Your SlideShare is downloading. ×
Energy Efficiency & Demand Response in Competitive Electricity markets
Upcoming SlideShare
Loading in...5

Thanks for flagging this SlideShare!

Oops! An error has occurred.


Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Energy Efficiency & Demand Response in Competitive Electricity markets


Published on

Various electric grid independent system …

Various electric grid independent system
operators (ISOs) and Regional Transmission
Organizations (RTOs), along with FERC
have been promoting policies to increase
demand response capabilities in the
deregulated energy markets in recent years.
Commercial & Industrial (C&I) customers
are one of the key targets for achieving
significant demand response in the
deregulated electricity markets, due to their
size, and the potential for a small number of
users representing a large percentage
impact on demand reduction on the grid.
Various ISOs such as NYISO, PJM, ISO NE
have developed demand response
programs that offer financial incentives to
end users under the umbrella of Emergency
and / or Economic Demand response

  • Be the first to comment

  • Be the first to like this

No Downloads
Total Views
On Slideshare
From Embeds
Number of Embeds
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

No notes for slide


  • 1. Energy Efficiency & Demand Response in Competitive Electricity markets: Opportunities & Challenges for Energy Managers Rahul Walawalkar, Ph.D., CEM, CDSM, CSDP : Customized Energy Solutions Ltd. Bruce Colburn, Ph.D., CEM, CDSM, GBE : EPS Capital Corp. Rick Gilkey, CEM, CDSM, CEP : Customized Energy Solutions Ltd. Abstract: streams to the industrial plant than tend to Various electric grid independent system be currently available. operators (ISOs) and Regional Transmission Organizations (RTOs), along with FERC The revenue streams available from grid have been promoting policies to increase Demand Response programs tend to be demand response capabilities in the variable in length, and amounts of money, deregulated energy markets in recent years. as the incentive programs depend on the Commercial & Industrial (C&I) customers wholesale energy market dynamics. This are one of the key targets for achieving uncertainty of revenue has strongly significant demand response in the discouraged meaningful capital investment deregulated electricity markets, due to their in this area, instead relying more on manual size, and the potential for a small number of load dropouts upon notification, a very users representing a large percentage inefficient and unreliable scheme. These impact on demand reduction on the grid. ISO programs (Emergency and Economic Various ISOs such as NYISO, PJM, ISO NE Demand Response Programs) are have developed demand response independent of the programs from the local programs that offer financial incentives to utility and therefore may require action of the end users under the umbrella of Emergency plant at times when the local grid is not and / or Economic Demand response peaking, but the regional grid is. Therefore, programs. integrating new ECMs with the more stable and predictable energy efficiency measures, However, thus far participation by the C&I as a combined program, can provide a more sector in these programs has fallen far short stable financial base from which to put in of their true potential. As a result, industry is place methods, equipment, and procedures losing out on a useful cash flow stream, which together can reap financial rewards while simultaneously the entire grid suffers from pure energy savings as well as with higher than needed energy costs. This demand side management, whether that is a case where Industry ignoring these DSM is from the local utility or from the ISO programs does not just keep the playing grid. field level, it actually causes increases in the electric charges, not only for that industry, This paper will explore some currently but everyone, and therefore some of these available ISO Demand Response Programs, demand side response programs offer the differentiating them from local power industrial sector not only the opportunity to company programs, and then analyze their be paid for controlling demand, but in fact as impact on commercial & industrial a result further reduce what otherwise would customers. The potential impact on the be higher electric KWH charges. utility charges to that same industrial customer will be covered, along with the To cost-effectively change part of this impact of a direct participation, since “base paradigm of thinking, an integration of case” conditions actually lead to higher cost demand response technologies with more – doing nothing” costs more than being a traditional energy efficiency projects is in direct participant. order. To effect this, an integration of the energy efficiency side with the demand response side in concert with the new energy conservation measures (ECMs) which result from careful evaluation of joint opportunities can lead to better benefit
  • 2. 9/28/2009 Analyze. Simplify. Implement. Energy Efficiency & Demand Response in  Competitive Electricity Markets:  p y Opportunities & Challenges for ESCOs Presented by Rahul Walawalkar Ph.D., CEM, CDSM, CSDP Bruce Colburn Ph.D., P.E., CEM, DGCP, CSDP, GBE, CEA Presented on 6th November 2009 at 1 Analyze. Simplify. Implement. Outline Overview of Competitive Electricity Markets Need for Demand Response in Competitive Markets Overview of current Demand Response Programs and  opportunities for Energy Efficiency Projects Value of DR with Energy Efficiency Projects for ESCO Projects  Win‐Win‐Win Financial Benefits to ESCO, Host, and CSPs ESCO Example, and Summary Data 1
  • 3. 9/28/2009 Analyze. Simplify. Implement. Organized Electricity Markets Source: FERC:‐act/rto/rto‐map.asp Analyze. Simplify. Implement. NYISO Net Load ‐ 2006 NYISO Net Load ‐ 35000 Summer Months  30000 25000 20000 MW 15000 10000 5000 0 1-Jan -Jan Jan eb eb 6-Fe 1-Mar 25-J 18-Fe 13- 13-Mar 25-Mar 6-Apr 18-Apr 30-Apr 12-May 24-May 5-Jun 17-Jun 29-Jun 11-Jul 23-Jul 4-Aug 16-Aug 28-Aug 9-Sep 21-Sep Days in Year S21 3-Oct S17 15-Oct S13 27-Oct S9 8-Nov S5 Hrs in 20-Nov S1 2-Dec Day 14-Dec 26-Dec 2
  • 4. 9/28/2009 Analyze. Simplify. Implement. Short Run Marginal Cost Curve & Price Duration Curve * This price duration curve shows only the wholesale energy prices corresponding to the generation component of customer’s electricity bill. T&D costs are added onto these wholesale energy costs. Analyze. Simplify. Implement. Types of DR Programs Energy Efficiency 3
  • 5. 9/28/2009 Analyze. Simplify. Implement. DR Options Available From ESCOs Building Automation Lighting Controls Thermal Ice Storage Emergency Generators Energy Efficient Motors Variable Speed Drives Air Compressor System Analyze. Simplify. Implement. Opportunities for DR Program Participation Equipment / DR Programs Customer Ancillary Building Control Strategy Emergency Economic Type Regulation Component (Capacity) (Energy) & Reserve Air Conditioners Cycling/Forced Demand Shedding Water Heaters Cycling Residential Pool Pumps Cycling Demand limiting during on peak Chillers period Commercial Chillers Pre-cool bldg over night- storage HVAC DX Forced Demand Scheduling Refrigerator/ Prioritized Demand Shedding Scheduled dimming of selected g g Lighting circuits i it Chillers Demand Limiting on time Schedule Demand Limiting through Heat Industrial Electric Furnace Stages Electric Furnace Curtail (during peak period) VSDs Limit Output on Scheduled basis Production Eqpt Prioritized demand on selected units 4
  • 6. 9/28/2009 Analyze. Simplify. Implement. Why Demand Response With Energy Efficiency ?? • For Customer:   • DR can result in an appreciable reduction in system marginal costs of production  during peak time, which result in long term cost reduction for consumers.  during peak time which result in long term cost reduction for consumers • DR also presents a way to earn added revenues for implementing EE measures  and having flexible controls incorporated in operations;  • Simultaneously helps to improve grid reliability • In spite of such financial benefits, DR participation in PJM programs  was only 0.2% during the all time system peak in 2006. • There has been a recent growth in DR participation in Emergency DR There has been a recent growth in DR participation in Emergency DR  programs that provide capacity payment for peak load reduction • Significant opportunities still exist in integrating energy efficiency and  flexible control capabilities for maximizing economic & ancillary  service DR participation Analyze. Simplify. Implement. Benefits of DR For ESCOs and EE Projects: Benefits of DR For ESCOs and EE Projects: Additional revenue for energy efficiency with little incremental  capital costs to enhance DR capabilities CSPs can aggregate/automatically handle dispatching, planning,  and market settlements Additional incremental revenue stream at relatively low risk Added revenue can either allow more infrastructure hardware, or  greater profits Provides more options for customer in terms of control,  Provides more options for customer in terms of control generation, curtailment as Owner wishes CSP adds a level of risk protection for ESCO who is more focused on  energy efficiency, and not DR or electricity markets 5
  • 7. 9/28/2009 Analyze. Simplify. Implement. DR Programs for Energy Efficiency Work DR Programs for Energy Efficiency Work ESCO can participate in multiple programs by partnering with CSPs Receive Capacity payments for Emergency Program Guaranteed Load Drop during up to 10 events called by PJM G dL dD d i 10 ll d b PJM Direct measurement of Load Drop through emergency generation Energy Efficiency: permanent load reductions  PJM follows 3 year advance registration for capacity resources as part of  Reliability Pricing Mechanism (RPM) required before revenues begin  Receive Energy Payments for Emergency and / or Economic and / or  Ancillary Service Program Ancillary Service Program Requires typical M&V procedures for developing customer baselines Customer could bid to ISO, but can have aggregators / CSPs to bid DR on behalf  of customers, control process, renewals and facilitate payments Ancillary Service program participation may require real time communication  and control capabilities Analyze. Simplify. Implement. It’s A Team Effort: Win‐Win‐Win It’s A Team Effort: Win‐Win‐ Customer / Energy Manager Main beneficiary and determines the operating parameters  Facilitates execution for both EE and DR projects p j Can communicate new opportunities with management to determine ways to  maximize participation ESCO / Performance Contracting Company Provides technical, engineering and financing expertise Can use additional DR revenue to expand scope Evaluate investments based on incremental costs, that can add significant  capabilities for DR participation Provide a technical bridge between customer goals and market opportunities  Pro ide a technical bridge bet een c stomer goals and market opport nities identified by CSPs Curtailment Service Provider Provides functional & market expertise as well as interface to wholesale  electricity markets 6
  • 8. 9/28/2009 Analyze. Simplify. Implement. Benefits of Using CSPs in ISO DR Process by ESCOs CSPs are registered market participants in the ISOs Involves paying ISO registration fees,  Employing and training staff to know ISO rules and regulations Fulfilling credit requirements for market participation Verify that projects meet the ISO program criteria to ensure payment ISO based programs have evolved over past decade and still  undergoing changes important to be an active market participant to maximize value CSPs can provide in depth market knowledge and domain expertise  to maximize the revenue potential from DR participation Certain CSPs can also provide 24*7 operational support and control  i S l id 2 * i l d l capabilities that could be vital in optimizing revenues from economic  and ancillary service programs It is important to choose the right partner to compliment the skills  available within ESCOs and ensure that the goals of all partners are  aligned to maximize benefits for all Analyze. Simplify. Implement. ESCO Project & DR Program Participation Benefit of ISO programs is they tend to not interfere with the energy efficiency  and cost savings plans of normal ESCO project plan Offers payments from ISOs for the system benefits of EE projects, thus Offers payments from ISOs for the system benefits of EE projects, thus Augment the energy cost savings on utility bills with Capacity payments for permanent load reductions and energy payments for flexible controls Some ISO programs can begin to pay for energy reductions and ancillary  services from day one, even though Capacity payments are delayed for 3 years  after registration approval  Risk of loss of capacity payment for failure to perform, but this is ESCO  expertise & CSPs can help compliance with ISO requirements. expertise & CSPs can help compliance with ISO requirements CSP can assist ESCO in securing funding, and maximizing on going cash flows CSPS can also help ESCOs monitor changing market scenarios to prepare for any  fluctuations in potential market revenues by keeping track of supply / demand  variations, fuel prices and transmission upgrades or market rule changes 7
  • 9. 9/28/2009 Analyze. Simplify. Implement. Hospital ESCO Example Variety of Energy Efficiency and Cost Reduction Measures,  integrated on a bundled basis Includes non revenue, “Infrastructure Enhancement” measures  deemed important by the Hospital  Allows integration of standard energy efficiency + other ECMs, as  well as specific ISO DR program measures.  They can co‐exist. Utility costs highly dependent on the location of the Host Site with  respect to grid regions.   Location affects both utility rates, as well as the prices paid by ISO  for Host implementing DR programs Neither Host nor the ESCO have interfaced with electricity markets  in past  Analyze. Simplify. Implement. Hospital ESCO Measures: Example Example Hospital Project BEFORE: Utility Rates Peak Summer KW for Med Complex 33,640 Annual MWH for Med Complex 132,608,880 Discount Factor, for NPV Calculations 5.0% Incremental KWH $0.042 Debt Pymt Period, years 10 ISO EE Payment, $/KW/Month $3.450 Construction Period 12 Months ISO DR Payment, $/KWH $0.200 Interest Rate on Debt 7.0% ISO Payment, $/KWH $0.120 CSP Fees 33.3% DR Funds Earned Nat Gas, $/MMBTU $9.120 DSM Run Hrs/Yr- Generator 60 Dmd, $/KW/Mo $12.100 DSM Run Hrs/Yr- Controls 600 Regulated Medical Waste is cost reduction, at .37/lb Generator expense reworked due to need of DR plus, upgrade for Hospital ESCO Ann'l Elec EE Pk Shve Curtail Ann'l Fuel Incrntl Sale Price Svngs Dmd Svg Pk Shvng KWH/Yr KW Svngs Maint Revenue Producing Items g KWH KW/Month KW/Mo (Controls) MMBTU Svngs/Yr ( ) g Complete Lighting Retrofit $3,224,600 11,222,650 2,940 0 $7,500 New RMW System $1,510,400 -97,222 -24 -7,968 $0 Exhaust system heat recovery $312,200 1,389,000 11,333 $0 Direct Contact heat exchanger $660,000 -19,500 -30 51,780 -$10,000 Controls Schedules Modifications/pts $1,630,000 3,341,675 150 = fixed 104,700 1,745 41,430 -$8,000 Add VSD to AHUs (7) $132,000 2,906,700 21,433 -$10,000 Generators/controls for ISO Credit $39,600 0 6000 360,000 -5,040 -$5,400 Infrastructure Items Emergency Generator System Upgrade $1,480,000 0 0 8
  • 10. 9/28/2009 Analyze. Simplify. Implement. PROJECT CASH FLOWS – 10 YEAR BASIS PROJECT CASH FLOWS – Cash Flows Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Gross Revenues w/ ISO Pymts $2,651,454 $2,651,454 $2,651,454 $3,169,787 $3,169,787 $3,169,787 3,169,787 3,044,097 3,044,097 3,044,097 Debt Service $2,044,345 $2,044,345 $2,044,345 $2,044,345 $2,044,345 $2,044,345 $2,044,345 $2,044,345 $2,044,345 $2,044,345 Debt Coverage Ratio 1.30 1.30 1.30 1.55 1.55 1.55 1.55 1.49 1.49 1.49 CSP Fees $0 $0 $0 $172,605 $172,605 $172,605 $172,605 $130,750 $130,750 $130,750 Remainder $607,109 $607,109 $607,109 $952,837 $952,837 $952,837 $952,837 $869,002 $869,002 $869,002 Net Free Cash Flow NPV-10 yrs $6,253,802 Gross Revenues w/o Any ISO Pymts $2,525,814 $2,525,814 $2,525,814 $2,525,814 $2,525,814 $2,525,814 $2,525,814 $2,525,814 $2,525,814 $2,525,814 Debt Service Ratio 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 1.24 Remainder $ , $481,469 $481,469 $481,469 $481,469 $481,469 $481,469 $481,469 $481,469 $481,469 $481,469 $ , $ , $ , $ , $ , $ , $ , $ , $ , Net Free Csah Flow NPV-10 yrs $3,717,777 DSM Program NPV Benefit Increase-10 yrs $2,536,026 Analyze. Simplify. Implement. Energy and Demand Savings due to ECMs and DR Energy Savings Demand Savings 0% 14% 23% 9% 86% 68% AFTER KWH AFTER KW KWH Reduction due to EE KW Redctn due to EE KWH Rediuction due to DR KW Redctn due to DR 9
  • 11. 9/28/2009 Analyze. Simplify. Implement. Contribution of DR revenues on Project Economics Gross Revenue Breakdown M 10 yr revenue w/o ISO 10 yr revenue of KW ISO 10 yr revenue of KWH ISO % increase in gross revenues with ISO payments 13.6% % Increase in Net Revenues to ESCO/Host with ISO Payments 71.1% Analyze. Simplify. Implement. Summary Competitive Electricity markets provide new opportunities for  monetizing DR capabilities of traditional EE projects Additional revenues can be shared between ESCO and Host Increase per year of over $256,000 on an NPV basis.  DR program participation increased Net Cash After Cost by 71% in example After debt service covered, about 10% increase in annual average revenues in  1st year, but substantially more over life than without DR With help of CSP, this could be further enhanced through  monitoring day ahead energy markets and forecasting to avoid  it i d h d k t df ti t id “Demand Hit” due to failure to perform during “Event Period”  Conclusion:  By partnering with CSPs, ESCO can add meaningful  economic value for customers through DR program participation  for the system level benefits of these projects.  10
  • 12. 9/28/2009 Analyze. Simplify. Implement. Acknowledgements We would like to thank following individuals for their  inputs & review comments Rick Gilkey, VP, DR and Fuels, Customized Energy Solutions Rick Mancini, Director ‐ NYISO, Customized Energy Solutions Stephen Fernands, President, Customized Energy Solutions Thomas K. Dreessen, President, EPS Capital Corp.   Analyze. Simplify. Implement. QUESTIONS ??? Dr. Rahul Walawalkar Dr. Bruce Colburn 215-875- 215-875-9440 610-525- 610-525-4438 rahul@ces- www.ces- 22 22 11
  • 13. Author Bios: Bruce Colburn Ph.D., CEM, CDSM, GEB Rahul Walawalkar Ph.D., CEM, CDSM Dr. Bruce K. Colburn is licensed both as an Dr. Rahul Walawalkar leads the Emerging electrical and as a mechanical engineer in Technologies practice for Customized several states. He holds a Bee, MS and Energy Solutions with focus on energy Ph.D. in Electrical Engineering. In addition to storage, demand response, renewables and 39 years of engineering design and analysis smart grid technologies. He is an experience, he is certified as a Green internationally acclaimed expert in areas Buildings Engineer, PE, CEM, DGCP, covering energy management, electricity CSDP, and CEA and various other markets, emerging technologies and new certifications, including NCEES national product development. engineering registration. He has over 70 publications to his record, including Rahul has been involved in evaluating contributions to 6 books, and was inducted economics of emerging technologies in into the AEE International Hall of Fame in deregulated electricity markets since 2004. 2004. He has received numerous honors His research and consulting activities have and awards from various engineering covered complete range of demand societies, including AEE, IEEE, ASHRAE, response and energy storage technologies. and AIST, and is A Member of the Energy Rahul currently serves on the Board of Committee of the Association of Iron and Directors of Electricity Storage Association Steel Technology. He has worked on a and is involved in providing inputs for the variety of industrial, commercial, and demand response and energy storage policy institutional projects in 28 countries, to FERC & various state agencies. He also including design, retrofit troubleshooting, serves as a Lead Analyst for "Global Energy commissioning, forensic engineering work, Assessment" initiative of the International energy engineering, and related aspects. Institute for Applied Systems Analysis (IIASA) as part of an international team of Dr. Colburn has also been a lecturer at a experts. number of energy training programs sponsored by various state energy Rahul holds a Ph.D. in Engineering and agencies, the US Department of Energy, Public Policy from Carnegie Mellon Portuguese government, ASHRAE and University. Rahul conducted research on AEE. Prior to entering the consulting field, “economics of emerging energy storage and Dr. Colburn was Associate Professor of demand response technologies in Electrical Engineering at Texas A&M deregulated electricity markets” under the University. He is a Charter Member of AEE, guidance of Dr. Jay Apt, Dr. Lester Lave, Dr. member of IEEE, ASHRAE and AIST and is Granger Morgan and Dr. Rahul Tongia at associate editor, reviewer, awards the Carnegie Mellon Electricity Industry committee member, director and advisor for Center. He also holds Masters in Energy numerous technical journals and Management from New York Institute of engineering organizations, and on the Board Technology and undergraduate degree in of the Distributed Generation Institute of Electrical Engineering from Walchand AEE. Past industry awards include the AEE College of Engineering. Energy Professional Development Award, Sigma Xi Research Award, IEEE Prize He is recipient of numerous awards Paper Award and Houston Chapter AEE including Computer Society of India’s Young Achievement Award. He is a Chartered IT Professional Award, Demonstration of Legend in Energy of AEE. Energy Efficiency Developments scholarship from American Public Power Association and is also recognized as one of the Legends in Energy by Association of Energy Engineers.
  • 14. Rick Gilkey CEM, CDSM, CEP Richard (Rick) Gilkey is the VP Fuels and Demand Response for Customized Energy Solutions. He is responsible for assisting clients in developing and selecting cost- reducing energy supply strategies in wholesale and retail markets for electricity and natural gas. As well as, supporting clients in RFP processes including data analysis document preparation, coordination of wholesale and/or retail suppliers, bid evaluations, RTO coordination of supply, and contract negotiations Rick oversees the Demand Side Response programs for end use customers as well as our partner clients who contract with us for back office DSR support services, including energy, capacity and ancillary service market operations and coordination functions for clients with behind-the-meter generation and demand resources. Rick also assists clients in developing and selecting cost-reducing energy supply strategies in wholesale and retail markets for electricity and natural gas as well as RFP processes including data analysis document preparation, coordination of wholesale and/or retail suppliers, bid evaluations, RTO coordination of supply, and contract negotiations. Rick received his MBA from Widener University. He also completed a BS in Chemical Engineering at Rensselaer Polytechnic Institute in addition to a BS in Chemistry from Dickinson College. He is an active member of The Association of Energy Engineers. Rick is also recognized as a Certified Energy Manager, Certified Demand Side Manager and Certified Energy Purchaser in conjunction with The Association of Energy Engineers.