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Adobe Stock/Lila Patel – Generated With AI
Sandip Sharma and Heddie Lookadoo

With summer in full swing, facility managers face the dual challenge of maintaining operations while controlling energy costs amidst rising temperatures. Peak energy demand during the hottest months can strain both operational budgets and the power grid. However, this period also presents an opportunity to implement strategic energy management solutions that can lead to significant cost savings and sustainability benefits. To ensure resilience and maximize preparedness as well as savings, facility managers should evaluate their energy strategies and explore comprehensive solutions to meet their needs. Demand response and energy efficiency can support facility managers looking to mitigate the impact of peak demand periods while also enhancing overall facility performance.

Understanding Demand Response

In most organized wholesale electricity markets, independent system operators (ISOs), like ERCOT, PJM, CAISO, etc., play a dual role, operating a reliable grid and running an efficient wholesale market. Operating an electric grid reliably means ensuring supply and demand are always matched and any mismatches are quickly corrected with the help of reserves to avoid catastrophic grid failure. During the tightest hours when reserve margins are shrinking, demand response can play a pivotal role in ensuring supply and demand are balanced. Every megawatt of demand response means the ISOs and RTOs have the potential to continue to serve residential and critical customers like hospitals, police/fire stations, schools, and more.

At its most basic, demand response is defined as “changes in electric usage by demand-side resources from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.” When this happens, facilities that participate in demand response can reduce their consumption and help the ISOs to rebalance supply from the grid with demand from users.

Large industrial businesses like steel mills, flexible data centers, midstream pipeline companies, manufacturing facilities or food production plants that consume large loads of electricity are examples of businesses that may find it advantageous to participate in demand response. This is because they have the flexibility to give electricity back to the grid at short notice (unlike hospitals or fire stations that need a steady, reliable supply), which is helpful in restoring balance and enhancing grid reliability. Beyond this simplistic approach, demand response comes in many shapes and sizes, and various regions and ISOs often have different approaches.

For instance, some businesses can be paid to offer greater flexibility by shutting down high-consumption operations where necessary. Others involved in passive demand response may not receive payment for participation but may enjoy lower prices on the power they use. One example of passive demand response programs is price-sensitive load, any load that can curtail its usage depending on wholesale energy prices or Time-Of-Use (TOU) rates or demand charge management through coincidental peak (4CP, 5CP, etc.) programs (Is it possible to clarify this?). These complexities are why it is important to have an energy partner working behind the scenes to help you walk through different programs and identify the best demand response strategy that suits your business needs.

How Does The System Work?

Demand response essentially reduces electricity consumption in response to one of many triggers, which may include wholesale electricity price, wire charges or grid reliability. There are many kinds of demand response programs, but demand response is commonly deployed at times of extreme energy scarcity. These periods of scarcity can be driven by factors like the weather, with winter storms and heat waves being major culprits of outages for large generating plants. Additionally, unexpected variability from renewable sources of energy like wind and solar can contribute to increased energy scarcity. In any of these situations, if the energy demand and supply become unbalanced, demand response participants receive a signal from their grid operator instructing them to curtail their consumption.

summer power outage
Photo: Adobe Stock

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How this is activated within each facility is different, and it largely depends on the demand response program they are enrolled in. It can be as basic as increasing the temperature on your thermostat during summer or a big red button pressed to set off an on-site alarm that begins a manual shutdown. In many cases, though, it can be a lot more sophisticated, and an automated signal goes out in the facility and triggers a shutdown or triggers a backup generator to start up and reduce the facility’s electricity usage from the grid. No matter how the strategy is activated internally at a facility, demand response can be a powerful tool to help balance the grid. This is because a decrease in consumption at the right time is just as helpful as an increase in electricity generation at the right time. It’s why demand response is viewed as an “alternative power plant” due to its ability to give supply back to the grid.

How Is Demand Response Beneficial To Facility Managers?

You may be wondering, why would any large-scale facility voluntarily shut down operations, even for half an hour? For most, it’s because they can get paid for that flexibility, as it rarely gets deployed—and, in some cases, facilities build that arrangement into their business plans as a cost-benefit value proposition. Beyond that payment, however, demand response provides facility managers with the opportunity to be smarter in how they use electricity. As mentioned above, when demand rises, the price of energy increases. Many facilities establish demand response protocols which automatically kick in as soon as wholesale electricity hits a certain price. To meet energy needs for operations, these facilities often turn to alternative sources of power instead, such as on-site generation or storage facilities.

Depending on the facility’s needs, demand response can also help facilities focus their grid consumption at times when electricity generation from renewable sources is high (i.e., when the sun is shining, or the wind is blowing). This can be more sustainable while helping them to use power when the cost is at its lowest. The generation mix of the grid is publicly available information on ERCOT’s Real Time Fuel Mix chart and on the PJM home Page under Current Conditions.

Enhancing Energy Efficiency For Greater Impact

In addition to demand response, investing in energy-efficient upgrades can significantly enhance a facility’s operational efficiency and sustainability. Energy efficiency is crucial for reducing operational costs and minimizing environmental impact. By optimizing energy usage, facilities can significantly lower their utility bills and reduce greenhouse gas emissions. Moreover, energy-efficient systems often lead to improved operational performance and enhanced equipment longevity, providing long-term financial and sustainability benefits. Implementing energy efficiency measures is not just about cost savings; it’s also a proactive step towards achieving corporate sustainability goals and complying with increasingly stringent environmental regulations.

Here are a few solutions to consider that help manage operating costs and optimize energy usage:

Facility Executive Magazine