Alcoa and McGraw Hill see big rewards in demand response

This summer's heat wave in Texas has put an historical strain on the state's electrical grid. Officials from the Public Utility Commission (PUC) and the Electric Reliability Council of Texas (ERCOT) have struggled to meet peak demand but could find significant help from demand response. 

Residential and small commercial customers provide the biggest opportunity for overall reductions in ERCOT, but the quickest return on demand response -- and the most financially savvy for electric customers -- might lie in the commercial and industrial markets today.  Fortunately, two great examples in other parts of the country show how Texas could be doing more in demand response.

Large commercial buildings typically face a number of hurdles when trying to upgrade their energy systems, particularly those with multiple tenants. In New York City, the Rockefeller Group Development Corporation saw these hurdles as an opportunity for a new approach to energy management.

By selling their demand reductions to the grid, in the manner proposed for ERCOT, they managed to reduce energy usage by 60,000 kWh per month and reduced peak demand by 1.4 MW. McGraw Hill now receives a net income (after payments for the financed upgrade) of $500,000 annually.

Rules in ERCOT might allow for this kind of savings already in some small ancillary services markets, so long as their metering system complies with ERCOT protocols.  Those ERCOT demand response markets are capped and already oversubscribed. As a result, developers who want to build smart buildings or upgrade older ones are looking to do business in other markets.

Next: Alcoa's novel approach to demand response

In Warrick County, Ind., the Alcoa, one of the world’s leading aluminum producers, has worked with their grid operator Midwest ISO (MISO) to develop a completely new approach to industrial demand response that has blown the doors off of the possibilities for Texas’ industrial sector. Careful coordination allowed Alcoa to realize lower operating costs helping the Midwest ISO deliver reliable power to ten states and one province.

The market for aluminum is ruthless, and anything that give Alcoa a leg up helps them preserve critical jobs and tax income in their communities. With this new market, Alcoa has managed to maintain international competitiveness and is looking to expand demand response to their aluminum smelters in other parts of the country.

In Texas, where Alcoa's Rockdale smelters were not able to maintain international competitiveness and have been idled as a result, new markets like the pilot project recently announced by ERCOT could mean the difference for other industries between staying profitable and shutting down units.

Whether it's in the city or the country, a big user or a small mom and pop store, demand response markets offer a new benefit to customers if the market rules allow customers to compete with other resources. That potential stretches across all types of customers, and must be part of the solution to the energy crunch in Texas if we want to keep rates down and maintain reliability.

This article is reprinted with permission from EDF.