July Issue: Energy— Does Demand Response Pay?
- Jul 20, 2015
By Brad Berton, Contributing Writer
Even the most conservation-minded sustainability specialists acknowledge that multi-tenant office property owners today garner few concrete benefits from participating in demand-response (DR) “events”—the hours-long, consumption-cutting maneuvers that utilities and grid operators conduct to prevent service disruptions when demand stretches supplies to the limit.
True, cooperating with utilities and fellow rate-payers to prevent blackouts and soften brownouts earns points for corporate responsibility. Yet even factoring in cost savings, along with DR program incentive payments, trimming usage by 10 to 20 percent during periods of peak demand does not translate to a lot of cash when those peak demand events add up to 50 hours a year at most.
Indeed, when even a large and active DR proponent like Kilroy Realty Corp. adds up its incentive payments from utilities over the course of a year, the total can look “paltry” compared to the work it takes to participate, noted Sara Neff, Kilroy’s vice president of sustainability.
Notwithstanding the modest financial rewards, however, a growing roster of owners and managers find considerable value in DR programs. That is especially the case in markets where per-kilowatt pricing is high and peak-use “demand charges” are steep.
Perhaps most notably, software that tracks details of load-shedding events (sometimes called “negawatts” in sustainability parlance) also provides reams of real-time data that property operators can utilize to run buildings more efficiently.
Beacon Capital Partners, to name one institutional owner, has saved millions of dollars over the past half-decade by implementing strategies its DR software identified, noted Al Scaramelli, managing director overseeing Beacon’s sustainability endeavors.
The real-time data tracking and assessing how various strategies affect energy costs has allowed Beacon’s building managers to identify “enormous savings opportunities”—particularly stemming from more efficient HVAC energy management, Scaramelli added.
DR-related analytics revealed to Scaramelli’s team that mechanical systems at many Beacon properties were ramping up much earlier in the morning than was necessary for tenant comfort, and some were operating unnecessarily late into the evening. Property managers responded by experimenting with startup and shut-off sequences. They cut consumption by shortening equipment operating times while still meeting lease obligations.
Likewise, hardware and control mechanisms that manage demand-curtailment sequences can be utilized independently of DR events.
Strategically timed and customized internal efforts can cut consumption at an individual building or in a portfolio. As with formal events, most of that load-shedding comes through temporarily reduced lighting levels and adjusting HVAC set points.
In many of Kilroy’s markets, weather conditions and utility tariff structures offer ample opportunity to save by selectively implementing DR load-curtailment capabilities independent of formal DR events signaled by utilities, Neff related. “If you run DR sequences to shave peaks on (high-use) days when consumption might otherwise trigger demand charges, you can end up saving a lot of money.”
Another attraction is that utilities often cover upfront costs. Accordingly, as regulators push more grid operators and utilities to launch and enhance DR programs, more commercial landlords are signing on for equipment upgrades that essentially come free with participation. As DR technology provider Comverge Inc. vice president Steve Hambric observed in a June webinar: “DR capabilities are becoming operational resources for utility customers.”
Weighing Pros & Cons
No shortage of commercial property decision-makers have decided that the benefits of DR activities outweigh the challenges. Potential drawbacks include the upfront time and energy required, particularly of multi-tenant landlords, because of complex contractual relationships among multiple parties. Another hurdle could be tenants’ reluctance to have air-conditioning set points temporarily increased.
And energy-market trends suggest that opportunities for DR program participation will increase going forward, reflecting burgeoning emphasis on distributed energy resources (DERs) to address peak-capacity issues.
As Hambrec noted, utility executives and regulatory officials across the country are coming to consider demand response as part of a mix of DER tools that also includes customer energy-efficiency measures, distributed energy generation, short-term energy storage and related resources. The larger goal is to enhance grid reliability and stability by balancing energy supplies with aggregate load throughout the year, while also planning for long-term needs.
Predictably, peak-capacity issues are particularly acute in high-demand markets where utilities are taking coal-fired and nuclear power plants off line and replacing them with renewable but less predictable sources, like solar and wind power.
“Demand-response activities are becoming increasingly important as renewables contribute more energy to grids,” Hambric noted. “It’s important today, and will become even more important tomorrow as we incorporate more renewables into the mix.”
DR events will increasingly take place during cold winter mornings as well as hot summer afternoons, Hambric added. Many utilities in high-cost markets that encounter capacity issues on cold days are extending DR programs accordingly, he noted.
Logically, automation is another key trend driving DR program participation. While property operators such as Beacon are still opting to respond to DR event signals with manual load-shedding sequences, many others are programming systems to adjust lighting levels, HVAC set points and other mechanisms automatically as they receive electronic signals.
And it seems likely that automated demand response (Auto-DR for short) will eventually become the default setting. For example, California’s latest building code update requires newly built structures to include Auto-DR enabled controls for indoor lighting and HVAC systems, noted Paul Lilley, the vice president overseeing western regional engineering services for Transwestern.
The California Public Utilities Commission has responded by pushing the state’s three major investor-owned utilities to boost participation by sweetening subsidies for Auto-DR equipment and controls, Lilley continued.
DR program offerings and participation should likewise keep expanding as specialists such as Comverge and long-time Beacon DR vendor EnerNOC Inc. aggregate the combined DR capacities of clients and bid them into increasingly sophisticated wholesale energy markets. These markets should become more efficient as curtailment and financial impacts of DR events grow more predictable and DR programs in turn increase in flexibility, Hambric predicted.
He also noted that the U.S. Supreme Court may influence the course of DR adoption. In May, the court ruled on the Federal Energy Regulatory Commission’s authority to regulate DR rules and pricing in wholesale electricity markets.
No matter how the court rules, DR appears destined to become a billion-dollar business worldwide over the coming decade. Annual spending in the sector should expand from less than the $185 million projected for this year to more than $1.3 billion by 2024, according to a recent report from Navigant Research.
Accordngly, DR has become a “base credit” in the LEED v4 rating system update. In order to earn DR credit points, properties must have fully automated capabilities to curtail consumption by at least 10 percent.