According to Ken Silverstein's August 6, 2008 EnergyBiz Magazine newsletter "Re-thinking Energy Savings": utilities must be rewarded for selling less electricity. It's all in the name of encouraging energy efficiency and reducing air pollution. The idea is to separate utility rates from their sales volume. Such "decoupling" allows utilities to promote energy efficiency while still recouping their allowable expenses. Under traditional regulatory structures, utility earnings are tied to the volume of electricity and natural gas that customers use. So, even a small reduction in consumption can make a large cut into a utility's profitability. This presents a strong financial disincentive for those companies to push energy efficiency.

THE CURRENT ELECTRICITY BILL FOR CORPORATE ENERGY USERS

Utilities earn their monthly revenues by charging kW demand (usually 30%-40% in Dollar value) and kWh energy (usually 60%-70% in Dollar value). Demand is associated with the infrastructure made available by the utilities to connect their clients to the public grid. Energy is the commodity, usually generated by third parties and re-sold to the clients.

ENERGY EFFICIENCY

According to regulations around the globe, the demand to be charged monthly is the highest one between the registered and the contracted demands. When a client reduces the physical demand and is not allowed to change the contracted demand, due to established regulations, the monthly bill related to demand will not diminish in Dollar value.

DEMAND EXCHANGE AS A TOOL TO OPTIMIZE THE UTILITY AND ENERGY USER BUSINESSES

The proposed concept is a Demand Exchange - not an energy exchange. It is conceived as an internet based service to be provided by utilities to their clients in their respective service territories. Energy users could trade their demand differences, while for the utility the total contractual demand would remain unchanged. At the end of the day the utility demand revenue is unchanged.

IT IS A WIN-WIN SITUATION

The corporate world is facing changes almost on a daily basis. Production methods, product mix, sales volumes are changing and having an impact in the energy usage.

An energy user “A” who is willing to reduce its contractual demand by ? is able to trade it with another energy user “B” who is willing to increase by ? . “A” will not have to pay for ? -- an “idle demand” -- because it is getting rid of it, and “B” will be able to increase by ?. All parties should be happy: “A” and “B” because their demands are adequate for their actual needs and the utility because it gets the same demand revenue before and after the transaction.

Additionally, the utility will improve its load factor, because with the same overall contractual demand more energy will be sold. Simply put, the “idle demand” ? that was being paid by “A” in this example, once it is traded to “B”, it will become an “active demand”, therefore, generating additional kWh sales for the utility.

More importantly, the transaction is finalized and validated by the utility when the parties involved -- “A” and “B” -- receive new contracts, issued by the utility, changing their respective demands. As simple as that!

CONCLUSION

Decoupling may be understood as a flexibility brought to the players - the utilities and their clients, after almost a century of a fixed system. It offers the capability of allocating demand as needed by energy users, therefore, optimizing the electrical and financial performances of the system.

If flexibility is provided without changing the total contracted demand then, yes, energy efficiency will reduce energy users’ costs and improve the utilities’ bottom-line.

APPENDIX

There are several practical aspects that should be considered when designing the demand exchange:

• Should demand transactions be charged or not?
• Should physical restrictions (infra-structure related) limit demand transactions?
• How about the utility posting (at the demand exchange) new capacity for sale?
• Should there be a limit of transactions per year per client or not?

Copyright © 2002-2006, CyberTech, Inc. - All rights reserved.