How to Take Charge, Rack Up Revenue, Earn Incentives and Whittle Away Waste
Operating energy-efficient buildings and generating power using alternative, low-emission or clean technology may be highly desirable, but in the wide world of building construction, they still represent a niche. An expensive niche, at that. But there are a number of ways that businesses can lower their facilities' energy footprints while also saving money. Here's an overview on how.
Demand Response
When it comes to the price of energy, businesses have had an opportunity to lower their energy costs for the past 20 years, through a vehicle called demand response.
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Smart Energy Solutions |
Here's what you'll find in this article ...
Demand Response 101
Opportunities for Businesses Big and Small
The Lowdown on Energy Management Systems
Onsite Energy Generation Basics
PPA Primer
The Ownership Option
Pros & Cons Comparison
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A demand response event occurs when heightened energy use, generally caused by weather extremes, leads to the threat of overtaxing an electrical grid. To avoid blackouts, the utility puts out a call to companies that can lower their energy usage over a given block of hours during peak demand to do so — in exchange for money.
In recent years as the cost of energy rose seemingly in lockstep with the importance of corporate sustainability, demand response has become an increasingly important tool for businesses, while also generating significant energy cost savings and revenue. At the same time, technology has emerged that makes participating in demand response programs easier and potentially more profitable for businesses.
Vital to any demand response program is a third party that works both with the end user of energy and the utility provider, which is sometimes represented through an independent system operator (ISO). An ISO works to maintain a balance of supply and demand on an electrical grid that serves a given region or state, and ensures that adequate power supplies are always available.
The Early Days
Early demand response programs required the energy end user (a business) to manually respond to an energy curtailment request.
In the early days, a call would go out to power down.
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That is, a call would come down from the utility grid operator, alerting participating companies that high demand on the grid was anticipated in a number of hours and requesting that program members reduce their power consumption during a given time period by a given amount in order to avoid a blackout.
In doing so, the firms would receive compensation, based on a set price of power per kilowatt-hour that they did not draw from the grid.
From a technology standpoint, the businesses participating in the manual demand response system needed only to install a special meter to measure electricity usage in intervals — usually an hour or 15-minute periods — enabling them to prove how much they reduced energy usage over a given time.
Some of the meters also enabled energy consumption data to be easily collected and shared via a two-way communication channel. That's an essential building block to the smart grid concept, which energy companies and utilities say will modernize our current electrical system in combination with more sophisticated demand response programs.
Opportunities for Businesses Big and Small
In the past, most small and medium businesses never considered signing up for demand response programs because their business operations didn't represent a significant demand on the electric grid. But the scenario for smaller businesses is starting to change.
Last summer, more than 180 organizations in and around San Francisco participated in a demand response program managed by the nonprofit
SF Community Power and collectively reduced energy demand by 4.5 megawatts and earning from $30 to $3,000 for doing so.
FAO Schwarz enlisted in the ECS demand respond program.
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Larger firms, which often have facilities in multiple locations around the country, tend to work with for-profit curtailment service providers. These companies enroll the big firms into regionalized demand response programs around the country. They then help the end users audit their facilities to determine where and how to reduce energy consumption during demand response events.
Energy Curtailment Specialists, for example, has helped a number of schools earn revenue through demand response programs, and has worked with
AT&T to participate in a demand response program offered by Kansas City's Power & Light utility. Most recently,
FAO Schwarz signed with ECS to have its flagship Manhattan store added to New York City's demand response program.
Energy Management Systems
But lowering energy use only during periods of peak demand won't, on its own, change the fact that buildings are the largest contributor to greenhouse gas emissions. Nor does it, on its own, represent a huge fiduciary incentive for businesses. However, businesses are increasingly weaving demand response into a more comprehensive energy-savings plan for their facilities that is based on an energy management system (EMS).
Smart platforms take out the guesswork.
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EMS platforms combine networks of sensors linked to heating, cooling and lighting systems throughout buildings with software that collects usage and temperature data from the sensors and uses business rules and operations needs to control the systems in order to optimize overall energy usage. The platforms can be set to automatically adjust energy usage within specific parameters and at specific facilities, so that when a demand response event occurs consumption is reduced to comply with the request.
This compliance generates direct financial payback from the utilities, and the companies that receive these paybacks often put them toward further energy-efficiency improvements. According to a number of EMS vendors that assist businesses in demand response programs, the paybacks and efficiency improvements enable the businesses to realize a return on their investment in the EMS platforms in between one to three years.
Winemaker
Gallo turned to
Powerit, a provider of energy meters, sensors and software, to help it lower its energy usage — especially during extreme weather — to avoid falling victim to rolling brownouts that could be harmful to production. According to Powerit, Gallo was able to decrease its energy use by up 20 percent during peak demand and, accounting for the incentives it received from its utility provider, payback for its investment in the Powerit system was immediate.
Many Vendors, Many Choices
Other vendors that provide demand response services as well as technology that boosts overall building efficiency services include
Energent,
EnerNOC,
EPS,
Site Controls and
Ziphany.
Gallo turned to Powerit for efficiency solutions.
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EnerNOC says it recently signed on
General Mills, which wants to see if it can shed up to 5 megawatts of its energy load during periods of peak demand at its West Chicago Facility in exchange for a utility payback. EnerNOC says its existing customers have earned tens of thousands of dollars on a yearly basis through participation in demand response.
Shiva Subramanya, chief operating officer of EPS, says that his firm has generated more than $5 million in savings for its clients, through demand response and energy efficiency improvements. Many EPS clients are industrial firms that consume massive amounts of energy and therefore have significant opportunities to reduce their pull on electrical grids while earning money to do so.
Subramanya says that EPS first works with its customers to understand how much energy they are consuming, and then takes a systematic approach to reducing that consumption while also identifying demand response opportunities and making efficiency upgrades that earn government-based rebates or incentives. Where appropriate, EPS might also work with clients to install an alternative energy system, such as solar or wind power, that will augment the client's pull on the utility grid.
West Marine embarked on an efficiency project with Site Controls.
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Daniel Sharplin, CEO of Site Controls, says his firm has brought demand response participation as well as an overarching building energy management platform to an untapped market: chain stores. Site Controls serves
companies that operate 50 or more sites — convenience stores, restaurants and the like — each of which sit on 100,000 square feet or less.
"There are million of those types of buildings," says Sharplin, "and they are a huge part of [energy] consumption in our total marketplace and they are largely unaddressed in terms of automated control systems. Most have nothing outside of a timer for lights and thermostat, if that."
Because of this, there is a great opportunity to improve the efficiencies of all of these buildings, and Site Controls partners with other vendors to equip participating chain stores with sensors and control devices that feed data into Site Control's Site-Command EMS platform. The Web-based software uses middleware that communicates with the network of sensor devices inside each chain store. When a demand response event occurs within a specific municipality, Site Controls uses its software to adjust the heating and cooling systems only inside stores located within that affected region. That way, the parent company can earn money without having to depend on employees at the various sites to manually adjust power settings.
In addition, Site Controls offers its software platform as a tool to improve the efficiency of regular business processes inside the stores. With a sensor mounted at the box crusher in a store's back room, for example, it can issue a call to have the corrugate recycler come pick up a load only when the number of crushed boxes merits a pick-up. By dispatching a truck to the store only when the load of boxes is full, the recycler's fuel costs are lowered. And for the chain, it ensures that workers won't need to call for additional visits when the output of boxes is high.
On the energy management front, Sharplin says that automated demand response programs like Site Controls' have made participation in demand response possible for companies with many dispersed facilities, but has also streamlined the program for companies of all sizes.
"Demand response could solve almost all peak [energy] requirements in the U.S. for the next 20 years, if this is done right," says Sharplin.
Onsite Energy Generation
While demand response programs offer an attractive financial incentive for businesses to lower their energy consumption, the net benefits are realized only during short periods of extreme weather.
To create a more sustaining impact and further reduce their carbon footprints, increasingly businesses are installing onsite sources of renewable energy. They can do this through two different means: by acting as a host of the energy system through a power purchase agreement (PPA), or by making an investment in a renewable energy system as an outright owner.
Each approach has unique benefits, explains Thomas Maslin, analyst with energy research firm
Emerging Energy Research.
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Own or Host an Energy System: What's Best for Business? |
Pros and Cons of Owning
Upside
- Earn all tax incentives and rebates from state and federal government
- The choice is yours to sell, or retire and limit, renewable energy credits (RECs)
Downside
- Energy costs subject to market volatility
- Technology is advancing: Solar panels in five years will generate more power than today's
Pros and Cons of Hosting
Upside
- No installation or ownership costs
- A guaranteed low energy cost for life of contract
Downside
- Reap none of the tax incentives and rebates
- Earn no renewable energy credits (RECs)
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PPA Primer
In a PPA, the business is able to augment the energy it pulls from the grid with power that is generated onsite through solar or another renewable resource. It does not need to pay for the power system nor for its installation or upkeep, as the provider of the system covers these costs.
By agreeing to host the system through a PPA, the business also locks in a rate, per hour, that it will pay for energy the system produces, over the life of a 10- to 20-year contract.
This, says Maslin, "reduces [the business'] exposure to volatile energy costs, which is key. Even if energy prices are down now, they have been very volatile — especially natural gas."
Kohl’s lays claim to collectively hosting the largest solar power system in North American.
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However, by hosting the energy system rather than purchasing it, the business also hands over the tax incentives that the government makes available for most renewable energy systems. The system provider reaps these financial incentives, as well as renewably energy credits (RECs). In states that offer them, RECs represent another source of revenue. One credit is earned per megawatt hour the energy system produces, and each credit can be sold.
Department store Kohl's signed a PPA with
SunEdison, through which its near-term plan is to have 100 activated solar locations on its store rooftops — and as of September the company had hosted 60 solar power systems in California, New Jersey, Wisconsin and Connecticut with another 20 in various stages of construction.
The systems provide 40 percent of each location's power needs, according to
Kohl's, which also claims that collectively its hosted solar panels represent the largest such system in North America. The
Gap,
Wal-Mart and
AT&T are examples of other companies that are hosting solar panel energy systems through power purchase agreements with various providers.
The Ownership Option
Google and outdoor equipment provider
REI, however, have each chosen to purchase their own solar power generation systems and will therefore each benefit from the state and federal incentives and rebates for which the installations qualify.
Google installed a massive 9,000-panel solar system at its Mountain View, Calif., headquarters, which earned the search company a big incentive check of $4.5 million from utility Pacific Gas & Electric.
REI is also pursuing a significant goal of installing solar systems at
11 of its stores by 2009, despite the present economic downturn.
Sharon Im-Lee, REI's energy and utilities project manager, says that the company decided to install its own solar system at the stores (which represent 10 percent of all of its retail sites) because they are all properties that the company either owns or on which it has long-term leases.
"That puts us in a unique position," she says, noting that many retailers tend to sign short-term leases for commercial space. Plus, the sites tend to be single-story buildings with large, flat roofs, which meant that solar panel installation costs would be kept low.
REI installed this solar array in San Diego, one of 11 the co-op’s planned for 2008.
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Aside from the various rebates and incentives REI is earning by taking ownership of the solar systems, it is also earning RECs. However, Im-Lee says the company plans to retire these credits rather than trade them, in order to stave off the opportunity for the would-be purchaser to use them to generate non-renewable energy. "We could make more money by selling the RECs," she says, "but then we would fall short of our carbon reduction goals."
Going forward, Im-Lee says that REI is considering using PPAs to have solar installed at stores in states where the tax incentives for ownership aren't as strong or where the company does not own its stores.
Taking Charge of Your Building's Power Potential
Whether your firm is ready to embrace a large onsite power generation plan or wants to explore energy efficiency through participation in a demand response system, the first step is determining what programs and tax breaks are available in your area.
The US Department of Energy has recently updated its general information site called
Tax Breaks for Businesses, Utilities, and Governments.
The Environmental Protection Agency lists both federal and state green building grants and other incentives
here. And you can find out about demand response and other energy-saving programs through your state government and local utility providers.
Mary Catherine O'Connor is a freelance writer based in the San Francisco Bay Area.
