Wednesday, 20 August 2008

Ensuring a fit between a business and its chosen demand response programme

Article: Interview with Capgemini’s Doug Houseman Special

Businesses are increasingly embracing demand response (DR) and load management programmes that not only curtail energy use during the times of peak demand but also result in energy efficiency gains. Considering several benefits such as strategic conservation, time-based rates, peak load reduction, as well as management of energy bills, the adoption of demand response is showing signs of gaining momentum.

For such initiatives, organisations have to diligently plan, implement, and monitor activities, which best fits in with the kind of business of they are in, scale of their operations and other factors.

Providing an insight into how companies should approach and keep a vigil on initiatives related to DR, Capgemini’s Doug Houseman told that all this depends on the characteristics of the company.

Citing an example, Houseman says small retailers probably do not have a lot of electric load they can shift to off peak times, so they need to have lights and heating or cooling during store hours.

“Any programme that causes them to have to cut their usage will mean one of three things - that they have to install more efficient equipment or they will have to curtail their load and impact lighting or temperature in the store or they will have to close during curtailments to deal with the curtailment. Programmes that shift the price of power and do not demand a curtailment may mean that the cost of doing business just went up or that the store hours will have to change,” explained Houseman, who is scheduled to speak during Intelligent Demand Response for Electricity Summit 2008, to be held in Amsterdam on 24-25 November this year.

According to Houseman, for larger businesses the issues are more complex. They need to think about production schedules (such as do I run a night shift instead of a day shift in the summer?) and what equipment they can replace. Should a curtailment programme be the choice for DR, then the question is do they install their own generation to deal with it, and if so how do they deal with the carbon issues?

“Since they mostly are not dependent on customer traffic during the daytime – but rather do things that are out of the direct line of sight of the customers, they have more options, but they also, in many cases, have even smaller margins between profit and loss. Doing the wrong things, can end up with the business having to shift production off shore to a country that has better energy pricing or a more friendly energy policy to large companies,” said Houseman.

In all cases, businesses need to participate in the process of deciding the rules, and how they want to be impacted.

“The future is not that there will be no impact. Rather, the future is that there will be an impact and the question is what will that impact be? What do they want it to be? What will hurt the least?” shared Houseman.

Before planning and executing such initiatives, ones needs to take into consideration that these programmes can also result in other benefits such as deferring the need to build new infrastructure and mitigating the level and volatility of wholesale energy markets. Specialists feel in case of a pilot programme, one should evaluate equipment, acceptance, and improved energy efficiency and the contribution to reducing GHG emissions.

For his part, Houseman acknowledged the fact that without knowing what the rules and incentives will be, it is difficult to decide as a business to make change to hours, equipment, staffing, locations, etc.

Referring to partnering with specialists, Houseman said it should be around determining which kinds of programmes have the smallest negative impact on the business and then working to get them implemented.

“For a small machine shop, high efficiency motors, better air compressors, and rethinking ventilation in many cases can exceed the demand for reduction, and the nice thing is that the changes are in use every hour the shop is open, helping to create long-term savings. But on the margins that most small machine shops operate on, they can not afford the capital costs of doing this. So a programme that would either offer very low cost loans, or would provide rebates for such installations is an important step to opening up the market and as the market grows the cost of this kind of equipment will drop, making it more affordable to others,” he said.

Houseman added that installing equipment monitoring and building control systems helps a lot.

“At the Dutch Tax Authority, installing building monitoring equipment, light switches that turn themselves off and training the staff has resulted in a 19 percent reduction in overall energy consumption. This programme was originally expected to add cost to the agency, but now looks like it may pay back in as little as four years, if the staff sustains their part in the programme,” he pointed out.

If the first step is getting the policy right, then the second is partnering to determine what steps to take.

Houseman says the matrix of options is more than 200 items long and some are simple and quick and others are long and complex. Some of the long and complex ones have faster returns on investment than the simple and quick ones (e.g. the payback for shutting down the factory on a critical peak pricing day – can be either the same day or never, depending on how much electricity you use and the price of the electricity as a component of your outputs).

Getting the right mix of options figured out for each business will be specific to the business, their required operating hours, margins, percentage of their business cost that is energy related and how the energy is consumed.

“Once the right steps are figured out, it is important to look at monetising the energy consumption – can an energy broker or trading firm add to the overall value of the changes you are about to make,” he said.

According to Houseman, it is critical to look at this aspect with an open mind, sometimes things that on the surface seem like a good idea, don’t pan out when the overall market economics are factored in, in other cases – things that look hopeless can have a very positive impact on the bottom line. Once the monetising is complete, then and only then should you undertake to make the equipment, business hour or other changes to your business.

“Finally, the focus should be on getting enough information to plan ahead. In many cases, the electric providers have a day or two’s notice on when it is likely the prices will be higher in a time of use or critical peak pricing market. In a curtailment market, they also have a reasonable chance of determining the curtailments a day or two ahead, in most cases (the failure of a power plant or two in very hot or cold weather can result in a wild swing in market price with very little notice). Getting help through this whole process from people, who make energy their business, will make a big difference in the success of the project,” he said.

Specifically, referring to selection of a partner, Houseman following factors should be taken into consideration:

· Understanding of the local and national regulatory policies and the status of any changes;
· A clear understanding of your business – how you make money and where you use electricity or other energy;
· A clear understanding of the options your business has, if they have fewer than 40 or 50 options for you in their kit bag, you will not maximise your investment;
· An energy broker or trader they work with – and references from that firm;
· A pragmatic approach to improving your situation – in one furniture shop it may be fine to turn off all the power at 5PM and in another in may mean that fumes build up from the finishing process and may cause a nasty explosion. Any partner firm will have to have enough knowledge to walk your business and see what can be done;
· Be product agnostic. If they are pushing a specific product, you will find that is your answer, no matter what your question is.

Intelligent Demand Response for Electricity Summit 2008

Capgemini’s Doug Houseman is scheduled to speak during ‘DR Cost Benefit Analysis: Assess the cost to install, operate and maintain your DR & DSM programme’ of Intelligent Demand Response for Electricity Summit 2008, to be held in Amsterdam on 24-25 November.

For more information, click here:


Abbie Badcock ,
Smart Electric News,

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