Summer 2012 is shaping up to be one of the hottest on record. Soaring temperatures mean higher electricity demand and higher costs for all ratepayers — and an opportunity for demand response to prove its worth.
Many facilities professionals have explored these programs but found the terms onerous or risky. Smaller commercial facilities often can’t meet the minimums required by aggregators, or find the payment levels too low to be worth the effort.
Now one class of programs is promising to address these problems with higher payouts and much broader applicability across ratepayers. Facility professionals that have traditionally avoided demand response might want to take a second look.
How price response works
Price response is a simple in concept: higher energy charges are levied on a handful of critical grid days to encourage conservation. To offset these higher charges, discounts are given on standard rates. The penalties and rewards are balanced so that ratepayers almost always come out ahead, especially if they are able to reduce energy use on the handful of designated critical days.
The details can get complicated. For example, PG&E’s Peak Day Pricing (PDP) tariff takes 1,700 words to describe the following basic trade: 40% off summer demand rates in exchange for energy priced at $1.20/kWh on roughly a dozen event days per year. However, in our analysis of millions of square feet of office properties in the Bay Area, we only have found a handful of buildings that are not good PDP candidates.
Property benefits
The details might be tricky, but the savings are worth it. Our work this summer found the following savings across a diverse customer base in the PG&E service area:
- Average payout: $4,600 per building
- Percentage bill reduction: 1.4%
- Savings per sq ft: $0.04
Even large, sophisticated customers are benefiting. The payment from price response is typically two to three times that of bilateral demand response programs. In our data set, only about 8% of buildings would be better off on a bilateral DR program than a price response program. Because they aren’t sharing the payments with an intermediary, utilities can afford higher rates for price response programs.
These savings can help fill budget gaps, fund energy projects, and boost building value. They may also help with LEED certification: a pilot credit is in place for demand response.
Recommendations for facility professionals
Price response is an opportunity for forward-thinking facitlity professionals to build value for their organization. Some recommendations as you seek to explore price response:
- Don’t get locked in. Intermediaries will try to get a long-term deal signed. You could be boxing yourself out of a future profits if a utility starts a price response program.
- Don’t be hasty to opt out. Utilities often give customers the ability to opt out of price response programs. Many managers look at the cost penalties associated with the programs and immediately bail, without doing the math on the rewards.
- Sweat the details. These rates are complex and it’s worth spending a week on the analysis. If you don’t have the time, hire a professional. Many (like Gridium) will work for a contingency basis and set you up with reporting tools to help manage the program.
- Involve occupants. Your occupants may not notice your curtailment efforts. But if they do, frame participation as something they can do to help the grid and society rather than the property bottom line.
- Measure and improve. Just like traditional demand reponse, a program won’t run itself. Set up basic feedback to ensure you are making as much money as possible.
