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Integrating Demand Response into Strategic Energy Management
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This article is republished from the March 2017 issue of Strategies, AESP’s exclusive magazine for members. To receive Strategies, please consider joining AESP.
Integrating Demand Response into Strategic Energy Management
By Julie Blackwell

Utilities across the nation are embracing Strategic Energy Management (SEM) as a way to help their customers proactively manage energy. SEM offers an opportunity for utilities to connect with their customers at a higher level and provide on-going savings opportunities.
Through the strategic energy management process customers evaluate all stages of energy use at their facility, including operations, behavior, and equipment replacement or retrofits.
The utility also provides financial, technical and customer support to encourage success. SEM embodies customer education, facility improvement, and operation and maintenance (O&M) savings. Demand response strategies can be overlooked, which is unfortunate because they can be an asset to a customer's energy management plan.

The utility is motivated to offer SEM as a way to increase program participation, increase impacts claimed, limit demand growth and foster positive customer relationships. Enabling customers to effectively manage their energy also contributes to grid management and load forecasting.

Utilities are motivated to encourage demand response (DR) program participation because DR programs provide a way for utilities to balance generation (supply) and customer demand. DR programs also enable utilities to manage their interactions with their Independent System Operator (ISO) or Regional Transmission Organization (RTO) (i.e. selling interruptible capacity into the market). DR also provides options for "damage control" during unplanned interruptions to the system (e.g. trees, ice storm, tornadoes, floods).

The participating customer is typically motivated to achieve strategic corporate goals for efficiency, contribute to the bottom line and reduce costs. The customer leaves a SEM program with new energy management skills, a long-range plan and tools to achieve goals.

Aligning Goals
During the SEM process, customers define strategic objectives, and create processes and tasks to complete them. Customers can achieve goals of increasing profits and creating additional revenue streams by reducing their peak time usage, taking advantage of DR options and improving overall efficiency.
Customers should be encouraged to evaluate how DR could help them achieve short and long term goals. DR programs are customizable, providing customers with flexible options. For strategic planning, DR options should always be measured against the operational needs of the facility to ensure participation does not lead to issues with core business functions.

Demand Response

To encourage customer participation, utilities typically offer a variety of program and pricing channels to make it beneficial for customers to participate in load shedding and shifting activities. Examples include:
  • Pricing and tariff
    Pricing options are typically designed to encourage customers to shift their demand to off-peak hours, thereby allowing the utility to effectively reduce system net peak loads. The pricing and tariff options typically increase price during on-peak or high demand hours and reduce price for off-peak hours. Customers who can shift operations and electric use to off-peak hours in lieu of on-peak hours will enjoy on-bill savings. During SEM, customers should look at their operations and ask questions to determine if this option is a good fit (e.g. is there high use production equipment that can be pushed to a second or third shift?)

  • Interruptible Tariffs
    Interruptible tariffs offer one of the most prevalent forms of demand response. To participate, a customer will designate load that can be curtailed when called upon. A customer may commit a designated load (e.g. 100 KW) that they will eliminate during a curtailment event, or they may commit to a firm load for the period. The firm load is an established demand level that the customer will not exceed during the curtailment event. For example, if a facility usually operates at 500 KW they may sign a contract for a firm load of 400 KW. This means they will reduce their demand down to 400 KW or less during the event. Interruptible load is usually committed to a utility or a third party aggregator. Curtailment may take one of two forms – customer initiated and utility initiated (auto DR). A customer-initiated design requires the customer to reduce their load for a designated period when called on by the utility or ISO/RTO. A utility-initiated design provides the utility access and authorization to reduce load when needed. Most events will last for a few hours, but customers may be called on for more in the event of a natural disaster that disrupts the infrastructure. The utility will count on those commitments to avoid brown- and blackouts while repairing damage. Setting the right KW commitment is imperative because there are often steep penalties and loss of incentive for customers who do not meet their curtailment commitment. Setting the level too low means missing out on available dollars. For example, for some companies interruptible credits have been enough to offset the cost of one or more staff members.

  • Voluntary Curtailment
    Voluntary curtailment can be a lucrative option for customers who are able to easily reduce demand. Utilities typically pay an incentive per KW reduced during an event. The dollars credited through a voluntary curtailment should be weighed against business costs. The main difference between voluntary and interruptible is that a customer can opt out of a DR event with voluntary curtailment, whereas participation in an interruptible program requires participation for every event.

  • Distributed Generation
    Distributed generation in the form of standby generators can be an asset to a utility's non-spinning reserves. This is stable generation that can be dispatched in 10 minutes. Utilities may leverage customer distributed generation in their ISO/RTO market bid, or to control demand for a targeted segment of their service territory...especially if there is a disruption to service. A customer who has significant generation capacity will want to assess the costs of running (including wear and tear) their generation against the incentives offered by utilities or aggregation companies during their SEM assessment.

  • Advanced metering
    Advanced metering, especially two-way communication is a good investment to support DR programs. For example, two way communication would enable a utility to curtail systems for a customer during an event. Advanced meters can help customers monitor load, identify usage patterns, provide real time information for interruptible events and allow for correct billing on pricing programs. The meter information may also be applied to a dashboard environment and provide key data for customers to monitor their energy management goals, including providing triggers for when usage levels change due to behavioral issues like changing settings.

Bringing it together
As customers develop their energy management plans and protocols, DR should be considered and weighed against strategic objectives. Customers can rely on SEM facilitators, utility employees and engineering firms to assist with a DR assessment, including pricing options, equipment curtailment processes and levels.
Here is an example of how DR helped the fictional ABC Corporation:
ABC Corp. is interested in investing in a generator to improve their ability to provide uninterrupted production regardless of weather or power availability. Previously they have been unable to make a case to justify the cost of back-up generation. During an SEM facility assessment they included a DR analysis. They determined how much load the generation equipment would need to produce, and what it costs to purchase and run.
ABC Corp. found they could enroll in an interruptible program and commit 400 KW of reduction. The utility pays $8 per committed KW and allows self-generation as a curtailment option. By participating the customer would earn an additional $3,200 per month to offset the cost of the generator and maintenance.
ABC Corp. included in its energy management plan to track the generator usage patterns, the time it takes to get the generator running and the costs associated with running the generator. In a year they will use this information to do an analysis to see if there is an option to provide non-spinning reserve through the utility's other DR program options.
Julie Blackwell is the Manager of Program Strategy at Michaels Energy, a firm specializing in program design and implementation, research and evaluation, retro-commissioning and systems optimization.

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