BEST PRACTICES: Energy Management

The electric power system is in the midst of monumental changes driven by the need to address rising energy costs and demand.


The electric power system is in the midst of monumental changes driven by the need to address rising energy costs and demand. Utilities and grid operators are faced with the challenge of managing increasing energy demand, as well as handling new pressures on the electric grid from renewable energy sources.

The industrial sector currently consumes 25% of all the energy flowing through the electrical grid in the U.S., making it the largest electric end-use sector. Energy is one of the top ranking expenses in facility operations, and industrial facility managers are increasingly seeking ways to mitigate energy costs.

One option for plant managers and operators to consider is demand response. This program provides a financial incentive, through reduced electricity costs or incentive payments, for end users to cut their energy use during peak hours when the grid is overloaded. The programs are designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.

With energy use expected to grow by 22% by 2030, demand response provides a valuable solution to meet the challenges of the increasing demand and to mitigate the impact of rising energy costs for industrial facilities. Deregulation of the wholesale electricity market gives industrial customers the opportunity to participate in early manually-based demand management activities which assist in maintaining mandated reserve margins and decreases operating costs.

The Federal Energy Regulatory Commission Order 719 opens energy markets to the demand side by requiring Regional Transmission Operators and Independent System Operators to accept bids from demand response resources for ancillary services and energy. This gives customers the opportunity to participate in various demand response programs.

The goal of FERC 719 is to allow for true competition by eliminating barriers to participation of demand response in the organized power markets by ensuring the comparable treatment of resources. The competitive pressure that demand response provides will lead to increased awareness of energy usage and aligns market prices more closely with the value customers place on electric power.

FERC order 719 is beneficial for the industrial sector in particular due to the amount of energy facilities’ need for proper operations. It allows industrial customers to participate in demand management activities like choosing not to use electricity when prices are high and to sell unused megawatts or megawatt hours back to the wholesale electricity market at a profit, presenting industrial customers with an opportunity to mitigate rising energy costs.

An organization we have worked with, a U.S. Air Force base, had massive electric utility bills, which averaged about $20 million per year. Additionally they faced a unique set of challenges due to aging infrastructure, high security requirements, and government-imposed energy reduction mandates. They began using our PowerLogic power monitoring system in order to monitor and manage data throughout the base. The system was instrumental in reducing their electrical usage to comply with federal mandates and reduce costs and enabled them to effectively participate in a demand reduction program with their electric utility.

The base came to mutually agreed upon reduction efforts with the utility and receives credits on their bill for meeting those objectives each month. The monitoring system provided visibility into their facility allowing them to track trends relative to influencing factors to determine if they were being effective with their conservation efforts. For example, if the General says, “Turn the A/C off when you’re not in the room,” they are able to see if that paid off or not and if it’s not successful at reducing their consumption they can redirect their efforts. The base reaped significant savings as a direct result of their participation in the demand reduction program, in some instances receiving more than $20,000 in credits in a single week.

Demand response programs have been introduced across industries. The industrial sector has been slow to adopt demand response programs due to concern from plant managers about the risk of jeopardizing their operations, as energy reliability is critical.

Only about one in eight manufacturers use any form of load control, and the adoption rates for demand response in the industrial sector remains very low. A major reason for the low adoption rate in the sector is that many plant managers are concerned about shedding loads which are fundamental to operations and may jeopardize productivity.

Industrial customers have a variety of options available for participation. The simplest does not involve process but the building envelope. In a large facility, HVAC set points, lighting or other non-critical elements often provide enough load shed to qualify for program participation and significant revenue. The next step up is shifting certain non-critical processes to off peak periods. This might include pumped liquids storage or raw materials staging. Since demand response events are of limited duration, slowing motor intensive process lines, when allowable, can be effective.

When demand response performance revenues have been high, plant managers have interrupted shifts, even sending workers home, because demand response revenue was worth more than the lost production time. Clearly, this is more appealing in a batch process rather than a continuous one. There are a wide variety of programs which provides flexibility to enroll in the type of program most compatible with the type of industrial process. Rules vary by location, but in general, the greater the curtailment and the faster the response capability, the greater the potential revenue.

Demand Response 2.0

In order to expand customer participation in DR programs and reach the maximum potential of DR, the industry is moving towards a more automated and intelligent demand response, often referred to as DR 2.0. Manual DR has proven to be very successful in terms of managing an impending peak power crisis, but DR 2.0 introduces a more active, automated, and integrated version of DR, which aims to prevent such emergencies before they even occur.

The technology needed to implement DR 2.0 programs already exists today, but certain barriers must be addressed in order to implement DR 2.0. Some of the issues include a need for costly technology installations, data being collected in silos, and national policy which is confused by different regulatory agencies operating in silos. Although much remains to be done, DR 2.0 will be faster, less expensive, and more targeted then adding generation and delivery infrastructure.

DR 2.0 takes advantage of industrial SCADA gear and sophisticated programming algorithms coupled with newer assets like variable speed drives and logic control to make small and rapid adjustments to processes to optimize energy demand. In turn, this capability allows plant managers to negotiate favorable energy supply contracts and to lower overall operations costs. In essence, today’s DR programs require special treatment and exception management. In contrast, DR 2.0 techniques build efficient energy strategies into process logic. This makes it automatic, imperceptible and profitable.

 Large end use customers are migrating to a “prosumer model” where they are not only consumers of electricity but also producers of services to Smart Grid through DR 2.0. With this transition we can not only provide energy cost savings we can now provide new revenue streams to the customer and a higher level of sustainability. More information about these services and opportunities can be found at the Peak Load Management Alliance which is a not for profit trade association for the demand response industry.

- Ross Malme is business director of the Demand Response Resource Center for Schneider Electric and an Executive Committee member of the Peak Load Management Alliance, which is a not for profit trade association for the demand response industry.

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