Commercial demand response: the smart grid's "killer app"?

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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 [3]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 [4].

"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 [5]
303-228-4757