Demand response: the power program that pays you back

How manufacturers can take the energy bull by the horns

By Phil Davis

June 13, 2011

The demand response aspect of smart-grid technology has changed the face of energy forever. Once a one-way street, electric power is now a bidirectional, two-way street, putting manufacturers in greater control of their electricity demand and costs.

An engineer programs PLCs in a control panel supporting an automated manufacturing line.

The electrical distribution system currently used in North America was built more than 50 years ago. The aging infrastructure was not designed to handle the existing level of energy consumption—and that level is rising rapidly. Energy demand is predicted to double by 2050.

Active energy management is quickly becoming a necessity across industries. In the past rising demand has been handled by augmenting the grid with additional power plants and power lines. However, this approach is both environmentally damaging and expensive.

Faced with this rising energy demand and aging infrastructure, as well as recent and pending legislation regulating energy use, utilities and electricity consumers have come to realize that it is increasingly important for them to work together to change the way that electricity is generated, distributed, and consumed.

The profile of energy consumption in the U.S. is changing. The relationship between utilities and electricity consumers is undergoing a transformation.

Moving to a Smart Grid

In recent years U.S. federal stimulus funding has spurred greater investment in smart grid technologies, which blend traditional electric-grid functions with a high-speed communication infrastructure and "intelligent" devices. This allows for real-time monitoring of energy usage and facilitates a bidirectional flow of energy and data between utilities and end users.

Prosumers. Previously the U.S.'s electric grid simply sent energy down the line from where it was generated to where it would be used, with no way to return any unused power to the power plant or any way to generate or analyze data about usage patterns or problems (see Figure 1).

The smart grid changes this by integrating technologies that further the efficiency of producing and distributing energy while simultaneously allowing end users to have more control over their energy use—and costs (see Figure 2).

Manufacturers in particular are migrating to a prosumer model in which they are not only electricity consumers but also producers. With this transition, industrial energy consumers have the opportunity to reduce energy costs and create a new revenue stream.

On-site Renewable-power Sources. In response to customer pressure, local requirements, and company policy, manufacturers increasingly are adding renewable-energy sources, especially wind and solar, on-site. However, adding renewable-energy sources to the grid potentially can be destabilizing.

In traditional grid operations, loads change constantly. Everything from a light switch to an industrial blast furnace has an impact. To maintain a constant frequency and voltage, grid operators compensate constantly by changing the source generating the power. Renewable-energy sources add to this instability with the variability that comes with changes in wind velocity, cloud cover, and humidity. When these resources are on-site, grid operators are blind to their presence and may not have enough generation resources to compensate quickly.

Demand Response, Energy Management

Smart grid systems help to solve this dilemma. Smart meters provide a better picture of electrical activity at the point of use. Smart sensors augment that with information about nonsite grid conditions. Substation and interconnect automation can arbitrate between generation feeders and load circuits. High-speed bidirectional communications report all this activity to control rooms where modeling software uses the reports to predict needs and to dispatch resources to keep everything balanced.

One important aspect of the smart grid is that it enables control rooms to take advantage of demand response (DR). DR can provide a more efficient, cleaner, faster, and less expensive alternative to ramping up traditional generation to deal with grid instabilities. In a DR program, a consumer lowers energy consumption briefly or shifts operations to a different period of time based on signals from the grid. The grid operator compensates that consumer either with direct payments or through a variable power pricing system that can lower total energy cost. This means that manufacturers that can adjust their energy consumption simultaneously will reduce costs and help maintain grid stability.

In the past the term demand response referred to peak clipping 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. In fact, now DR is also often referred to as active demand management. Rather than being used just to mitigate emergencies, it allows consumers to respond to price and reliability conditions as they change over a period of time—usually daily or hourly.

As electric vehicles become more prevalent, they may add demand and strain the grid. DR can mitigate this stress by managing the power flowing into and out of EV storage and recharging devices.

Industrial Sector Ripe for Demand Response

The U.S. Department of Energy (DOE) estimates that the U.S. industrial sector currently consumes more than 30 percent of all the energy flowing through the country's electrical grid.

Because industry operations are energy-intensive, DR is particularly suitable for them, and industry is likely to reap the greatest financial benefits. Energy consumers across industry segments can participate in DR programs with their utility or through a third-party aggregator.

By participating in DR activities such as modifying, curtailing, limiting, or postponing electricity usage when rates are high and selling this ability back to the grid, industrial facilities can create significant new revenue streams.

Current DR programs tap less than a quarter of the total market potential for it, according to a March 2010 Federal Energy Regulatory Commission (FERC) report called the "National Action Plan on Demand Response." For DR to reach its full potential, customer participation must be expanded.

Electricity grid operators want to engage industrial customers in energy management activities because of industry's huge energy demand. There is some customer resistance because energy reliability is critical to industrial operations. Manufacturers have expressed concern that DR programs might reduce production or be harmful to sensitive equipment. For these reasons, only about one in eight manufacturers uses any form of load management to respond to the grid.

However, improved control systems, rising electricity prices, and legislative pressures make active energy management programs like DR worthy of more careful study. With the potential to convert their large power bills into an asset rather than a liability, many have concluded that the potential advantages of DR outweigh the risks.

Risks and Risk Mitigation

Most large industrial energy managers are familiar with complex electricity rate structures, but they may not know that even sophisticated customers remain relatively isolated from the true economic and physical volatility experienced in the grid. Policymakers are increasing pressure to expose consumers to this harsh reality through major changes in regulation. In short, failure to anticipate and to act will result in sharply higher electrical costs in the future.

The U.S. is moving from a model in which most participants rarely think about power to one in which they will be active participants in the minute details of energy supply and reliability. Customers who don't understand power markets will face significant financial risk and conceivably force power outages. Energy management systems, associated service providers, and third-party energy market brokers can step in to help customers understand and manage these concepts.

A number of DR options are available to industrial participants to mitigate these risks.

One of the simplest is monitoring and metering the building envelope only. By monitoring HVAC, lighting, and other building loads with good metering, facilities can plan their energy consumption and leverage the thermal characteristics and occupant activities within. Often the necessary devices can be installed with minimal or no disruption to manufacturing operations.

For example, using HVAC set points, lighting controls, and other controls for building envelope systems in a large manufacturing plant often provide enough load shed to qualify for program participation and to earn a significant revenue stream. Load shed refers to the amount of curtailment that an energy user is obligated to provide during a DR event. For example, a manufacturer's peak load might be 10 MW. An energy audit might reveal that it could curtail 2 MW in response to a DR event. However, the plant manager might want to commit conservatively to only 1 MW as its sheddable load to the grid operator. In this example, 1 MW is the load shed.

Another option is to shift noncritical processes to off-peak periods. This might include pumped liquids storage or raw materials staging. Because DR events are of limited duration, simply slowing motor-intensive process lines, when feasible, can be effective and relatively painless.

Legislation

Participation in demand-side management activities was made possible by Order 719 issued by the FERC, intended to eliminate barriers to demand response participation in organized wholesale energy, capacity, and ancillary service markets. This was significant for the DR industry because it opened up energy markets to the demand side that, until then, had been available only to the supply side. This encouraged greater participation in demand management from industrial companies.

This increased participation introduced a new competitive pressure on energy markets that is leading to more awareness of energy usage and aligning market prices more closely with the value customers place on electric power.

Many believe that future legislation will require CO2 emissions to be cut by as much as 50 percent by the mid-century—just as energy demand is increasing. According to the 2009 "World Energy Outlook" report from the International Energy Agency (IEA), more than half of worldwide CO2 emission reductions will come from end-use efficiency.

Manufacturing professionals who aren't motivated by the environmental benefits or upcoming legislation to cut emissions are likely to be driven by cost savings.

Next-generation Demand Response

DR continues to evolve. The next-generation DR, often referred to as DR 2.0, will include more real-time automation capabilities that allow building management systems to communicate in real time with the utility or DR broker through electronic signals.

The technology needed to implement DR 2.0 programs exists right now; but certain barriers must be overcome for implementation. Some of these barriers are costly technology installations; a lack of knowledge about the programs and, therefore, limited participation; and an inconsistent national policy resulting in conflicting regulation.

Despite these challenges, DR 2.0 is predicted to be faster, less expensive, and more targeted than building additional generation and distribution infrastructure. In addition, manufacturers can add power to meet increasing demand and help utilities maintain grid stability.

Practical Strategies to Curtailment & Incentives for Manufacturers

How would you like to reduce electricity costs and create a new revenue stream for your business? Participate in the Green Manufacturer Network's seminar October 27 in Palatine, Ill. and learn how manufacturers implement demand response programs.

Interaction with utility representatives, customers, energy management system experts, curtailment service providers, and third-party energy market experts will get you started on how to decrease your large electricity bills and create revenue.

Learn More Here!