Controlling Capacity Costs Through Demand Management and Demand Response

In our Peak Load Contribution blog, we discussed peak load contribution (PLC) and how it affects your electricity supply rate. At the end of the blog, we described options to lower your capacity costs by lowering your PLC. Now we would like to delve into one of these in particular, Demand Management, as well as a revenue generating alternative, Demand Response (DR).

Demand Management is a broad category of activities aimed at lowering peak monthly demand. Within this, lowering demand during the coincident peak periods, when the electricity grid as a whole experiences peak demand, lowers your PLC tag and ultimately capacity costs. There are two prerequisites needed to be able to take advantage of this savings opportunity: an interval meter and a capacity pass-through electricity contract. As we mentioned in the previous blog, a client on a fixed-price product will not see savings from a program like this, which is why it is important to move to a capacity pass-through or other variable product. In our Electricity Rate Components blog, we mentioned the three components of an electric supply rate: energy, capacity, and ancillaries. In a capacity pass-through product, energy and ancillaries are fixed while capacity is passed through at cost.

Once a customer is in a capacity pass-through product, they must obtain an interval meter to allow the utility company to monitor their demand on an hourly basis. This meter will detail any curtailment performed during the peak hours. The cost of these meters will vary by utility region, so it is important to contact your utility company to learn more.

Demand Response requires a client to curtail load during periods of high energy prices (economic DR) or high demand threatening the reliability of the grid (emergency DR), as determined by the regional transmission organization (RTO), throughout the year. A client must contract with a curtailment service provider (CSP) to curtail a specified amount of load (ex. reduce demand from 500 kW to 300kW) when called upon. Each year, there is one test event to ensure the participation of the customers involved. If there are no curtailment events throughout the year, the test event will be used to calculate the revenue each participant earns. All participants are notified of the test and failure to comply may result in penalties from the CSP. If the client does reduce by any amount, they will receive revenue that will be shared with the CSP. Just like in PLC management, a client must have an interval meter installed for the CSP to monitor their demand.

Both programs can offer attractive perks: savings from Demand Management and revenue from Demand Response. There are many nuances to each program, so a thorough review of each to determine the program that best fits your needs is important. Community Energy Advisors has experience in assisting clients with both options and would be happy to help you make an informed decision on reducing your electricity costs.