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How to fund advanced demand management technology through utility incentive programs

April 22, 2014
By Patty Solberg


Investments in an advanced demand management system and in energy-efficient equipment will pay for themselves — often several times over during their lifetime. But many manufacturers can realize payback in less than a year by participating in demand response (DR) programs and tapping into utility incentive funding for energy efficiency upgrades.

DR programs, which pay electricity users to reduce consumption on demand at times to be determined, offer a significant and growing opportunity to defray energy costs. According to Navigant Research’s 2013 report, Demand Response for Industrial Markets, DR participants worldwide were on track to earn almost $1.8 billion US in incentive payments last year and will earn about $4.3 billion US in 2019. The lion’s share will go to businesses in North America because of the long history of DR and early adoption of automated DR.

Demand response: Under the hood
Manufacturers can earn several types of payments through DR programs. The main ones are:
* Incentives to cover some of the cost of new equipment or control systems needed to participate in DR programs.
* Capacity payments to customers who participate in a capacity-bidding program. These payments are based on the capacity reduction the customer offers each month, plus compensation for actual kilowatt hour (kWh) reductions when a DR event is called.
* Curtailment payments to customers who are willing to curtail their electricity demand (load) upon request. The duration and notice given of curtailment events vary depending on the circumstances and the program.

Ontario Power Authority’s DR3 program, for example, is open to businesses that are operating and available to reduce load during a predefined schedule of about 1,600 hours per calendar year. Within that 1,600-hour period, participants can select potential activation periods of up to 200 hours per year. They receive capacity payments (also called availability payments) for each of the 1,600 hours, plus energy payments (also called utilization payments) for energy use they curtail during an event.


Businesses sign up through a DR provider: EnerNOC, Energy Curtailment Specialists or EnerShift. EnerNOC also serves the Load Shed Service for Import program offered by the Alberta Electric System Operator (AESO). That program provides an availability payment, a payment when AESO “arms” EnerNOC’s portfolio (participating customers must maintain their load between 95 and 120 per cent of the load that was offered), and a bonus payment if AESO “trips” the portfolio (participants must take their loads offline).  

Another example: Hydro-Québec offers its interruptible electricity rate option directly, paying a fixed credit of $8.50 per kilowatt of effective interruptible power (an estimate of the power the customer interrupts, on average, when the distributor requires it) and a variable credit of 12¢ per kWh of energy interrupted at Hydro-Québec’s request.

Utilities increasingly see DR as a key source of flexible capacity, so the number of programs is growing. Check with your utility to see what’s available.

Energy efficiency: In action on the plant floor
Utility energy efficiency programs directly reduce the costs of equipment upgrades and control systems — often substantially. Burlington Hydro’s retrofit program, for instance, pays up to 50 per cent of the project costs for high-efficiency equipment and for installing new control systems to improve overall building efficiency.

One of our customers, a food processor in Toronto, cut the payback period on new efficiency equipment for its refrigeration rooms from 2.4 years to one year using the Burlington Hydro program. We helped the customer apply by providing an Electric Energy Assessment Report, an Equipment Performance Specification and project cost information.

The company installed two variable frequency drives (VFDs) for 20 air-cooled condenser fan motors, 11 VFDs for 22 evaporator fan motors, and Powerit’s Spara DM system to control the drivers and provide compressor staging and floating suction pressure control for eight reciprocating Freon compressors. Since the first year, the company has saved about $39,000 annually through energy efficiency and demand control.

Depending on the nature of their operations, other manufacturers could do as well as or better than this company. The Burlington Hydro program, available to industrial facilities in sectors including food and beverage, automotive, plastics and packaging, will also fund lighting and HVAC upgrades. And installing an automated demand management system, as the food processor above did, opens up the full range of energy control and smart grid program savings.

Which companies stand to gain the most?
Most manufacturers can realize savings from energy efficiency upgrades and ongoing demand management strategies. Those likely to gain the most have one or more of the following characteristics:

They pay a peak demand charge. The demand charge, a fee based on the peak usage during a debit period (most often 15 minutes) in a billing cycle, can account for 10 to 40 per cent of the business’s bill. The food processor cited above is saving at least $100,000 a year on demand charges at a larger facility that’s subject to high peak demand charges.

Their energy use is bursty. When manufacturers use energy in bursts over a short period of time, demand charges can result in electricity bills that are notably disproportionate to consumption.

Their utility offers automated DR programs. Automated DR programs tend to be the most lucrative, and an advanced demand management system can manage participation without compromising production. One of our foundry clients is earning $130,000 a year from two plants’ participation in an automated DR program.

They have buffers in their production processes or facility. Manufacturers using thermal storage, batch processing and operations with buffers can safely turn electrical loads down or off for short periods of time to execute demand control or DR. Cooling systems, refrigeration, ovens, pumps, bulk storage and fans are among the most commonly controlled loads.

If any these characteristics describe your facility, a comprehensive demand management program is probably worthwhile, even without incentives. If you can get the equipment upgrades and control system partially paid for by your utility, so much the better.

Patty Solberg is the director of product marketing at Powerit Solutions, a Seattle-based international technology company that focuses on advanced energy demand management.