Demand Response Questions

Fritz Kreiss takes you through the basics of demand response: Why it’s important, how to get started, easy targets, the process involved in getting a proposal, target markets, how much money a client can make and how much money you can make. This is supplemental to the demand response Q&A that can be found in the Training and Tutorials section of the business partner portal. Have a client that you think could be a good fit? Start by sending your support professional 1 invoice and we can let you know 1) If there are any programs in that area 2) If we think there is an opportunity.

Runtime: [13:34] | File Size: [25.3 MB]
Resources: Service Page | Video | Case Study


Welcome to another special podcast from AUS. This week, Fritz Kreiss tackles the important subject of Demand Response, answering some of the questions you may have regarding this important and financially rewarding service.  He’ll be covering such issues as:

  • Exactly what IS Demand Response?
  • How does Demand Response benefit the utilities?

And so , to begin…

Q: Fritz, could you tell us exactly what demand response is?

A: Well, demand response is when the utility grid is under duress. You’ve had too many hot days; maybe some generation is down, and it’s really being strained. So demand response allows for customers to temporarily reduce their load, or what their demand is on the grid.  And that way the grid is relieved. It’s kind of just lightening their load.

Q: But why demand response? Why not just add more generation?

A: In most markets, most load profiles compared to the utilities’ generation capability are matched pretty well for 95% of all the days.  You’re only talking about 7 to 10 days probably, to where there is a little bit of a peak load, and it’s much cheaper to be able to actually pay customers to reduce their load, if necessary, instead of building generation that costs millions and millions of dollars. You could talk 100 million dollars, 200 million dollars, simply for generators that are only going to run up to maybe 5, 6, 7 hours a year.

Q: So if a customer is interested in participating in a demand response program, what should they do?

A: The first thing is to do a facility site survey, which can be actually filled out by the building owners, or the building engineer. They can fill out the survey, and that’s really a preliminary piece of information that gives us all the data on their major uses of energy. What their chiller size is? Do they have elevators? Do they have variable frequency drives?  Do they have stand-by power, a backup generator? And of course what kind of fuel that would be [used]. From this data, we’re able to take that, along with their bill, and extrapolate approximately what kind of a load reduction they should be able to do for a few hours. And from there we put together the proposal, and then go back to the customer and show them what the projection is. There are no penalties for [the] customer if they can’t actually achieve that. They’re only going to get paid ultimately what they’re able to perform and do. So we’re giving the best estimate, but on that day if they happen to have some special person over and they don’t want to allow the temperature to rise up a couple degrees, then they just don’t.  It’s simply a matter of: they’re signing up to be able to participate and get paid and then they’re going to get paid based on whatever their performance is.

Q: You said they had to supply a bill, do they have to supply more than one bill and is there anything else they need to give their agent?

A: We’ll get a bill as well as a release form, so that we can get the meter leveled summary.  Just one month and a letter of agency, and release form for the other data from the utility. This way we know exactly what kind of a profile, how they use energy.  It’s the same basic information we need to have in order to do, get them pricing for an electric quote.

Q: And what are the financial benefits for the client, if they do this?

A: It depends on what market they’re in. PJM for example, which covers utilities over a 13 state area, has 23 or 24, what are called LDAs. And each LDA has a little bit of a different price or value for the demand response and capacity. So depending on where you might be; in Commonwealth Edison, in Chicago, it’s a little bit lower amount. If you’re in PSE&G North, it’s towards the high end of the amount. So it really just depends on which market, and then it depends on how many kw of a load reduction can they do in a demand response event. To give you an idea though, in ComEd, if you could drop 200 kw, the building could make 6 thousand dollars per year in revenue. That same building in Baltimore Gas and Electric would be worth 75 hundred dollars. In PSE&G North it could be worth 10,769 dollars.  Now this happens to be for this next year in 2015. But every place is different, in New York City in Com Edison territory, and some in the Long Island LILCO area, in those markets, literally it could be worth 2, 3 hundred thousand dollars for 1 megawatt. So if you reduce that down to 2, you’d still be worth 40, 50, 60 thousand dollars.  So pretty substantial money and in many cases in Commonwealth Edison, you typically only have to do a one hour test, because there really hasn’t been an event where the utilities been under duress and had to call a demand response.

Q: But do they still get paid if they are not called to respond?

A: They still get paid based on the fact that they’re ready and able. And that’s why you do a one hour test, to be able to validate what kind of a load reduction you can do.  And we’re actually able to set up the time and date for that test, so we can make sure that it’s doing well. In other places you might have to do it as many as 10 times. Every market, whether it’s in the Boston area or Connecticut, that’s a different ISO. PJM is its independent organization. You’ve got New York is a standalone. California is another one. Texas is another one. And there’s different markets. And they all have different values and different rules and regulations. Typically an account needs to be able to drop 100 kw at a minimum to be able to participate- Although, we can aggregate them if they’re all within the same LDA or market territory. Typically, at least in like the PJM market.

Q: Is it standard for the utility to wait and send a check after a full year’s participation in a Demand Response Program? Or does that vary by the utility?

A: It varies by the utility; it also varies by the energy curtailment specialist service provider. Do they pay out  every quarter? Do they pay out monthly? They all have different ones; we shop and have agreements with them all.  So we look at what’s the best fit for an individual customer depending on how automated some of their systems are.

Q: How about the agents’ compensation?

A: Well demand response is not as lucrative as selling gas and electricity, but it’s getting your foot in the door with the new potential customer, that already has a gas and electric consultant and they’re not offering demand response right now, and that might be your ticket to get in there. The majority of the money is going to the actual building as their fee because they’re the ones actually performing the event and the load reduction. They’re the ones that get the biggest piece of the pie. Then the demand response provider is getting another significant share because they’ve got a number of costs. They might have put in some special metering to be able to monitor the location and give real-time data and things like that, and of course they’re the ones that have to put up credit with PJM or whatever the ISO is.  So from an agent standpoint, a 300 kw load reduction building over 5 years is going to be worth from 16 hundred dollars to 28 hundred dollars in the PJM territory. If you’re in New York, a 300kw load reduction could end up being worth several thousand dollars. So it really depends on which market there is. But it’s one of those things where if you’re already selling them other services, it makes you a little bit more of a sticky.  You’re not worried about a demand response provider coming in talking to them, who might also offer energy procurement for their gas and electricity. So it’s a matter of being more of a full service and integrated energy management consultant.

Q: What are some of the ways a customer can participate in demand response?

A: Subject to the air quality control of each individual state, the easiest thing is if you’ve got a standby generator, to be able to turn on the standby generator and drop that load. That’s the simplest. It’s going to be different though and the rules are much more stringent for running a generator in California or New York or New Jersey. Boston area for example, they require specific permits.  We need to make sure that they’re permitted for being able to run on a non-emergency basis.  The other things are if they’ve got a variable frequency drive, you’re able to do a small reduction on a variable frequency drive for their fan or for their pumps and be able to have significant savings.  So it depends on their building automation system or their energy management system on what they can do. Or we’ve got customers that run around and turn some things off and you might take your chiller and be able to pre-cool it a little bit before the event, because we do get some notification, although it’s getting smaller and smaller.  And then you allow the cooling to be able to rise up, so if you’ve got it typically set for 71 degrees, you might let it rise up to be 73, 74 degrees over the next few hours. And that’s going to give you enough of a load reduction.  So it’s not going to be enough to make people uncomfortable, because we don’t want people to think that there’s any real issue. If you’ve got a series of elevators that all go to the same similar floors, if you’ve got 8 elevators and you can turn 2, 3 of them off, turn 2 or 3 of them off. It’s going to be a small wait for people, but it’s no different than if you’re just getting some basic maintenance done.  Those are some of the applications. If you’ve got daylighting capability or being able to dim your lights and reduce that load, that’s another application. In some cases, you could close down a production line.  Or if you’re a freezer company, cold storage, they are so cold that they can be turned off for several hours and have no impact at all.  We work with every customer to be able to determine- what’s the best application to be able to minimize what impact anybody might have; and maximize what kind of money can be brought in as revenue.

Q: What are the steps to preparing a proposal for a client?

A: Well, as we’ve mentioned before we’ve got a site survey, we send out that site survey to a customer and they usually have their engineer fill out information. Once we get that site survey back, and that includes: What kind of equipment do you have?  What kind of things can you turn off?  Do you have standby back up generation?  What kind of fuel is it? Is it in a permit area? Then how many hours of operation is it permitted for?  So we gather all of that information and then from there we do some estimates, and it can usually be turned around within a day or two, and then we’ve got the proposal heading back to the customer.

Q: Can you give us an idea in general what kind of buildings offer a good opportunity for demand response?

A: Certainly freezers; cold storage; many times warehouses that have lighting controls, being able to reduce the amount of lighting is an application.  Any building that has large chillers or has multiple chillers. High-rise office buildings; high-rise condominium associations are typically good. The places that crush automobiles, those applications are perfect because they can easily just shut down.  Rock quarries that maybe can turn down for 3, 4 hours; they can get paid substantially more than what they’re going to get for just shipping out and continuing to do their breaking up of the rocks.

Q: And right now, what markets are open in the country for demand response?

A: Well, in basic markets like California, New York, all of New England that’s in New England ISO, PJM which covers parts of 13 states and a lot of utilities; you’ve got some. Of course Texas is another one. Then you’ve got some little niche markets that might only have one energy curtailment specialist that happens to be able to provide the service. And that would cover things like Excel Electric Utility in Denver, in the Colorado market; or the Tampa Electric down in Tampa. In Tampa, by the way, it’s been a closed market for years because they completely filled up their quota and people just don’t leave the system. It kind of depends on how much is an area growing? Do they have new generation coming in? Are they looking for demand response to be that buffer? But, there’s certainly the large significant area where most business is and people live, those are markets that have demand response programs.

This is the end of our Podcast. We hope you enjoyed it and were able to get some new insight and understanding of demand response. Please let us know if you have any questions or topics you’d like Fritz to cover in upcoming podcasts. Thank you for listening and we look forward to your feedback!