In an earlier era, responsibility for maintaining the reliability of America’s power systems rested chiefly in the hands of public utilities and electric power grid systems.
But that has begun to shift in important ways.
Today, we increasingly see public utilities, power grids and individual state energy offices recruiting energy end-users to serve as their partners in maintaining reliability.
End-users are being incentivized to implement strategies that will manage peak demand, elevate responsiveness, and promote resiliency in their buildings. The goal is to help ensure the reliable availability of electrical power, especially at times of peak demand.
Some of these incentives can be lucrative and can dramatically reduce payback periods for the end-user’s energy-related capital improvements.
The two key strategies now used to help incentivize a more-efficient use of energy are ‘Demand Response’ and ‘Demand Management’ programs.
Demand Response and Demand Management Programs
The federal government defines Demand Response (DR) as a change in ‘electric usage by end-use customers from their normal consumption patterns.’ DR can include ‘incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.’
DR incentives are now offered by at least six regional grids: the New York State Independent System Operator (NYISO), the California ISO (CAISO), the Electric Reliability Council of Texas (ERCOT), ISO New England, the Midcontinent Independent System Operator (MISO), PJM Interconnection, and the Southwest Power Pool.
According to a December 2014 Federal Energy Regulatory Commission staff report titled Assessment of Demand Response and Advanced Metering, potential peak reductions from DR programs reached 28,798 MW in 2013, a 9.3 percent increase over 2012 levels.
While DR programs focus on voluntary reductions in usage in response to particular events, they are complemented by inducements to end-users to make energy efficiency investments in the form of Demand Management Program (DMP) incentives. DMP incentives are generally available across the country and vary by utility, municipality and state.
When used in conjunction with one another, Demand Response and Demand Management supplement each other. They generate new revenue streams and provide incentives for an array of energy-efficient equipment and retrofits, thus increasing performance, comfort, and resiliency, while bolstering a building owner’s bottom line.
New York City as a geographic case study
Among all the regions nationwide, energy users in New York City have one of the most-lucrative and broad DR and DMP incentives available at this time.
Part of the reason for the area’s focus on reliability arises from the potential closure of the Indian Point Nuclear Power Plant in Westchester County, New York by as early as mid-2016, which, in turn, could result in an energy supply shortfall of 1,450 MW across the state.
Of that total shortfall, 100 MW of peak demand has been targeted for reduction through demand management, a strategy through which a wide array of property owners and operators would be able to reduce energy usage in their buildings at strategically significant times.
To achieve this goal by 2016, Consolidated Edison Company of New York (commonly called Con Edison or ConEd) and the New York State Energy Research and Development Authority (NYSERDA) have collaborated to increase the incentive value of DR and DMP programs for eligible customers.
The combination of offerings gives building owners unique opportunities to reduce energy demand, generate savings, and reduce their carbon footprint, all while helping the regional grid and the local utility maintain the power infrastructure the area depends upon.
The potential benefits of DR and DMP
To demonstrate the extent of the incentives involved in New York City, our team created a hypothetical case study in the form of a two-building commercial office complex in New York City.
Its owners have decided to tap the full spectrum of DR and DMP incentives as a way to reduce energy expenses, generate new revenue streams, and replace aging equipment.
Remarkably, our calculations found that the complex stood to earn back the full cost of its investment within two years and nine months. After that point, all energy savings would directly lower bottom-line operating costs for an indefinite period going forward.
Moreover, on an ongoing basis, the buildings would enjoy the benefits of various battery, lighting, back-up generation, and other valuable energy-management resources they previously lacked.
In other words, after the payback point has been reached, all of the savings these improvements generate represent 100 percent pure and unencumbered revenue - as well as an improved building.
Energy analysts would agree: a payback period of this length is considered short relative to the upgrades being performed and the significant investment made.
In New York City, the DMP initiative is jointly administered by Con Edison and NYSERDA, while the DR incentives are provided through Con Edison and NYISO.
DMP incentives available to the New York City complex
Available DMP incentives span an array of energy-saving technologies, including thermal and battery storage, HVAC, lighting, controls, and DR-enabling equipment.
Here is a brief description of options available for facilities in New York City (and Westchester County) for building upgrade investments, including battery storage, lighting, building management, and backup generation. Each project would contribute to reduced energy demand or provide standby power – and most provide load flexibility to meet pledged load reductions during DR events, and create resiliency to respond to unplanned distribution outages and/or severe weather conditions.
Battery Storage: A typical size for this installation would be a 450 kW, 1.8 MWh advanced lead acid battery storage system. With this system, the site owner will be able to take advantage of the enhanced DMP incentive for battery storage, which totals $2,100/kW, capped at 50 percent of the total cost. A $1.8 million battery storage system would qualify for an incentive of $630,000, resulting in an upfront cost of $1.17 million.
Using the battery for demand charge savings would yield annual energy bill savings of approximately $122,664. In addition, 125 kW of the battery’s capacity would be used for demand response, which would yield approximately $39,125 annually in incentive payments. Total annual benefit realized from the battery would be approximately $161,789.
Lighting: With a substantial, common area space devoted to hallways and stairwells, lighting provides a unique opportunity to reduce year-round energy consumption throughout the site.
Replacing existing T12 fluorescent tubes and magnetic ballasts with reduced wattage high-performance T5 tubes and dimmable electric ballasts, the site lighting load will be reduced by 30 percent. DMP incentives provide a 50 percent discount off the installed cost, reducing the expense from $750,000 to $375,000.
Energy Management System: Incorporating an energy management system with any of the upgrades will help curtail energy usage during DR events by enabling a further reduction in lighting demand. Under current DR incentives, the total awarded amount is $40,000 off the $100,000 installation cost. Combined with the new energy-efficient lighting fixtures, the energy management system will help the site owner save more than $300,000 annually on its electric bill.
Backup Generation: In the aftermath of Superstorm Sandy in 2012, building owners and operators across the region have been focusing on ensuring the performance of their critical systems during service disruptions. Site owners can tap DR enablement incentives to help defray the cost of a generator system to provide both DR benefits and backup power during an outage. An owner would be eligible for an $800/kW DR enablement incentive, capped at 75 percent of project cost. This would reduce a 225 kW system’s $350,000 price to $170,000.
Project Bonus: As an additional incentive, the DMP program includes a 10 percent bonus for reductions of over 500 kW, and a 15 percent bonus for projects greater than 1 MW. Under this case study scenario, the project is eligible for an additional 10 percent of the awarded incentive amount, in this case $118,833.
DR incentives
The DMP-funded improvements not only help reduce building-specific energy demand and system-wide load. They also can help generate additional revenues by enabling participation in multiple DR programs from both Con Edison and NYISO. A description of the DR programs follows:
NYISO Special Case Resources (SCR): This program qualifies the site for the DR enablement incentive under DMP. Participants pledge curtailment levels based on summer and winter seasonal demand and receive monthly capacity payments averaging approximately $18/kW/month during the summer capability period, and approximately $8/kW/month during the winter capability period. Owners with SCR-enrolled resources also receive a performance payment of $0.50/kWh for energy reduction during called DR events.
With a total pledged load reduction of 400 kW, the site will generate approximately $43,200 through SCR during the summer period, $19,000 during the winter period, and could generate an energy performance payment of approximately $3,200, assuming four events are called in a year.
Con Edison Commercial Service Relief Program (CSRP): CSRP is Con Edison’s day-ahead, 21-hour notification program. CSRP pays customers $10kW during May through September. CSRP also offers an additional $1.00/kWh for energy curtailed during called events. The hypothetical property’s management will be able to pledge 400 kW, which can yield a $20,000 capacity payment and an estimated $4,800 performance payment.
Customers are also incentivized to stay enrolled in the program(s) for three years. The added incentive means that the site can generate a bonus payment of between $48,000 and $60,000 in the third year of the program.
Con Edison Distributed Load Relief Program (DLRP): DLRP, the 2-hour advance notification program, is structured similarly to CSRP. But its payment rates depend on the particular local network in which the customer is located.
Customers located in networks requiring greater flexibility to respond to unforeseen system impacts, receive $15/kW/month, with a performance payment of $1.00/kWh for energy reduced during events. This hypothetical site is situated in such a network, making its 400 kW pledge worth $30,000 per season. By taking advantage of all aspects of DLRP, the site stands to receive revenues of approximately $4,800 per season in energy performance payments and a three-year Retention Bonus of between $24,000 and $30,000.
The chart below spells out the potential benefits that are available through participation in the full scope of DR and DMP incentives:
Find the DMP and DR incentives available in your area – and act!
The case study shows that by optimizing DR and DMP incentives, building owners and operators have the opportunity to earn back their energy investment in a short period of time. These incentives and the revenue streams from demand response participation also allow customers to increase their overall efficiency, reduce operating and energy costs, and meet environmental and sustainability goals. Owners should work with their energy advisor to determine the specifics of the programs available in their area.
To access the incentives and maximize the value of the demand response payments, customers are encouraged to start the process now. Demand response summer participation varies by region; in New York, the period starts May 1 and DMP incentives are issued on a first-come-first-served basis.
Owners need to keep in mind that there is a ramp-up period for participation that may include budgetary, planning, and implementation considerations.
Work with a qualified ESCO
To take maximum advantage of DR and DMP incentives, end-users should tap the expertise of a qualified Energy Services Company (ESCO) that can help the owner understand all the DR and DMP incentives available in its area – and can incorporate a full scope of demand response capabilities in modifying load shape into a proper energy supply portfolio.
The most sophisticated ESCOs offer proprietary software and can help equip large energy consumers with sophisticated energy monitoring and control capabilities. Such resources enable users to control power grid responses, while providing state-of-the-art dashboards that equip customers to monitor system performance and compliance during grid events, as well as for routine operations.
The End-user is now the partner
Whether your area has DR and DMP incentives available now, or whether such programs may be implemented in the future, it makes sense to get started months in advance in order to reap full program benefits.
America has arrived at a new era in energy reliability, an era when the end-user is being called upon to play an active supporting role. The good news for end-users is that they have a chance to derive substantial benefits as they begin to take on the role of partners in the quest for long-term reliability.
About the Author
Cara Olmsted is Director of Marketing and Business Development with ConEdison Solutions in Valhalla, NY. She manages the residential and commercial commodity, behind-the-meter solar, and demand response lines of business with regard to product development, new market entry, and strategic and tactical marketing implementation. Ms. Olmsted holds an MBA in finance and marketing from Fordham University and a BS from the University of Missouri. colmsted@conedsolutions.com
