In this final part of the “Cost Reduction Strategies That Deliver Value Today and Tomorrow” series, we learn more about the ultimate financial opportunities available with economic demand response.

What is Economic Demand Response?

While we may not be fully aware of it, the electric power industry occasionally experiences times when demand for electricity is high and existing production and supply systems are overloaded. This stress on the electrical grid can be alleviated if users reduce the amount of electricity they request and use. Customers who reduce the amount of energy they use and are able to offer some of their electricity “back to the grid” stand to gain big. This is especially true when the integrity of the grid is at risk or when the wholesale price of electricity is high. This process of reducing load during periods of high system stress and receiving payments for reduced consumption is the basic idea behind demand response programs.

This type of program is neither new nor unique. Many organizations have participated in CORTE 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 handle this exchange.

What is the motivation?

Participating or enrolling in a demand response program has multiple benefits. From a global perspective, voluntarily choosing to reduce electricity consumption results in reduced carbon emissions. Our global environment benefits when carbon emissions are reduced. The economic demand for more generating stations burning fossil fuels is reduced as electricity demand is controlled and our natural resources are less affected.

As you get closer to home, the potential for power outages decreases as system voltages become more manageable. Finally, at the individual building and/or site level, participation in a demand response program provides a way for building managers to move from being strictly cost generators to revenue generators.

Participants enroll in the demand response program offered

• by utility companies
• by Independent System Operators (in an unregulated energy market) and
• by third-party aggregators that have contracts with utility companies

Businesses and organizations are compensated in the demand response program in three main ways.

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

Under the terms of the program contract, a customer receives a check issued by 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 reduction event occurs. Events occur when demand is high and when energy prices are high.

Programs that pay when the drawdown is caused by high demand and marginal power supply are called Reliability Programs. Alternatively, pricing programs, also known as bid-demand programs, are structured to capitalize on an anticipated “offload” need. The manager of the demand response program advises participants to project their load shedding capacity at a point in time before an event occurs. In exchange for reducing consumption within the specified time, the administrator agrees to pay a certain fee.

Do your research…

In reliability programs and demand tender programs, it is essential that you ask questions to fully understand both the terms and conditions under which you are committing to reduce your load. The duration of the reduction, the frequency of the events, the options to participate or not, and the rules for refusing participation in an event are just some of the contract-specific issues that must be clearly understood and incorporated into your enrollment agreement.

Understanding the rules between your company and the program administrator is just one side of the corner. As a facilities manager, you also need to understand how your organization operates, and specifically, you need to be clear on how your company will reduce its load. Discussions and plans should be developed detailing how and where load shedding can occur within your operation. Involving your construction engineers is essential. In situations where building engineering expertise is not available, you should seek outside resources. Program managers can often help by conducting comprehensive energy audits. Power management companies and firms that focus on power engineering can help you navigate your way to the best economic demand response program suitable for your organizational structure and culture. They have the resources to help you determine if, how, and when to reduce your facility’s operations load.

As a final note, as you seek to reduce costs and generate revenue, you must be fully aware that it is your responsibility to ensure that your facilities remain safe and operational while you explore and use this energy management tool.