Energy Managers Buoyed By Supreme Court’s Demand Response Decision

February 4, 2016 By Ken Silverstein

supreme court Energy ManageJust after the U.S. Supreme Court ruled that federal regulators can remove barriers to demand response programs, energy managers sprung to life. Why? Corporate energy managers will now have more insight into their business operations and thereby greater certainty about their decisions and their investments.

At issue is the Federal Energy Regulatory Commission (FERC) Order 745, which encourages corporate customers to shift their energy consumption to non-peak hours — something that prevents congestion over the grid while possibly avoiding the use of fossil fuels. At the same time, companies with flexible operations can reduce their energy bills while utilities can avoid buying electricity on expensive spot markets.

So far so good — except that the utilities protested that the demand response providers had been getting paid the same for their technologies that defer electricity usage as the capital intensive power generations that actually produce electricity: “negawatts” versus megawatts. The other part of their discontent centered on the fact that FERC has authority to regulate wholesale markets but not retail markets where the electricity is actually consumed, which is the domain of the states.

In 2014, the The Electric Power Supply Association took this particular case to the D.C. Court of Appeals, and won. But this past January, the Supremes overruled the lower court, saying that transactions occurring at the power plants and industrial facilities that buy electricity en masse in wholesale markets will naturally flow into retail markets where businesses consume it. Hence, case closed.

“Demand response is essential,” says Mark Feasel, vice president of the electric utility segment and the smart at Schneider Electric, in a phone interview. “It empowers end users. Those actions, if harmonized correctly, can also be a benefit to the electric utility. I do see more certainty around demand response now. It is an accelerant that allows you to present a business case.”

Billions of people around the globe do not have access to reliable electricity, Feasel adds, noting that at the rate of industrialization and digitization, the demand for electricity will surpass the ability to deliver it in a reliable and sustainable fashion. It is therefore important to get both the utilities and their corporate customers on board, allowing the utilities to leverage this and benefit their grids while giving companies a break on their energy bills. How exactly does this work?

Interestingly, a utility does not always know the electricity load on its feeders, or the devices that take in the power after it is generated and transmitted and before it is distributed to end users; the feeders are the individual legs from the substations to the individual customers. Demand response programs give utilities more data, or critical information that lets them know where they need to make investments. At the same time, it increases the transparency between them and their customers.

“Electric utilities need visibility into their operations,” says Schneider’s Feasel. “This is a control center to their customers — one perimeter sharing data, bringing transparency and interoperability.”

Okay, but why is electricity consumption that is deferred given such hype as opposed to electricity use that is avoided altogether through energy efficiency programs? In a demand response program, the electricity is typically shifted to when there is less stress on the system, thereby making it cheaper for customers while also easing the burden on the grid during peak periods.

However, “some of those kilowatt hours will never be consumed,” says Feasel. “Many of these kilowatt hours will be used later. But there is still a value to the system overall to shift those kilowatts even though they will be used later,” such as preserving the integrity of the grid or allowing wind and solar to be generated instead of fossil fuels.

“As I think about what the Supreme Court decision will do, it will reinvigorate communications between utilities and customers,” Feasel continues. “When you have this type of comprehensive relationship with end users, it will give them more insight into how they operate their plants and how they meet their business objectives. That adds certainty.”

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