Demand Management: Generating Value from Energy Usage

In an ever-changing energy landscape, businesses can benefit from taking smart steps to reduce their energy demand, and in turn, benefit financially. Better management of the demand-portion of your electricity bill can carry significant financial benefits for businesses if managed correctly. Options vary, from taking advantage of opportunities to participate in a demand response program, to implementing and utilizing advanced services that enhance energy management, tracking, and sustainability. For utilities and suppliers, the balance of supply and demand is crucial, particularly during extreme weather events. As a result, demand response and demand management programs are designed to reward customers for their operational flexibility. Through a combination of hardware, software, and targeted services, a comprehensive demand management program yields value for organizations by creating flexibility in electricity usage. As a result, both the end-user and the grid benefit.

What makes demand management different from a traditional demand response program?

The main difference is curtailment vs avoidance. Traditional demand response programs allow the end user to reduce energy usage during periods of high stress on the electric grid and in turn, receive payment for doing so. During periods of high demand for electricity, the grid becomes stressed, which can have several residual effects, including brownouts or blackouts, higher energy bills, and increased electricity prices, to name a few. The simplest example is on the hottest and coldest days of the year, when electricity spikes put stress on the grid, however, demand response programs seek to balance supply and demand year-round, level out electricity spikes, avoid brownouts, and reward participating customers in the process. Simply stated: reduce, or curtail, your energy consumption during peak demand and get paid for using less. It’s a veritable win-win, with the electric grid achieving balance while avoiding brownouts, and your organization reaping the financial rewards in the process.

Demand management takes this process a step further. With demand management strategies, organizations gain more flexibility (and benefits) through avoidance. While traditional demand response programs can be lucrative, they aren’t always practical for certain facilities. What’s more, requirements can be rigid. In many cases, shutdowns must occur within 30-60 minutes without advance notice. Evolving rate structures and the shifting cost of energy have also resulted in more savings, which can be combined with demand response revenues to maximize the value of avoidance and load flexibility. For customers who can curtail but may not meet all the specifications for certain demand response programs, Curtailment Service Providers (CSPs) can act as Aggregators of Retail Customers (ARCs), allowing customers with load flexibility to participate in programs as they are able. For example, an organization could commit its summer load, which would then be matched with an existing winter load from their CSPs capacity portfolio, creating a complete offering.

APPI’s approach to demand management considers both revenue potential (through curtailment) AND savings (through avoidance) while still positioning clients’ daily operations as the top priority. The result is a demand management program that is not only more realizable for customers, but that expands the value proposition of flexible electricity usage.

What are capacity charges & what is the impact to your bill? 

To consider peak load management further, it’s important to first understand the impact that capacity or demand charges have on your energy bills. Capacity charges are meant to ensure that the grid is equipped to meet the highest levels of demand. Capacity charges in turn can account for a significant portion of your electricity bill and are based on your facility’s energy usage during a set number of peak usage hours during the previous year.

Peak Load Contribution (PLC) tags are used by the utility and competitive suppliers to determine the cost to serve your account, impacting both the supply and delivery sides of your electricity bill. Electric utilities and suppliers use each customer’s PLC, or “installed capacity tag,” from the prior year to calculate monthly capacity costs, which appear as a line item on customer electricity bills. Your peak load contribution in 2022 will determine your monthly capacity costs in 2023. What’s more, peak demand charges in deregulated markets can account for up to 30% of your total bill. In regulated markets, demand charges can impact your rate class, ultimately costing you more.

Note: In ERCOT, this is called a 4CP charge and in PJM and MISO it’s referred to as a Peak Load Contribution (PLC). In ERCOT the 4CP refers to the four coincident peaks every year, and in PJM the PLC is set by the five coincident peaks. In MISO, a customer’s PLC is established on one coincident peak hour.  

How does demand management work? 

Demand management includes hardware, software and services working in conjunction with one another to inform, enable, and optimize demand response strategies. Demand management works to align considerations from the facility side with opportunities in the market. A few of note are:

• Coincident peak notifications: Daily emails, primarily in the hot summer months, that indicate event forecasts and 5-day outlooks
• Real-time metering and alerts: Allow for quick diagnosis of changes in usage, as well as cause of demand spikes
• Advanced notice programs: Provide payment for the curtailment of usage during times when the grid is stressed.
• Market dashboards: Provide organizations with dozens of market metrics. Through customized software, organizations can then compare real-time data with market data. Additionally, organizations can set price thresholds in certain zones to be alerted of elevated prices via text and/or email.

What are the benefits?

The markets have evolved to create natural incentives for customers who can voluntarily shift consumption away from critical demand periods. The benefits will vary based on the specific needs of your organization’s facility(s), and subsequently, the type of demand management strategies that are executed to meet those needs. Broadly, benefits of a comprehensive demand management program include:

• Offset and reduce energy expenses
• Produce a new revenue stream
• Gain greater visibility into market forecasts and conditions
• Gain greater flexibility than traditional demand response programs
• Contribution to the stability of the power grid
• Advanced notification of blackouts or brownouts
• Environmental stewardship by reducing demand instead of increasing supply
• A cash flow positive sustainability program

Demand Response – Case Studies 

A common question is, how much will I save? There is no one-size-fits-all answer to that question, but to exemplify, let’s look at one of our clients, an east coast university:

• DR Revenue from 2018 through 2022 (5 years) totals $121,140.60
• Curtailing 1,500 kW between 2 locations

In another example, a large packaging company with two locations:

• DR Revenue from 2016 through 2022 (7 years) totals $178,339.88
• Curtailing 775 kW between 2 locations

What’s on the horizon?

According to the NERC Grid Resource Reliability Assessment, most of the US electric grid faces risk of resource shortfall through 2027*, with the Midwest facing a higher risk of resource shortfalls from 2023 to 2027. Other regions, such as Texas, are facing elevated risk of shortfalls in extreme weather conditions. Several factors are contributing, from supply chain issues to generation retirements outpacing replacement capacity. Severe weather events are also key indicators, along with higher peak-demand projections, inadequate generator weatherization, fuel supply risks, and natural gas infrastructure, according to the NERC Winter Reliability Assessment.

By enrolling in a demand response program or leveraging demand management technologies and strategies, customers can not only receive advance notification of grid issues, but also receive payment for curtailing and reduce future bills through avoidance.

What’s the timeline?

Enrollment deadlines for demand response programs (as indicated by CSPs to allow time to meet the ISO deadlines) are as follows:

• ERCOT: April 1, August 1, December 1
• MISO: February 1
• PJM: April 1

To get started, an LOA and recent bills are the first step. From there our team will provide a comprehensive proposal, including our recommendations for the right CSP to fit your needs. Expect roughly two weeks for this process to be complete. Most agreements are for a several year span, but there is flexibility. Customers will also maintain the option to sit out a year or adjust their curtailment commitments as needed. Either way, the team at APPI Energy will continue to work alongside your teams, even after the agreement has been finalized.

Demand Management, DERs (distributed energy resources) and efficiency projects to further reduce demand are available year-round, with no enrollment deadline. Next steps include setting up a meeting to review potential savings opportunities based on location and ability to reduce usage during peak demand days/hours for demand management and DERs, or to review project potential.

Next steps? 

The first step is to schedule a call with APPI Energy. This no cost, no obligation assessment is designed to identify the energy needs, challenges, and goals your organization is currently facing. Our value-added energy management solutions are tailored to each client. Our approach is to identify, enable, and maximize the value of flexible MWH (regardless of savings or revenues), align stakeholders to support practical demand reduction strategies, and automate what we can to increase performance.

The bottom line: A holistic approach means looking at all aspects of your energy usage, needs, and goals, including power supply strategies and demand-side capabilities. Contact our team today at info@appienergy.com or 800.520.6685.