You might not think of your business as a wholesale power producer, but demand response is now on track to make the market for negawatts as lucrative as rooftop solar watts.
If you already participate in demand response, look forward to more varied program options with better compensation rates. If you don’t already participate in demand response, it’s time to start checking into it.
The Supreme Court decided last week that demand response can continue to compete with generation, with federal oversight and fair prices. The ruling has significant implications for buildings and businesses.
The decision means that energy consumers can sell negawatts – the watts they conserve on request – into the wholesale electricity market and be paid for them like a power generating plant would be paid.
DEMAND RESPONSE IN A NUTSHELL: Enrolled customers shed loads at times of peak demand, in response to a request from the utility. Customers cut back services (lights, machines, air conditioning) for a few hours or a day in return for compensation. Shedding loads during peak demand is important because otherwise providers must build very capital-intensive power plants and lines. Peak demand happens just a few times a year, so those assets would run at a mere fraction of their capacity. Electric users would pay for those idle reserves through electricity tariffs. Demand response also has benefits for the environment, public health, and the climate.
WHAT HAPPENED LAST WEEK is that the Supreme Court upheld a controversial order of the Federal Energy Regulatory Commission regarding demand response. The FERC order declared, among other things, that participants in demand response should be compensated at no less than the wholesale rate for electricity.
THE FERC CASE IN A NUTSHELL: On January 25, 2016, the U.S. Supreme Court decided to confirm the Federal Energy Regulatory Commission’s (FERC) power over demand response policies and pricing. In 2011, with FERC Order 745, the commission had defined an approach for compensating demand response resources fairly, to ensure the competitiveness of wholesale energy markets and to remove barriers to the participation of demand response resources. Order 745 provides that when demand response resources participating in organized wholesale energy markets can balance supply and demand as a cost-effective alternative to adding generation resources, the demand response resources must be compensated at the wholesale market price for energy.
The order was opposed by some utilities, state regulators and conservative groups. FERC wants to remove barriers and encourage more demand response participation in more markets; opponents were happy to build more power plants and transmission lines to meet occasional peak demand, and to let energy consumers pay for them.
“This ruling benefits consumers by lowering electricity costs for everyone, including those who participate in demand response programs,” as well as its benefits to states, the electric grid and the environment, Katherine Hamilton, Executive Director of the Advanced Energy Management Alliance, told EMT’s Carl Weinschenk. [“Supreme Court Overturns DC Circuit, OKs FERC Order 745,” Energy Manager Today]
BUSINESS UNCERTAINTY about the outcome of the Supreme Court case has held innovators and implementers in limbo for months. Not only was the future of demand response in question, but similar ideas for energy efficiency markets also had a foggy outlook. By upholding the order, the court has removed that uncertainty for demand response and clarified the future of energy efficiency as well.
Elizabeth Willmott, New Energy Cities Program Manager for Washington-based Climate Solutions, is pleased with the outcome and its implications for integrating solar power and energy storage.
“This ruling allows FERC to put wind in the sails of an important market,” Ms. Willmott says. “If they had struck down FERC Order 745, they would have thwarted a significant market that’s innovating ways to conserve energy and protect the climate.”
Investments in technologies from data analytics to building controls are justified in part by demand response revenue. The court’s decision helps those technologies, says Kevin Lucas, Director of Research at the Alliance to Save Energy, a nonprofit coalition that supports energy efficiency.
“By taking away the legal question, you open up new business models and opportunities for emerging technologies,” Mr. Lucas says. “Now having legal certainty to participate in these markets is another revenue possibility for the next EnerNOC who’s looking at ideas like whole building controls or automated load aggregation.”
The court decision affects regions with competitive energy markets more than those where utilities own the generation and grid infrastructures. While the case was about real-time energy markets, it also affects long-range planning for energy capacity. That’s one reason why this decision about demand response will have an impact on energy efficiency markets.
“Demand response and energy efficiency play in the forward capacity market with similar economic benefits to what they provide to the real-time markets,” says Mr. Lucas. The outcome of this case protects the ability of both to participate in the capacity market, “and that will save consumers money and help the reliability of the grid.”
WHAT SHOULD YOU do differently now that the Order 745 question is settled? The upgrades and replacements you make in your building should be chosen with demand response in mind. Your building automation system will be a central tool in participating in demand response programs. If the one you have requires a lot of human intervention, consider replacing it with one that works more autonomously — or start moving toward a learning system.
Find out about demand response programs available to you. Start by contacting your energy utility. Most utilities have well-established incentive programs for energy efficiency and demand response. Demand response aggregators like EnerNOC work with any size company to bundle negawatts and sell them on the energy market. The actual programs vary widely by region.
No demand response programs in your region? This court case confirmed FERC’s authority to regulate demand response nationally, but states still can block it locally. Get involved in local regulatory decisions, either directly or indirectly. Direct action ranges from filing comments to calling utility regulators to engaging a lobbying firm.
Indirect action is possible through organizations such as your industry associations. Nationally, check out the Alliance to Save Energy. Locally you’ll find organizations like ICNU in Washington state and the local Chambers of Commerce.
Finally, if energy is a strategic priority in your business, then make energy management a factor in your real estate decisions. Work with your landlord to get around contractual barriers. Avoid entering into a lease that prevents your organization from participating in programs for demand response or energy efficiency.
Great explanation. Complicated subject, explained in simple terms.