Generation Plans

Rapidly emerging in restructured electricity markets are voluntary price-based demand response plans. A building operator is paid to voluntarily reduce or shift electrical use based upon individual decisions in response to market price levels and current building operating flexibilities and/or constraints. Under these next generation plans, the building manager is regularly advised when market prices are high, expected to be high, or exceed a pre-defined price. Election to change electricity use is at the discretion of building or site management. Generally the higher the price, the more aggressive is the energy use change, in order to maximize the payment.

Participating electric customers are paid based upon the amount of electricity shift or reduction. Payment is calculated each hour as the product of the amount of electricity delivered determined by measuring actual use against a moving average hourly baseline and the market price for that hour.

Next generation price-based plans are widely available on the East Coast from Virginia north to Maine, and as far west as Illinois. Price-based plans make it possible for a much broader group of electric consumers to participate resulting in increasing benefits to the electric grid. These plans will be available in other parts of the country in the upcoming years, as electricity industry restructuring continues to unfold.

There are two primary enablers of next generation price-based demand response plans. First is the growing use of automated building control systems to effect load shifting strategies such as dynamically changing pre-heating or pre-cooling strategies, activating on-site generation, or integrating local thermal storage capabilities. The capability to remotely communicate with building controls makes it possible for new automated software to select the most advantageous actions. Second, is an experienced partner to provide guidance, transaction services, and settlement services with the electricity markets.

End-to-end automation of the entire demand response solution maximizes potential customer payments, while reducing the resources necessary to participate in the electricity markets. Many building automation companies now recognize this new market opportunity. Some are starting to package more sophisticated demand response capabilities in their product lines and build service organizations to support these customer opportunities. The market leaders are just starting to emerge and the market will soon have choices in this competitive environment.

Summary and Conclusion

Next generation, price-based demand response plans are one of the few cash generating, green, sustainable energy initiatives. For many buildings these plans provide an excellent opportunity to enhance facility operations through reinvestment of some of the proceeds. Upgrading building automation systems to convert them to intelligent energy management systems is a virtuous circle, in that such investment will lead to greater demand response proceeds. In addition, the more buildings that participate and the more each building participates, the greater is the benefit to the electric grid. The result is lower electric prices and better reliability of electric supply.


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