Commercial demand response: the smart grid's "killer app"?
Enough hot air about global warming already! And now for something completely different: the business opportunities for a triumvirate of players focused on energy management and demand response in commercial buildings.
That triumvirate includes electric utilities (benefit: peak load shaving, managing capital investment on new peak power generation capacity), commercial building landlords (benefit: energy-efficient offerings, increased property values and higher occupancy rates and rents) and companies that can provide automated controls and system integration (benefit: burgeoning market and profits).
Talk about the smart grid often focuses on altruistic acts toward the environment or the bewildered, skeptical and sometimes angry consumer and his or her sacrosanct home - consumer awareness, acceptance, participation and privacy all loom as hurdles to realizing energy management and demand response in that sector.
But you may recall that in January we spoke with Mike Ebert, a research associate at the Center for Infrastructure Protection at George Mason University in Arlington, Virgina. Citing data from the Department of Energy's Energy Information Administration (DOE and EIA), Ebert pointed out that 17 million commercial users in the U.S. consume more electricity than 125 million residential consumers or 775,000 industrial users. And electricity costs in commercial buildings represent, on average, about 40 percent of total operating costs. (Ebert and his collaborators have applied to the DOE for a slice of the agency's $100 million stimulus money to develop workforce training to tackle energy management in commercial buildings. Read my January column for details.)
Talk about low-hanging fruit: visualize fruit the size of basketballs.
Now, gaze out over that orchard and note that, right now, few fruit are being plucked. But folks are streaming towards that orchard with their baskets at the ready.
That's the picture painted by Pike Research in a recent report that finds the energy management market, including smart grid-enabled demand response, for commercial buildings is only 14 percent penetrated right now.
"This is a big opportunity, considering the large number of buildings in which energy efficiency and management has never really been addressed," Clint Wheelock, founder of Pike Research, told me yesterday. "The difference, in this regard, between old buildings and new ones is dramatic."
The topic is just one component of applying information and communications technology (ICT) to the efficiency of the grid as we make it smarter, Wheelock added.
Wheelock projected that over the next decade, institutional buildings - those used for health care, public service, education and public safety - will show the greatest growth in this business opportunity. And "business opportunity" should be emphasized here, as demand response in the residential/consumer sector has generated debate over whether the consumer really stands to benefit.
Pike Research's report, "Energy Management Systems for Commercial Buildings," projected that if commercial demand response events equal 1 percent of time during a year (3.65 days total), that by 2020 that could save 57.5 GWh to 81 GWh in new peak power generating capacity.
Commercial demand response incentives typically mean lower per-kilowatt-hour electricity rates, Wheelock pointed out, so tenants are incentivized to act.
Over time, of course, that business opportunity will level off as buildings are brought up to snuff. But, I'd add, the enterprise looks favorably on a decade or longer business opportunity.
Because demand response programs tend to be localized and beneficiaries tend to have national footprints, there is a new push at the federal level to extend DR programs and benefits to a more regional stage.
The current chairman of the Federal Energy Regulatory Commission (FERC), Jon Wellinghoff, comes to his role with background in demand response, Wheelock pointed out. And FERC has characterized demand response as "the killer app of the smart grid." FERC's "A National Assessment of Demand Response Potential" may be found here.
"The thought is out there that between the smart grid, energy efficiency measures and energy management in commercial properties that electricity demand might even decline," Wheelock said of future prospects.
So, readers, what are the pros and cons of commercial demand response? Is it really "the killer app"? I'd like to hear from you on this topic.
Phil Carson
Editor-in-chief
Intelligent Utility Daily
pcarson@energycentral.com
303-228-4757
.gif){kind=small}
Comments
Killer App
A couple of observations.
FERC is involved in DR because it's required under the EPAct of 2005. One useful outcome was a study commissioned by FERC that suggested Dynamic Pricing was the most effective way to incentivize demand response. Now the states have to act. One less worthwhile outcome was the provisions of FERC Order 719 that essentially push organized markets to treat DR like a generating resource. The problems will be fixed, but not for a while. DR may participate in wholesale ancillary services markets, but peak demand reductions will be driven by retail rate structures rather than by having large energy users offer demand reductions into wholesale energy markets.
I agree that commercial DR could be a smart grid "killer app", provided the smart grid is implemented in a simple, thoughtful, easy-to-use way. There are, indeed, many opportunities for savings, including price-responsive thermal storage for air conditioning and DR as a grid balancing service.
The incentive structure for DR is likely to shift - moving away from capacity payments for promising to curtail and toward cost savings by curtailing in response to price signals. Whether price response makes economic sense to customers will depend in part on just how much price volatility regulators are willing to tolerate.
The cost "pass through" clause disincentive
Phil,
Thanks for your article.
The cost “pass through” clause in a typical lease is the pitfall of many buildings. The system of “cost plus” leaves dollars in the pockets of the management companies. As a result, the management company that runs the building has a disincentive to reduce consumption and to implement conservation measures. They have even less incentive to invest in AutoDR and tie the building to a smart grid.
Some of the cost savings need to stay with the middleman to gain cooperation. Once we penetrate the “pass through” and are able to reach the tenant, we will see reduced resistance to investments in automation and increased program participation.
Amir Yoeli
commercial DR as "killer app"
Very much agree. Glad we could speak again, Phil, and thanks for the mention. Green Sigma is a really good complement to Commercial DR.
Michael E Ebert
Center for Infrastructure Protection
George Mason University