Cashing in with Smart Grid on Wholesale Electric Price Volatility
Utilities spend a lot to provide the capacity needed to meet peak demand, but electric charges historically haven't reflected the true cost of meeting peak demand. This is because the monopoly electricity business model has traditionally set one price for a unit of power — dollars per kilowatt hour — no matter when it is consumed. A separate demand charge — dollars per kilowatt — is applied to commercial bills, but these demand charges give building owners only a limited incentive to reduce use at peak times.
Owners can't cash in on the true benefit of wholesale electric price volatility before, during and after periods of peak electric use because owners don't know when the peak times occur and how they affect the cost to deliver electricity.
That is why Galvin and others are promoting dynamic price signals be sent electronically to customers, which will give them access to this information and allow them to change use patterns and save more money. It's like going to a movie. Walk up to the box office on Saturday night and a ticket may cost $15. Decide instead to go to a matinee the next day and it will be more like $7. Why can't customers make the same choices with electricity?
Smart Grid activity is unfolding on a state and regional basis. Electric markets have developed in larger population centers and where electricity is deregulated. As states deregulated, markets opened up, creating a wholesale electric business run by Independent System Operators (ISOs) and regulated by the Federal Energy Regulatory Commission, as well as a retail business operated by traditional electric utilities and by intermediaries that are able to sell power to consumers. Significant Smart Grid opportunities, particularly with demand response, are available now for facilities in the Northeast, California, parts of the Midwest, and Texas.
More lucrative programs are also developing quickly there. Technologies available from multiple suppliers already enable buildings to participate in electricity markets. For example, one program allows building owners to opt in and opt out of participation in electric markets in real time, and it will calculate how much they get paid to participate.
Of course the more functionality already built into the facility, the more robust the participation. In the best case, buildings start with commissioned, effectively operated building automation systems, electric sub-metering, dashboard technology to visualize building performance, and analytics to evaluate performance over time and develop benchmarks for comparison.
Buildings enabled like this can participate in demand response immediately by implementing technology to receive electronic "event notifications" when demand response events are called. The building then reacts to that event by modifying equipment operation to reduce an agreed upon number of kilowatts. Programs vary in the amount of notice that customers receive, usually "day ahead," "day of" or "10 minute" notice. Programs also vary in the amount of money paid for participation, but customers typically receive payments between $50 and $300 per kilowatt. For example, a 200-kW enrollment would net an annual payment between $10,000 and $60,000. With most programs customers get paid whether an event is called or not, and in California the utilities will even pay to install the technology.
This same Smart Grid/demand response technology can be used to enable customers to sell back to the grid the electricity they agree not to use. This "day trading for energy" gives customers another way to leverage financial value from Smart Grid.
Energy Profit Centers
Building owners may think all of this is too complicated to be worth the effort. The same could have been said of many widely used technologies when they were first introduced. That could also be said of green building recognition systems that have become so popular. But customers that leverage Smart Grid technologies and programs effectively can spin the meter backwards, reduce electric bills and optimize building performance. The ideal scenario is when customers go further and expand building technologies to include energy storage (thermal or battery) or onsite generation, what are now called "microgrids." The idea is to take this crisis with electricity and apply entrepreneurship to turn buildings into profit centers for energy.
Demand response is a near-term opportunity that is paying big dividends for many building owners, but the next step is to insulate the tenants from inconvenience because of demand response. This is done by leveraging automation systems to pre-cool, for example; focusing strategies on shutting down nonessential equipment; and leveraging onsite generation. But numerous other options exist. Owners may also be able to finance solutions.
Two common approaches to take advantage of demand response without inconveniencing tenants are to leverage on-site generation from renewables (e.g., photovoltaics) or microturbines, and to utilize thermal storage. Battery storage is expensive today, but with thermal storage buildings can make ice or chilled water off peak, and sell back the electricity that chillers would have consumed.
Where the grid provides intelligence to leverage all of this technology in a new electricity market, Smart Grid has arrived and building owners are benefiting. It is not everywhere yet, but astute building owners should research the local market to uncover opportunities. In this economy, Smart Grid amounts to free money, and no one can afford to turn that down.
Jack McGowan is president of Energy Control Inc., an Opterra Energy Company, and is chairman emeritus of the U.S. Department of Energy GridWise Architecture Council. He is a member of the Galvin Electricity Initiative team of leaders. He is co-chair of the National Institute of Standards and Technology Building to Grid Working Group. McGowan can be reached at email@example.com.