Demand Response Participation-Good Business Sense for Industrial Facilities

Industrial facilities are recognising the commercial benefits of becoming a demand response participant.
Published: Fri 24 Jan 2014

There is a heightened awareness of the worldwide energy crisis in the industrial sector. Recognition of ageing grids and the influence of sustainability mandates is seeing an increase in the sector’s participation in demand response programs.

Industrial sector-“low hanging fruit”

The industrial sector is fast becoming a critical customer segment in demand response programs. Analyst group Navigant Research estimates that globally, there are over 57,000 industrial firms participating in demand response programs. Of this, 32,600 demand-response-enabled industrial sites exist in North America. The compound annual growth rate (CAGR) for enrollment in demand response programs among industrial customers is expected to be 13.6% from 2013 through 2020. Annual revenues, in the form of curtailment payments to industrial customers, will reach US$4.3 billion by 2019. The industrial sector is able to contribute unusually large amounts of load reduction – even from just one plant. As a result, large industrial or manufacturing sites have been considered the “low-hanging fruit” by demand response providers. Navigant Research forecasts that industrial peak load reduction will grow from 26.8 gigawatts (GW) in 2013 to reach 62 GW by 2019.

Benefits for the Industrial Sector

A chance to earn extra income

Industrial facilities have the ability to earn extra income by becoming a demand response participant. Utilities rely on the demand response programme to stabilise the power grid during times of high demand. Basically, participants in a demand response program voluntarily reduce their electric usage and are compensated for their times and efforts by the utility. The earning potential is huge. In the US, for instance, a reduction of 1,500 KW during a demand response event can result in a rebate of approximately US$65,000. The company can spend it however they like-paying off debt, off-setting overhead costs or company investment.

Over the last 10 years, this program has become very popular in the US. Thousands of organizations are taking advantage. There are no requirements for performance and no penalties if the facility is unable to reduce when reductions are requested. In addition, there are no upfront start-up costs.

Reduced Monthly Utility Bills

Industrial facilities can look forward to lowering its electric bill. During peak hours, demand for electricity is high, which consequently leads to a price increase. By lowering electricity consumption and shifting workload to non-peak hours, the industrial facility will see a major reduction in its electric bill.

Walmart, one of the pioneers of demand response and a lead participant in all types of curtailment, has gone a few steps further by developing its own source of clean energy. These locally generated power sources have the potential to meet up to 60% of a store’s energy needs. According to Walmart, this will lead to lower prices for the company, as well as for the customer who shops at the firm’s stores. The firm has changed the way they buy power by going directly to the source. Through long-term power purchase agreements (PPA), Walmart supports renewable energy developers. Ultimately, this drives down the cost of clean energy for the consumer and the firm. The firm currently has five off-site utility wind projects.

And, Google has just bought in to the industry with its US$3.2 billion purchase of Nest Labs, a home automation company.

Damage to costly machinery and equipment can be avoided

Utility-driven voltage fluctuations lead to brownouts which can cause serious damage to a facility’s equipment and heavy duty machinery. To repair or replace damaged equipment can cost the facility thousands of dollars. However, demand response participants will be notified when voltage fluctuations are expected to occur. With this advanced notice, the facility will have sufficient time to power down any large machinery that may be harmed by a blackout or brownout.

With monetary payouts, a lower electric bill, and timeous warnings of voltage fluctuations, industrial facilities are hard-pressed not to become demand response participants. Not only will they be given the opportunity to stabilize the grid (which has long-term benefits for the industrial sector), they can also earn extra income. As far as we are concerned, this makes good business sense.

Further Reading

Energybiz-3 Ways Demand Response Will Lower Costs for Industrial Facilities

Navigant Research-Demand Response for Industrial Markets