The Demand Response Advantage: More Money For Customers

Posted on July 19th, 2011 by
   

Gregg Dixon, Sr. VP of Sales and Marketing for EnerNOC, discusses how his company is helping smooth the load on the grid through innovative demand response strategies.

Ben Lack: I’m with Gregg Dixon, the Senior Vice President of Marketing and Sales with EnerNOC. Thanks so much for being with us today.
Gregg Dixon: It’s our pleasure, Ben.
Ben Lack: You guys have recently announced a five-year agreement with the Electricity Northwest Limited group to help conserve their 2.5M domestic and industrial customers in England. I’d like to get your thoughts on the impact of the partnership and have you shed some light on what that relationship is going to be like.
Gregg Dixon: Sure. The impact is pretty simple. Northwest has to maintain supply and demand balance for its customers. It has to procure supply to make sure that it can meet in a reliable way the peak demand of its customers. One of the resources or tools that allows them to achieve that balance is demand-response so they can purchase coal plants and gas fired peaking plants, winter turbines, solar plants– you name it. They also want to bring the ability to curtail load to their customer base so they can actually participate directly in achieving that supply and demand balance. The customers that you participate in demand-response programs benefit directly through monetary means and indirectly by ensuring that the grid is run more efficiently with demand resources, which are fantastic alternatives to traditional iron in the ground resources.
Ben Lack: Do the financial instead of the customers potentially have is not good an impact to really get folks to move the needle or there are other things that a partnership like this has to do in order to really get folks to buy into this whole demand-response idea?
Gregg Dixon: We like to say that customers are motivated in three primary ways in demand-response programs: money, money, and money. The bottom line for customers is literally the bottom line in demand-response. There are lots of insular benefits that customers appreciate such as being able to keep the lights on their community and directly doing their part. But at the end of the day, when they curtail load depending on the types of load, it has to make economic sense for them. And so, we typically put to what amounts to a ravenous dream because we pay them to participate in these programs in the context of the over-all energy bill. Where a customer participates in demand-response programs, they tend to see a 2-8% total energy bill or total electricity bill reduction from their program participation depending on the level at which they commit to reduce load.
Ben Lack: Got it. Talk to me a little bit about the role that EnerNOC plays and the relationship between, for this instance, Northwest and the customer.
Gregg Dixon: Sure. In essence, we act as a reversal plant just as Northwest might go out and procure a commitment from a peaking plant to deliver a certain amount of power, a certain amount of capacity when this batch with certain characteristics. They do the same with us. We handle absolutely everything else. If you were to put a power plant in the ground and equate that to what EnerNOC does, we go out and find a land, in this case, the customers or their ability to curtail load. We educate those customers on how they might participate. We put our technology in place to enable those customers to participate because these customers often are required to dispatch in real time, and they have to have real time measurement and verification of the load reduction. We manage all program dispatches, so when Northwest needs the capacity, they contact us electronically and we take care of the rest. We actually manage the performance of the entire portfolio and each asset associated with it. We do all the market settlement, so when we get paid, we ensure that our customers get paid and everybody is happy.
Ben Lack: Give us an idea o how much energy is going to be allocated or essentially moved through the different asset and the demand-response for Northwest. Give us a range.
Gregg Dixon: We have no limit on what we can deliver. Ideally, we focus entirely on what we call the C&I sector: the commercial, institutional, and industrial customer classes. We don’t do anything with the residential sector. To put it in kind of a larger picture terms, the entire UK electric grid has a peak demand of about 60Giga-Watt or 60,000Mega-Watt. We believe, as in any market, a rough rule of sum is you can enable about 10% of that system peak to participate in CNI focus demand-response programs. In this example, the 6,000MW’s worth of power reduction through demand-response could be achieved.
Ben Lack: That’s a lot.
Gregg Dixon: That is about six nuclear power plants of towers. In an average nuclear power plant, that’s about a thousand megawatts.
Ben Lack: For utilities, tied to your point earlier, is this a much more advantageous way to not have to build new plants into the ground?
Gregg Dixon: Absolutely. It is the elusive win-win-win. It’s a win for utility. It is a win for the customer because they get to participate in the solution and get paid to do it. It’s a win for consumers because system reliability is improved and we like to say the greenest kilo-watt-hour is the one never consumed.
Ben Lack: Sure. I know that there are a lot of talks in the States that the demand-response practice is really needed to be implemented more in the U.S. Can you talk to us a little bit about if Europe is farther ahead in this game than the U.S., or the U.S. is starting to take some serious strides?
Gregg Dixon: What’s interesting is that the U.S. is far behind in many clean technologies in smart grid areas. But the one area that the U.S. is in fact far ahead than any other country is demand-response. Many countries like Germany, China, France, the U.K. are far ahead of the U.S. in wind and solar but far behind in demand-response.
Ben Lack: And even an area like the PJM market, that’s one of the larger areas of the country for electric reliability. They’re obviously leaders in the U.S. and I know that you guys recently announced that you’re expecting over $275M of demand-response revenue coming from PJM in 2014. Talk to us a little about how you think you’re going to get there and why does that matter.
Gregg Dixon: PJM is significant in a number of regards. One, it is in fact the largest electric control area in the world with about 150,000 Mega-Watt system peak. PJM is also very progressive in integrating demand-response as a resource to meet peak demand and has been doing so for a number of years. It’s created a very attractive market for demand-response providers like EnerNOC. Right now, it’s seeing at the leave of about 8% of its system peak where Brian can follow-up with the exact data on the 2015 auction, which is the latest forward auction, the number of demand-response Mega-Watt . For the queer, that’s a percentage of total cleared supplied mega-watts. I think it’s about 8%. If you juxtapose that against to 10% rule of thumb figure I gave you earlier, they’ve done a great job and this is just CNI folks on demand-response. They’ve done a great job with integrating resource, stimulating the supply of it. When you have a resource like demand-response is going to deliver up to 80% of the system peak for that size of control area where you have a tremendous amount of industrial and commercial business activity. That resource has to be highly reliable. And so, it’s significant from the perspective that it causes such as penetration demand-response has to show up. In fact, today, the largest dispatch of PJM demand-response resources is going on as we speak. We got dispatch this afternoon for weather related reasons. It’s hot in the mid-Atlantic and they need these resources.
Ben Lack: Sure. What State has the biggest opportunity for demand-response on the PJM market?
Gregg Dixon: The state with the largest demand is kind of an obvious answer, but it’s just a simple fact. The states of the largest demand are Pennsylvania, Illinois, Virginia– these are states with 20, 25, 30,000 Mega-Watts of peak demand. To describe that more, Pennsylvania, in particular, probably has the biggest opportunity because not only is Pennsylvania part of PJM and consumers of electricity can participate in this PJM responsive programs, but also the state legislature within Pennsylvania has created an act called Act 129 that requires Pennsylvania specific utilities to reduce demand, peak demand by 2013 by 4.5% through the use of energy efficiency and demand-response. Not only is there a PJM market driver but there is also a state legislative, regulatory driver that’s stimulating demand-response.
Ben Lack: Is that a common thing throughout states, or is that a fairly unique legislative goal?
Gregg Dixon: It’s fairly unique in their implementation of it. It’s not the first. I think the first actually stimulate demand-response in conjunction with an existing regional transmission organization program like PJM is Connecticut. They had back in 2006 what was called an Active Energy Independence, where they put in a supplemental program or payment to stimulate demand-response within the ISO-NE control area.
Ben Lack: Got it. You ended up answering the question that I was going to follow up with. Talk to us a little bit about why you are in the energy industry and why you’re doing what you’re doing. Why does this industry interest you?
Gregg Dixon: Ben, are you referring to me personally or the company?
Ben Lack: Personally.
Gregg Dixon: This is my life’s worth. I like to say that you work more than you do any other things in your life. You’re going to spend more waking hours with people you work with than the thing that you do than you do your family, your friends, your pets. And you better love what you do. About ten years ago, I woke up and realize that everything my Dad has thought me when I grew up, while I was growing up, about the need to solve the massive energy challenge, in fact, was real. I wanted to be part of the solution, and that’s really what EnerNOC is all about. It’s built in into the fabric of our entire organization’s DNA to solve the energy challenge in front of us.
Ben Lack: Is there anything else you want to put out there before we end the conversation? Anything else I might have missed or something you want to make sure you say?
Gregg Dixon: Yes, I would simply remind readers that this entire industry is in its infancy but it is already making huge positive changes. For those organizations that aren’t already participating in demand-response, they should get involved.

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