If you’ve been in the Demand Response Business since, oh, 2000 or so, it seems old hat. Never mind that Telecom deregulation took decades to deliver on its promises or that the iPhone first appeared in 2007, only 34 years after the first Motorola DynaTAC cell phone.
Investment and infrastructure are two intractable facts of life. They don’t lend themselves to our ADHD, gotta have it NOW conditioning. Our perception of the speed of technology development is shaped by modern media’s insatiable desire for New…so we invent New daily: New “facts”, new lingo, new fashion, and imbue those with the trappings of substance. Such is our desire to be leading edge…fresh…in the know…to matter before someone else matters.
Back in the kitchen, the laws of physics and finance remain intractable. Though we are treated to new breakthroughs every day, we are spared the monotonous drone of decades invested in research and failure that got us to the newsworthy stuff.
And so it is with Demand Response. Today we speak of DR as a regulation tool, a risk management tool, an economic tool, and a cornucopia of benefits too vast to contemplate. Still, DR traces its roots back to time of use rates, interruptible rates, even to a bygone era when electricity was not universally available, either geographically or temporally. Much of the world is there still.
This came to mind as I planned to speak to the Texas Association of Healthcare Facility Managers (TAHFM) on the subject of DR and storm preparedness. Sandy was big news in New York, but hurricanes, tornados, heat and drought are life in the Lonestar State. These are sophisticated and serious energy managers, and they want to know what DR can do for them. Problem is that we industry “experts” have to run to keep up.
Forgive me. If we in DR can jump off our promotional bandwagons a second and give these folks some time, they have much to teach us. Healthcare facilities are the most complex energy environments extant. They have data centers, always challenging. They have chillers, BMS’s, EMS’s, lighting and a number of things most enterprises share; but then there are labs, pharmacies, burn units, contagion areas, operating rooms, and all those things you watch on Must See TV. Only here, it’s serious business with life or death consequences – places where air pressure and power quality can cure or kill – and the managers want to know more about DR.
First, it’s important to note that ERCOT, the grid operator, does not have capacity programs or baselines. Second, it is regulated by the Texas PUC, not FERC, and that PUC requires ALL regulated electric entities to have DR programs, whether they are in ERCOT or not. Third, baselines are fiction. To be counted as DR, you have to drop from where you are, not from where you ought to be. You just don’t mess with Texas. Another thing? Energy is cheap here. Conservation hasn’t had an economic driver.
So why did we get a standing room only crowd? Demand, is why. Energy is cheap, but demand isn’t. Demand drives the need for transmission and distribution infrastructure. Those are large capital expenses, and they are the elements that define our capacity to deliver the goods. To pay for them, and to be sure demand peaks represent long term reality, many utilities calculate a rate factor based on new peaks in a customer’s demand. They multiply that factor by the energy to arrive at the total bill. Spend $1 million on energy last month? Have a factor of 1.0? You owe $ 1million. Have a factor of 2? That’ll be $2 million. One more thing: Your highest monthly factor remains in effect the entire following year…unless you set an even higher peak. With financial margins in the 5% range or less, every extra million requires new revenue of $20 million to compensate. That’s a bunch of MRI’s.
So for the TAHFM, the real story of Demand Response is not revenue from a DR program. It’s about having the right tools in place to manage demand and avoiding the rate ratchet monster. In fact, DR is a way of life, and would be whether or not regardless of external programs. No amount of conservation, energy efficiency, or grid storage will change that. Remember that DynaTAC cell phone in the first paragraph? Arguably, demand response came first.
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