News for the Hospitality Executive
Demand Response: Taking Energy Management to a Whole New Level
Many of today’s savvy hotel owners and managers have achieved a reasonable level of control in the management of their electricity consumption. Whether born of necessity or simply a desire to be more “green,” today’s hospitality leaders are often among those at the forefront of their organizations’ efforts toward reducing electricity consumption, shrinking their carbon footprint, and promoting their organization’s sustainability goals.
For these seasoned owners and operators, many of the more popular energy management solutions have already been executed. Retrofits of incandescent lighting to compact fluorescent have become commonplace. The use of Variable Frequency Drives (VFD’s), state of the art just twenty years ago, is now a common specification for most mechanical installations. Some have even installed or upgraded their buildings’ energy management systems to further streamline and measure energy consumption while ensuring guest comfort.
So what do all these energy management solutions have in
common? They focus on minimizing the consumption of
electricity while maintaining the same product or output…the same
temperature is maintained, same lighting levels, etc. etc. However, for
those looking for an even higher level of energy efficiency, consider
one of the latest trends in managing utility costs in a deregulated
marketplace, a trend which focuses on eliminating rather than
minimizing selected electrical loads at strategic times of day.
Generally, this concept is referred to as Demand Response
The concept is simple. Over time the demand for electricity
grows as the population grows. Historically, the response to this
added demand is the construction of more generating capacity, i.e.,
more power plants. But building power plants is a slow,
expensive, and often an environmentally insensitive method for
addressing incremental increases in demand. This is particularly true
when incremental demand is not steady but rather is a function of
relatively short-term spikes in demand such as those occurring during
hot weather. So rather than raise the bridge of capacity, many
markets have found a way to lower the river of consumption by deploying
one or more load management tools known as Demand Response (DR)
Consider this scenario: It’s a 95 degree August day,
with 90% humidity. The local utility is having trouble keeping up
with the region’s demand for power. Rather than risk a brown out,
the utility triggers a demand event, asking all their Emergency Demand
Response customers to initiate their energy reduction plans. In turn,
program participants scale back their consumption, usually for just a
few hours, to help the utility through this period. In exchange,
customers receive a payment, per KW, for the power they did not,
but normally would have consumed.
One of the first questions raised in this scenario is about wear and tear on the generator. Moreover, conventional wisdom has it that it is unlikely that most operators will have a sufficiently large supply of fuel on hand available for such events.
The answer to these conditions is that Emergency DR events are historically infrequent, averaging two or three times a season, if at all, and they usually last just a couple of hours. In fact, the number and duration of events is often contractually capped, limiting customer exposure. Once more, participation remains voluntary. If consumers fail, or choose not to reduce their power consumption when called upon, many ISO’s will limit the subsequent cost exposure to the value of the initial participation payment, literally making the program risk free.
The scenario described above is just one of the many product offerings available in the marketplace today that has its roots in the principles of Demand Response, or more accurately stated, in the time value of the consumption of electricity. Emergency DR focuses on assisting the utility in meeting its system’s peak demand without having to add capacity or bring another power plant on line.
Other DR programs utilize different triggers but work in a similar manner. For instance, Synchronous Reserve is a DR program that works much the same way as the Emergency DR, but has a shorter notification period, shorter duration, and typically occurs during overnight hours. Unlike Emergency DR which occurs during peak times when power grids face an exhaustion of their generation or transmission capacity, Synchronous Reserve occurs when power plants are undergoing maintenance, or a transmission line failure has occurred and the grid needs short term reductions in consumption to help balance the electrical load across an entire city or region. Like Emergency DR, Synchronous Reserve also has the potential for tremendous financial benefit with no cost exposure for participants, along with the added benefit of the nighttime application… making participation truly invisible to guests and most other building occupants.
A third DR program is Economic, or Market Demand Response. The concept here is to voluntarily reduce consumption and sell the excess power back into the marketplace when the demand for and value of electricity is high. Of course the consumer is not actually selling power as much as they are selling their rights to buy power at a certain price for a certain time…a price lower than the market value. To liken it to our national pastime, think of Market DR as trading your team’s future draft picks for today’s home run hitter…but only for one game. It’s a strategic move that can produce high reward with low risk.
Let’s assume a contract with a third party electric supplier for a fixed rate of $.08 per KWH. On that same hot summer day described above, the demand for electricity is so high that the open market has pushed prices up to $.50 or $.60 cents per KWH. Using the market monitoring features of an Market DR program, the hotelier can voluntarily reduce their consumption and offer their excess contracted power back into the market place at a rate well above of $.08 cents but well below market rate — an action that can literally increase revenue and lower expenses within the same transaction.
As the old adage goes, time is money. Fortunately, there is no better time than now to consider implementing some of these valuable energy management strategies. ISO’s work feverishly during winter months to meet early spring contracting deadlines which are the cut off for participation in the following summer’s demand response program. Assuming that the hospitality operator is in a deregulated marketplace, there is no better time than now to look into how Demand Response programs might benefit the organization’s bottom line.
Demand Response programs are just the tip of the iceberg when it comes to the marriage of technological innovation, competitive market innovation, and energy management strategies. Many other products are available to today’s smart consumers of energy who realize that the value of electricity as a perishable commodity can far exceed the value of the electrons themselves. Properly managed, deregulated energy markets are creating both purchase and curtailment products that simply never existed before — products that can transform an old fashioned energy conservation program into a comprehensive energy strategy that combines conservation, load balancing and targeted revenue generation.
Reprinted with permission from Cayuga Hospitality Review. All rights reserved.
Cayuga Hospitality Advisors
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