When you think about ways to reduce your organization’s energy costs, two solutions typically come to mind.  One is that you can work to procure a lower rate for your electricity or natural gas supply.  The other is that you can put together an energy efficiency program designed to reduce the amount of energy you use.

For many companies, the procurement has already been done, and they know what their electricity rate will be for the foreseeable future.  Meanwhile, instituting an energy efficiency program may cost hundreds of thousands (if not millions) of dollars and have return-on-investment estimates of five to ten years.  As a result, many organizations stop at this point, believing that they’ve done all they can do to reduce their energy costs.

Fortunately, there is more that you can do – without the investment of a multi-million dollar efficiency project.

This article will explore, in layman’s terms, the benefits of two solutions called “load response programs” – with a focus on how each can bring some serious reduction to your annual energy costs. One solution is to curtail your electricity usage (or “load”) as part of what’s called a Demand Response program, and the other is to reduce your peak demand, highest annual electricity usage as part of a Coincident Peak reduction program.

Demand Response: Incentivizing Curtailed Energy Usage

To maintain the integrity of the electricity grid, many utilities are supporting Demand Response (DR) or curtailment programs.  If the grid is strained due to increased demand, such as from temperatures higher or lower than expected, a utility will call upon a designated pool of DR participants (businesses municipalities, schools, etc.) to curtail their energy usage to prevent a brownout or blackout.  Once DR is fully utilized, grid operators must resort to rolling blackouts to keep the lights on.

The utilities offer financial compensation to incentivize end users to participate in DR programs.  In other words, participants are paid for being “on standby” to reduce usage if the grid faces a brownout or blackout.  As their overall impact on lowering electricity usage is becoming evident, the popularity of DR programs is growing.  These programs are becoming more commonplace across the country, as the map shows:

To participate, an end user must work with a registered demand response provider, who bids the electricity load into the system.  The DR provider will follow specific protocol in relation to how much load is available for award.  Once a utility company receives enough registrations from DR providers to hit its predetermined load curtailment level, it suspends applications until the next registration period.

At this time, DR programs are reserved for large energy users because of the certain energy load thresholds.  While it varies geographically, that threshold in most regions is at least a half a megawatt of demand that a consumer can curtail before they can participate.

Most utilities offer these programs during several set times throughout the year.  Common DR programs are segmented into specific periods during the year, and participants can take part in one or all of those periods.  Not surprisingly, compensation is usually highest for curtailing during the summer months, when it’s hottest and when the grid is most strained.  Although compensation levels also vary geographically, customers in some regions can earn as much as $45,000 per megawatt that they curtail.

That’s a significant savings – but before you rush into a DR program, it’s important to remember that your registration is a binding contract.  Your energy curtailment, when requested, is mandatory; the utility will charge a penalty for noncompliance.

Voluntary DR:  Flexible Curtailment Without Commitment

As an alternative to the more stringent traditional DR programs, many suppliers have implemented “voluntary” DR programs that offer financial incentives for customers who choose to curtail usage during peak hours of the day.

In this scenario, the supplier simply sends their list of voluntary DR participants an alert (sometimes with almost no lead time) requesting curtailment for a set time in exchange for a certain compensation amount.  Those who want to accept, cut their usage; those who do not, continue as normal.  There’s no penalty.

Signing up for voluntary DR is much more informal, and it’s usually done directly with the supplier.  These voluntary programs are common among end users with smaller loads because the curtailment amounts are typically smaller.  Like the regular DR programs, we usually see the voluntary DR with governmental and commercial end users, although residential options have started entering the conversation.

Coincident Peak Reduction

Ever read the term “4-CP” or “5-CP”and wondered what it meant?  “CP” stands for “Coincident Peak,” and it is another energy reduction plan that utilities implement to preserve grid integrity.  Just like DR programs, CP reduction can help consumers save money.

Utilities determine delivery rates for electricity based upon a measurement of several “coincident peaks” during the hottest months of the previous year.  Different utilities measure them in different ways.  A common method is to average each customer’s usage during the grid’s highest demand for each of the four (or five) summer months. This measurement of these coincident peaks determines the actual amount of energy usage during those peaks.  If four measurements are taken, you have “4-CP”; if five are taken, it’s “5-CP.” That measurement is then used to calculate the delivery charges for the next year.  The concept is that the grid needs to have enough capacity to accommodate customers even during periods of their highest energy usage.

Participating companies do not know exactly when their measurements will be taken, which encourages an overall load reduction during the CP measurement time.  In addition to simply turning off some lights and setting the thermostat higher to achieve curtailment, an organization could opt to move an activity normally scheduled for the middle of the afternoon to off-peak hours at night or stagger operations to prevent running all machinery at once.  Others may move to a backup generator, continuing normal operations unhindered without loading the power grid.  But remember, since participants don’t know exactly when a CP measurement will be taken, many times they end up reducing on days when it is anticipated but may not actually occur.

This in a win-win situation:  By reducing peak demand, participants can realize both immediate savings by lowering the demand charges and ongoing savings for the coming year by demonstrating lower average peak usage.

Conclusion

The additional financial benefits of DR and CP reduction programs can create significant cost savings for your organization.  Best of all, they require little expense to launch.  Keep in mind, though, that while they may not necessarily carry a high price tag, they do require participation and involvement of your entire organization.  If you can’t get all levels of your organization to “buy into” DR or CP reduction, it’s not a likely solution for you.

Before implementing either of these programs, you should always make sure that it doesn’t interfere with key clauses in your electricity contract.  Some contracts include provisos that if you reduce the amount of energy that the utility thought you were going to use, you can get penalized for it.

By becoming a smarter manager of your energy needs, you will start seeing additional savings on top of lower rates and energy efficient buildings and equipment.  Layering in strategies like DR and CP reduction will ensure that you are maximizing every angle to reduce your organization’s energy budget.