Photo Credit: Consolidated Edison
Like many other utilities across the country, Consolidated Edison has been offering demand response programs for years. During that time, however, the utility that serves the nation’s largest city often has not been the best at wooing demand response clients.
Con Ed is not responsible for the better known -- and more popular -- wholesale program in New York, where customers offer up their load into the state’s energy market in exchange for payments.
Instead, Con Ed’s demand response programs are strictly focused on easing distribution congestion within its system. For more than a decade, the distribution utility that serves about 3 million customers in New York City and Westchester has offered contingency-based demand response that focused on the condition of distribution equipment across its more than 80 networks. More recently, it developed a peak demand response program.
But the economics weren't moving the market in a big way.
“I had a crisis of confidence,” Colin Smart, section manager for demand response at Con Ed, discussing the utility's approach to the cost-benefit analysis of demand response. “I felt like we had gotten away from due north.”
To reset the compass, Con Ed recently recalculated the value of demand response and adopted a single metric for both of its programs. The result is payments that are double what they were a year ago, as well as new incentives designed to entice commercial customers of all sizes to take part in multi-year agreements.
Currently, Con Ed has to size its distribution system to meet its 13,000-megawatt peak, even though those conditions may exist for only ten hours out of an entire year. With a sizable stable of better-compensated, longer-term demand response partners to call on, Con Ed can curb the amount of investment needed for its distribution grid.
The original program had participants, but “the economics weren’t inspiring many people to enroll,” Smart said. Four years ago, Con Ed added a peak shaving program that also emphasized improving the use of its distribution network.
Unlike the distribution contingency program, which relied on a utility cost test, the peak demand response program relied on the total resource cost test (or TRC test), which is used more widely to assess the full incremental cost of the demand response resource. Most participants would first enroll in the state’s wholesale market and then add on a Con Ed program to earn a bit more money.
It started to become clear that Con Ed’s demand response programs were not as robust as they could be, in part because they operated on different cost-benefit assumptions. “There were many ways to value the programs that we hadn’t been taking credit for,” said Smart.
The utility commissioned Freeman, Sullivan & Co. to do a study on its existing demand response programs and to identify how best to move forward. The study found the TRC test was the better measure for Con Ed and that the utility could significantly increase its payments based on the benefits to the system.
The decision to revisit the demand response programs came at the right time. “Of course, Sandy hit, and a lot changed after Sandy,” said Smart. All of a sudden, regulators and customers were far more interested in the resiliency of the electrical grid and how buildings can operate more efficiently when the grid is down or stressed. “It changed ways to engage customers. It gave us all pause for thought.” In addition, Audrey Zibelman, who had worked for Viridity Energy and PJM, was named the chair of the New York Public Utility Commission.
After the study was complete, Con Ed filed a request to revise its demand response rates. For the 2014 demand response season, the contingency demand response has been doubled from $3 to $6 per kilowatt per month, and the peak demand response has doubled from $5 to $10 per kilowatt per month for capacity payments.
In addition to the doubling of the payments, another interesting new offering is a three-year incentive of $5 per kilowatt per month for companies that will enroll in the program for an extended period of time. It is the first multi-year demand response program of its kind in the U.S.
One of the reasons for the three-year plan is that the cost-benefit analysis of the demand response programs are based on Con Ed’s ten-year distribution planning, so the more DR assets it can ensure for long period of times, the more confidence it can bring to its planning process. It also becomes a more robust -- and more positive -- feedback loop, according to Smith.
The more long-term demand response assets the utility knows it has, the higher it can potentially value them, therefore increasing payments. It also gives businesses confidence that if they invest in smart building controls to provide more demand response, they know what the return will be.
Con Ed has about 200 megawatts total in its demand response programs to date, and it has expressed hope that the new payments will encourage about a 20 percent growth in program participation. Enrollment for May ends on April 1, and enrollment for July onward goes through June 1.
There are some other adjustments that have been made, such as events being shortened by one hour and a lower minimum threshold for how many kilowatts need to be offered by each customer. In exchange for participating in the contingency demand response program, customers can earn up to $15 per kilowatt per month, depending on which network they are on. Con Ed will also have a new demand response system from Alstom that will come on-line in the next year.
The new demand response payments are separate from the recently announced enhanced load reduction program from Con Ed and NYSERDA, which is looking for a reduction of 100 megawatts from demand-side assets in anticipation of the closure of the Indian Point nuclear facility.
For the most part, aggregators applaud the higher prices. “The intent of this is great,” said Jason Buck, regional sales manager at EnerNOC. But there are some lingering concerns, such as how payments will be allocated for the three-year program and whether the PUC should have approved the even higher prices that the utility had originally proposed, especially since large commercial customers can face peak demand charges of $40 per kilowatt in summer.
Con Ed is hopeful that new customers -- especially smaller ones -- will be interested in joining. The utility already works with many of the owners of class A office space, but has struggled to enroll smaller buildings, even though it has a robust small business energy efficiency team.
The utility is also expanding its residential CoolNYC window AC demand response program this summer. The city is mostly driven by commercial peaks, but in some networks in Queens and Brooklyn, the peaks come as late as 11 p.m. in the summer because inefficient window AC units are humming in every apartment.
To get more engagement in the outer boroughs, Smart understands that the utility will have to meet all of its customers where they are and make a compelling offering. “We need technologies that are set-and-forget,” he said, adding, “We have to start communicating in a simpler fashion.”