Demand response deal shows US utility’s bid to help customers cut costs and reduce churn.
FirstEnergy has signed a four-year, multi-million dollar demand response contract with EnerNOC to deliver demand response resources to three of FirstEnergy’s Pennsylvania utilities, Met-Ed, Penn Power and West Penn Power.
Not only will this demand response programme help the company cost-effectively meet its demand reduction targets mandated by Pennsylvania Act 129, it will also help their business customers save money on their electricity bills, said EnerNOC in a statement.
The programme provides financial incentives to businesses that curtail their consumption in response to utility requests especially during peak consumption hours. It will operate from 2017 through 2020 during the summer months of June to September.
Load reduction can include temporarily reducing or shutting down industrial processes, switching off lights in groups or sequences, reducing the use of HVAC systems, shutting down large motors and compressors, or starting back-up generation.
"This demand response programme is a great opportunity for businesses to improve their bottom line by managing their electricity use," said John Dargie, Vice President, Energy Efficiency at EnerNOC. "In addition to saving energy, businesses that participate can reduce the demand on the electric system and help prevent potential increases in electricity prices when demand is high."
The new demand response programme can be added to any other existing peak-power usage agreement a commercial client may have in place to gain additional savings.
Such agreements are becoming increasingly popular for commercial clients because new technologies give large power users more control in how and when they can implement power-saving measures, explains Aaron Ruegg, Spokesman for Met-Ed’s Pennsylvania operations.
Industrial demand response programmes started in the 1920s and one-way air conditioning interrupter programmes, time-of-use rates and direct load control, and demand response programmes have been around since the 1970s.
And demand response is evolving in response to new energy sources and customers expecting on-the-go access to information and control. Today, demand response is a new, bidirectional flow of data that can reward customers who use it to shape their demand profiles to better match local grid conditions.
Philip Davis, previously Senior Manager Energy and Utilities Business at Schneider Electric, suggests that demand response should evolve so that it enters the control room as a method of dispatching customer-side resources with the same reliability, verification and integration as traditional generation. "DR must move to a model in which customers become active participants in the minute details of energy supply and reliability."
Because those customers are not utility employees and their demand response and local generation capabilities are not utility assets, the utility cannot manage them the same way. Whereas utilities use deterministic planning for traditional assets, they must grow more comfortable with probabilistic techniques on the demand side.
In the past, demand response referred to peak shaving actions that were confined to a limited number of hours per year. More recently, the term has evolved to describe a more consistent active energy management approach. Now demand response is synonymous with active demand management. Rather than being used only to mitigate emergencies, it allows consumers to respond to price and reliability conditions as they change constantly.
Demand response has entered a new reality through better metrics, better equipment, faster feedback and a mechanism for wide-area coordination provided by the smart grid. Now utilities must build on these new-era tools to involve their customers, explains Davis.
In the shift to a more customer-centric model, engaging commercial and industrial customers more personally in their energy management can open significant opportunities for utilities. These customers have very substantial energy needs and as a result, they value energy management as a strategic business driver. In fact, energy management and efficiency services are major revenue streams for utilities and the customer gets to benefit too.
Managing peak demand delivers many benefits, including reducing costs to customers, improving reliability and carbon compliance. Navigant analysis found that avoided transmission and distribution capital expense alone from demand response could total half a billion dollars on a US state-by-state level, depending on the scenario. DSM investments promise huge returns as it involves helping the customer to save power and money while still tapping into grid optimisation potential.
Demand management represents a big opportunity to deliver value to customers while deferring asset capital costs. Business customers especially spend six times more on energy than residential, representing over 70% of DSM potential, according to the US Energy Information Administration.
Every $1 spent on demand response can yield up to $4 in customer benefits, according to Advanced Energy Economy (AEE), a trade association representing the advanced energy industry. AEE's goal is to influence public policy and provide a unified industry voice about the economic opportunities that advanced energy and technologies can bring to the United States.
Customer satisfaction also has its financial benefits. Larger commercial and industrial (C&I) customers in particular want more control over their energy costs and utilities can help them address this strategic business driver to enhance satisfaction.
Up to 30% of controllable operational costs are driven by a utility’s effort to manage customer dissatisfaction, according to an Accenture report. Engaged customers are central to the return on DSM investments. Today, achieving results in energy management takes delivering customer programmes and offerings that create engagement on a more personal and deeper level.
Perhaps demand response has been the "grandaddy" of customer engagement all along, suggests Davis.