Demand Response January 2016

Last week, the Supreme Court upheld the Federal Energy Commission’s (FERC) Order 745, which had been effectively in limbo for the past couple of years. This order had been the legal basis for expanded demand response activity. Demand response is the array of programs whereby an end user (me, a business, a factory) agrees to reduce their electricity usage when the system operator needs it. Often, it is matter of cycling groups of users “off the grid” for a short time. Taking groups of users “off the grid” for a few minutes can have a surprisingly powerful impact in terms of stabilizing the electricity marketplace.

In return for NOT demanding electricity at specific times, these end-users get compensated for the amount of electricity they did NOT use. Actually determining how much electricity someone did not use can get a little tricky, but the concept still applies—conservation of power is compensated just as the generation of power is compensated. In fact, it is not uncommon for the unit price of this compensation to be the same in both instances. This unit price is the Locational Marginal Price per kilowatt hour.

My personal image of demand response is the $20 monthly credit I get from PECO in return for allowing them to cut off my air conditioner for up to 15 minutes at a time during the hottest of summer months. My house can heat up, but it won’t heat up that much in 15 minutes. So, I am OK with this. Residences such as mine were about 15% of the demand response activity in 2014 and 2015. Office buildings and schools were each just shy of 10%. The biggest single sector by far was the industrial manufacturing sector, which accounted for nearly half (50%) of 2015 demand response activity.

As it happens, by virtue of my residence near Philadelphia, I am in the PJM Interconnection zone. PJM is one of the more advanced ISOs when it comes to demand response. Depending upon which specific transactions are included, PJM reports in the neighborhood of $8-10 million in demand response activity in 2015, affecting several hundred million megawatt hours. Many methods including HVAC, lighting, manufacturing  operations, and using generators are all acceptable demand response tools.

I am glad that the Supreme Court upheld Order 745. It had led to a vast expansion of demand response activity; PJM has stated that within the first market (demand) year after FERC issued Order 745, demand response volume equalled what had been achieved in the previous 5 years combined. That is a big impact. Now that the rules have been settled for demand response moving forward, hopefully it will expand again. Not only will electricity demand be reduced, but price volatility can be lessened if not largely eliminated on excess demand days, which can potentially occur year round.

That is a true economic and environmental win-win.

A post I wrote in 2011 that mentioned Demand Response

 

The (Electricity) Meter is Running

Energy efficiency is very important to me. I have always been somewhat of a fanatic about turning off my lights. I just do not want to use any more electricity than is absolutely necessary. A few years ago I had a new air heat pump system installed. I used less electricity and immediately saved a full one-third off my electric bill. This summer we installed new windows. The house was cooler in the summer and warmer in the winter (at least during the October snowstorm we had yesterday that I am counting as “winter”.). Based on a couple of bills, I estimate that the new windows have saved 10% off of my electric bills.

My house is all-electric, including electric heat. I am very oriented to ways I can be energy efficient. Additionally, Pennsylvania has PA Power Switch. This means that my electricity rates reflect the market price, not a cap enforced by the Pennsylvania Public Utilities Commission (PUC). It also means I have to make a choice whether to switch my electricity supplier from my local utility (PECO) to someone else. For residential customers like me, this started back in January 2011. For many businesses, this need to make a “power switch” as to their electric power supplier started several years ago.

Businesses have a couple of options to reduce their electricity usage and bills. They can either lower their overall electricity demand, and/or, they can lower their demand for electricity at specific times during the day. This latter option can be a little tricky because it involves reducing your electricity usage when everyone else is increasing theirs, like on a hot summer day with the humidity over 90%.

The first option is basically implementing various energy efficiency measures. Lighting is often a highly effective way to achieve savings—mostly because it tends to cost less than other options. Something as simple as replacing incandescent bulbs in EXIT signs can have a very positive effect. In fact, a school district near me did a comprehensive lighting retrofit a couple of summers ago and reported a savings of over $250,000! HVAC systems are often more capital cost intensive—but they can have great benefits also. I recently read a case study of a local hospital that saved almost a half-million (500,000) kilowatt-hours per year with their upgrades (and they got rid of the cold spots, also).

The other option is adjusting your electricity usage to the demand in the overall market. This demand response works best when a company has the ability to actually lessen demand at certain times of the day—the times when electricity costs the most. Contrary to widespread popular belief, the wholesale price of electricity varies during the day, similar to stocks. In fact, many electricity suppliers base part of their rates on how much a given business uses during peak system demand times as well as how much they use overall.

So if a business can actually figure out when these high system demand times will be and adjust accordingly, they can receive cash payments immediately and benefit from lower rates year round. This requires a detailed knowledge of both energy usage as well as how their business operations can potentially be rescheduled during the day. Focusing on late afternoon during the hottest days of the year is a good place to start.

I actually participated in a demand response program this summer. I agreed to allow PECO to curtail my air conditioner’s cooling ability for 15 minutes at a time when demand on their system was the highest (the fan still ran). In return, their Smart A/C Saver paid me $30 monthly for 4 summer months to do so. Given my bills, this is real money.

Like myself, the school district, and the hospital, many entities implementing energy efficiency initiatives are saving significant funds by doing so. Energy efficiency is a classic case where being good to the environment can also have very good economic benefits. As the Economist says, it is not particularly glamorous but it works really, really well from a variety of perspectives.

The Economist article:

http://www.economist.com/node/21533432

PUC PA Power Switch site:

http://www.papowerswitch.com/