Ken Silverstein EnergyBiz Insider Editor-in-Chief

Instead of building costly and often contentious new power plants to meet the 100 or so hours a year when energy demand is highest, utilities are turning to their customers to reduce energy usage during these peak hours. Demand response is giving commercial and industrial concerns more insight into the energy that their facilities consume. By knowing this, they can run specific applications at times of the day that are more favorable to the utilities' rate structure.

"If you think about electricity consumption, 70-80 percent of it is consumed by commercial and industrial operators," says LeRoy Nosbaum, CEO of Itron, an advanced metering company based in Spokane, Washington. "These are very sophisticated users. If, during short supply, you are able to send theme a signal, they can be motivated to cut consumption. They all have things they can curtail or turn off, whether they are lights or processes. If those customers are willing to do that, they will get a price break."

The California Energy Commission credits demand response for avoiding the need to build 15,000 megawatts of new power plants since 1975. Similarly, ISO New England says that demand response programs would relieve congestion. Specifically, it said that the reduction of 50 megawatts in a congested zone would improve reliability by 30 percent. The threat of rolling blackouts would therefore diminish.

Much like airlines offer passengers incentives to switch flights when one is overbooked, utilities are paying customers to reduce or shift their energy use to off-peak hours. Many commercial and industrial customers have flexibility as to when they use power. For example, agricultural customers can often adjust water pumping schedules without adversely affecting their operations. And even retail stores are participating by dimming sections of lights. Walk into a large grocery store in Oakland, Calif. and about half of the available lights are on.

That's why both utilities and regional transmission organizations are authorizing companies that specialize in demand response technologies to enlist customers willing to participate. In the old days, such enterprises might get on the phone and call up companies asking them to shift their power use for a rate break. Today, with the advent of the Internet, the process is more sophisticated.

"We have a 24-7 operation center that monitors and controls air conditioners, lights and on-site generation," says David Brewster, co-founder of EnerNOC in Boston, Mass. "With the push of a button and within 10 minutes, we can shed load. It's the functional equivalent of building a power plant."

New Incentives

In EnerNOC's case, the regional transmission operator or utility essentially pays it an insurance premium whether or not it is called upon to deliver capacity -- a shift in energy consumption that helps those entities lighten their load. In turn, the company installs the technologies at its customers' premises and sends them a check if they are called upon to adjust their usage and in essence be a "provider" for the aggregator.

In July, thermometers soared all along the Northeast. Demand response was called upon to cut demand, which allowed those systems to stay up and running, says Brewster. Indeed, ISO New England relies on those energy aggregators. The ISO has issued a request for proposal for 300 megawatts of emergency capacity just in southwest Connecticut. It has contracted with six suppliers for 260 megawatts that will come on line by 2007. Of that, about 20 percent is considered demand response resources.

Right now, energy saved through demand response programs is used for emergency capacity to make sure the lights always stay on. But the ultimate goal of ISO-NE is to reduce overall energy usage when the demand is highest. To do this, it plans to hold an auction next year so that generators and demand response providers alike can bid their resources into the system, all deliverable by 2010.

State and local energy organizations are increasingly focused on technologies and programs that reduce summer strain on the grid. To address the growing pressure, the California Public Utility Commission issued an order this month for utilities to maximize demand response.

Along those lines, California has focused its incentives and building codes on energy technologies that eliminate the summer peak; specifically, the daytime demand of both residential and small commercial building air conditioning systems. During the summer months, air conditioners add tremendous stress on the grid as people try to cope with sustained high temperatures. One example: an add-on to a conventional air conditioning unit uses off-peak electricity to efficiently make and store ice at night that is used as a cooling device during the day.

"Air conditioners are the single largest contributor to California's peak power problem, accounting for greater than 50 percent of peak demand on hot summer days," says Marcie Edwards, general manager at Anaheim Public Utilities that implemented a device from Ice Energy that affixes to air conditioners.

Clearly, a need exists in some parts of the country for additional generation and transmission. In New England alone, more than 30 transmission projects are on the table. But not all such projects will get built and even if they do, they take time to implement. In any event, the Federal Energy Regulatory Commission says that there won't be enough to relieve the expected congestion in the coming years.

Steps can be taken now to reduce energy consumption. New technologies are making this possible. And a forerunner in the effort is demand response. By sending users a signal to adjust their usage, utilities are ensuring they have enough power supplies while commercial and industrial consumers are saving money. State regulators understand the potential. Texas, for example, is working with utilities to find ways to monitor meters as often as hourly for commercial and industrial customers.

"There's an old saying, a kilowatt saved is more valuable than a kilowatt built," says Bill Carnahan, executive director of the Southern California Public Power Authority, an organization of municipal power agencies. Cutting power use now could delay the need to build new plants, he adds.

While volatile energy markets are motivating change, the transition toward time-of-use energy policies has been a long one. Simply, adapting new technologies is often costly and uncertain. But market forces along with Congressional mandates passed last year have given the idea a credence it has never had before.

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