The Benefits of Demand Response

Dec. 4, 2006
Innovative programs like these actually turn your energy cost center into a recurring revenue producer

If you're like most building owners and managers, you're inundated with energy-management challenges (such as soaring electricity use and retail rates) which are made worse by the risk of power shortages on hot summer days or in the dead of winter.

One of today's most effective tools for improving energy management is called "demand response" (or "DR"). DR provides financial incentives for businesses to reduce or shift electricity use in response to power grid reliability needs or, in some regions, high electricity prices.

These innovative programs, offered by DR providers and local utility companies, actually turn your energy cost center into a recurring revenue producer. And, by better managing your energy-use profile, you may be able to negotiate lower retail rates from your competitive supplier.

From big-box department and grocery stores to factories, educational institutions, and hospitals, DR is rapidly gaining ground among large users of electricity as a way of reducing electricity use and improving the bottom line.

DR programs work differently in different parts of the country, but here's a typical example. Let's say you manage an office complex or manufacturing plant. Your peak demand for electricity is between 1 and 3 megawatts (MW) and you have non-essential electric demand of 300 kilowatts (kW) that can be curtailed on short notice - dimming lights in common areas, cooling buildings earlier in the day before electricity price reaches its peak, etc. And, you may have a standby generator for emergencies.

By implementing DR, your company receives monthly payments just for being available to shift or curtail electricity use when the grid is overloaded and/or wholesale prices spike. On these days, the regional grid operator may ask you to curtail energy use rapidly to avoid emergencies as a condition of receiving these monthly payments. A company that relieves stress on the grid by switching to electricity produced by a back-up generator during such periods could receive similar payments. (Note: Make sure that using your generator in this fashion complies with all federal, state, and local environmental regulations.)

Essentially, your company will be contributing "nega-watts" to the grid, thereby providing utilities and the grid operator a valuable level of reliability insurance. And, businesses are well aware of the costs associated with power outages and blackouts. The August 2003 power outage that darkened most of the eastern United States cost more than $6 billion in lost goods and services alone.

Demand response itself is not a new idea. Many large retail customers are accustomed to changing their consumption behavior in response to a financial incentive, such as off-peak pricing. But, today's real-time metering, Web, and remote-control technologies put DR within easy reach of more customers.

For businesses, utilities and regional-system operators, DR addresses critical asset-utilization issues. Why incur the enormous cost of building more generation, transmission, and distribution infrastructure when DR can provide equivalent performance in a more environmentally friendly, less-disruptive way? After all, the cheapest, cleanest megawatt is the one that's never used.

Henry Yoshimura is manager of demand response at ISO New England Inc. (, Holyoke, MA.

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