A Buyers Guide to Demand Response
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Transcript of A Buyers Guide to Demand Response
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Depending on the amount of energy your company uses, it could be a candidate
for participating in demand response (DR), the popular grid-sponsored programs
that pay businesses like yours not to use energy during times of peak demand.
While the enrollment deadline for many of next years DR programs isnt until
Spring 2011, chances are you or someone in your organization has been
contacted or soon will be by a demand response provider (DRP). Before
you contract with any provider, its essential you understand the rules of the
game. Doing so will help you shop more effectively for DR services and avoid
getting shortchanged.
DRPs are essentially the middlemen of DR. You have the curtailment assets energy that your company is able to reduce on demand, whether by switching to back-up generation, turning down lighting and cooling systems, or shutting down production lines. The grid needs a reserve of companies that can be called upon to shed their load during peak times to maintain power. Therefore, the grid has traditionally used DRPs to find companies with viable curtailment assets and broker these deals. It sounds simple enough and it is however, companies participating in DR by sole-sourcing their DRP relationship run the risk of minimizing what they are paid by the DRP.
Many first-time DR participants do not fully understand this dynamic. In the absence of competition, accountability and transparency, DRPs position curtailment assets as found money, causing many companies to ignore the cash left on the table.
Fortunately, todays DR participants have more choice and better tools than ever before to select the right program and provider to meet their needs and maximize their return. Heres how:
Demand More from DR: A 5-Step Process
1. Understand your market opportunity.
All demand response programs are not created equal. The value of a megawatt (MW) of curtailed load in the New England ISO region is not the same as in PJM. Even within an ISO region, prices can vary dramatically by service territory.
Demand More: A Buyers Guide to Demand Response
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Industry analyst
firm Pike Research
projects the DR
opportunity will
grow to nearly
$3 billion by 2015,
up 100% from 2010.
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So to maximize your DR payment, you first need to understand your market opportunity geography by geography and facility by facility. For example, you could have two plants in Western Pennsylvania just miles apart, with one DR program yielding $82,000 and the other only $10,000. Knowing information like this in advance can help you estimate your DR opportunity and prioritize actions accordingly.
2. Determine the DR program that is right for you.
Demand response is comprised of many different types of programs, each with their own alphabet soup of terms, performance rules and payouts. Some of the more popular include emergency capacity, synchronous reserve and frequency regulation. Determining which program is right for you and how best to participate in it are key questions to address before contracting with a DRP.
In order to select the appropriate DR program, you also will need to calculate how much load you can reasonably curtail, balancing prospective DR revenue against any business opportunity costs. Remember, too, that successful program participation being ready and able to shed load with advance notice ranging from a day ahead to two hours, 10 minutes, or even 4 seconds will likely require collaboration among different stakeholders at your company, including operations, engineering, finance and sales.
Determining DR Viability by Location
The ISO/RTO landscape is vast, spanning much of North America, and providing many companies with the opportunity to derive new revenue.
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Negotiating a
DR contract early
in the season,
while DRPs have
abundant capacity,
provides an edge
to customers.
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Demand More from Demand Response
3. Go to market wisely.
Once you know DR is right for you and how best to participate in it, youll need to find the right demand response provider. In short, its time to shop around.
Be aggressive. Stimulate competition. The tools are available to enable buyer-empowered transactions.
Dont wait for DRPs to call you. Make the first move. You could compare offers over the phone, or bring in a consultant to handle that for you. But there are also new ways to engage the market that are drawing positive reviews and breakthrough results, including one featured on the cover of Public Utilities Fortnightly demand response auctions.
Online DR auctions enhance competition for your business, pitting DRPs against each other in a way that promotes apples-to-apples bidding, enables price discovery and, ultimately, gets you a bigger share of the DR payment. Much as online auctions have made inroads in retail energy procurement, DR auctions are transferring power and margin from the provider to the customer. DRPs need your assets, enabling you to drive the terms of the sale in your favor. DRPs themselves buy capacity from the ISOs at auction, so why not use their advanced tools and processes to your benefit?
DR: Three Things to Know
How often will I be required to shed load? The number of events you could get called upon to meet generally ranges from one test event to as many as 10 events, not to exceed six hours. The specific number will be contract- and situation-dependent.
What happens if I dont or cant respond to an event when called upon? There can be penalties to pay when companies do not or cannot perform a required energy curtailment. Understand your requirements before you contract with a DRP and drive contract terms in your favor.
Do I need to invest in automated systems to participate in DR? The short answer is no. Automated controls are not right for everyone. They can be costly, take away control from your company, and tether you unnecessarily to one DRP.
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Companies ready
to participate in DR
programs now have
access to a market
with transparency,
price discovery and
liquidity, all of which
are keys to helping
the market scale and
enabling businesses
to convert their
curtailable loads
into strategic assets.
Auctions provide
the path into the
DR market. from the August
2010 Public Utilities Fortnightly cover
story, Demanding More from DR
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Demand More from Demand Response
4. Drive contract terms on your terms.
DRPs are for-profit businesses that make money on your curtailment. They have a vested interest in getting you into a contract that benefits them. Dont let that happen. Take control and drive contract terms that favor you. Make sure your contract spells out these key items so your business needs get met:
Is the DRP paying you for the full amount you curtail?
Does the contract structure incent the DRP to do their job?
How much notice will you be given to perform?
Who pays for non-performance? (You or the DRP?)
When will you receive payment?
Demand Response Payments by Method
Comparison of payments retained by customers using conventional methods vs. World Energys unique approach.
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4570% 6080%
7590%
Traditional RFP and Consultants
Sole Source Supplier
% o
f P
aym
ents
World Energy
The Dos and Donts of DR
Do determine your companys DR opportunity.
Dont sign on the dotted line with the first DRP.
Do calculate how much you can afford to curtail.
Dont sole source your DR asset.
Do be proactive in defining the terms of your contract.
Dont let DRPs take more than their fair share.
Do contract early in the season.
Dont contract without understanding payment terms and penalties.
Do business with a partner who has your best interests in mind, one providing transparency, competition, and more revenue for you.
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5. Ensure Performance
Finally, before selecting a demand response provider, you need to ensure performance. What kind of track record does each DRP have fulfilling their obligations? What is their process for notifying you of an event?
DRPs provide a range of services at a range of price points to help you meet your performance requirements. How much of your DR revenues you wish to invest in these services is ultimately your decision. You can participate without any automation or ceding of operational control, but you do need to ensure a minimum performance threshold.
World Energy evaluates DRPs against its proprietary demand response performance criteria to give customers comfort with each DRPs capabilities, experience, and contract commitments.
ConclusionDemand response is quickly maturing into a multi-billion-dollar opportunity and a key component of many companies energy management strategies. The days of treating DR as found money are over. As such, you need a plan for participating in DR that goes beyond fielding cold calls from DRPs. You need an approach that maximizes the value of your curtailment asset and protects you from missteps.
Following the five-step process outlined here will help you make participation in the 2011 demand response season a success.
The Time to Participate in DR is Now
Contact World Energy to learn how you can increase your demand response payments using the World DR Exchange. Remember, the best time to participate in DR for the upcoming year is now and the best way for you to do it is with the World DR Exchange from World Energy.
Phone: (508) 459-8100Email: [email protected]: www.worldenergy.com/dr
5
World Energy
provides an
excellent process
for sourcing DR,
one that really
drives competition
and benefits the
customer. John Metzger,
CFO of Gerbers Poultry, Inc.
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Demand More from Demand Response
About World Energy Solutions, Inc.World Energy Solutions, Inc. (NASDAQ: XWES; TSX: XWE) is an energy management services firm that applies an award-winning combination of people, process and technology to help clients manage energy as a strategic asset. To date, the Company has transacted more than $20 billion in energy, demand response and environmental commodities on behalf of its Government, Commercial & Industrial, and Utility customers, creating more than $1 billion in value for them. World Energy is also a leader in the growing global carbon market, where its World Green Exchange supports the ground-breaking Regional Greenhouse Gas Initiatives (RGGI) cap and trade program for CO2 emissions. For more information, please visit www.worldenergy.com.
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