Rewarding Flexibility for Commercial and Industrial Customers

January 11, 2021
Blog

Rewarding Flexibility for Commercial and Industrial Customers

By Matt Ross

With the shift towards renewable energy, utility rates are being designed to align customer charges with the true cost of electricity generation and delivery. Time of use (TOU) rates represent the most common example of this growing trend and help incentivize customers to shift their energy consumption to times when energy resources are more abundant/affordable. 

Utilities are also choosing to reward customers that can provide flexibility in their operations when the demand on the grid is greatest. These programs are designed to provide immediate relief to the grid when demand approaches current generation levels. During these peak events, the utility must turn to expensive peaker plants to meet the growing demand or otherwise risk blackouts. Utilities have found rewarding flexibility to be an economical option for reducing the severity of peak events or avoiding them altogether. 

Demand Response

Demand Response (DR) Programs reward participants who reduce their demand during DR Events. These programs can differ across utilities but typically provide credits to participants’ bills for both enrollment in the program and their actual performance during events. 

GridX is able to effectively model DR programs for customers currently enrolled as well as providing “what-if” analysis to attract new customers to the program. Using GridX, Key Account Managers can run analyses in real time to inform their customers how enrolling in DR can make an immediate impact on their annual spend. KAMs can also simulate the number of events and customer performance to communicate additional upside and the risks associated with underperformance. 

Interruptible Load

Typically reserved for the largest C&I customers, Interruptible Load Programs allow customers to divide their load into “firm” and “interruptible” loads. The interruptible portion must be curtailed whenever the utility requires a reduction in load to maintain system integrity. In return, the customer is provided with a credit on their bill which helps offset demand charges.  

GridX modeled one such program which allowed the customer’s interruptible load to be billed at wholesale prices, providing significant annual savings. To accurately model this program, GridX automatically loads the Locational Marginal Pricing (LMP) data from the Independent System Operation (ISO). The LMP data represents the actual, real time cost of energy at a particular node within the ISO territory. The customer is thus billed with a unique price for each hour of consumption within a billing period.

Critical Peak Pricing

Many utilities offer Critical Peak Pricing Programs to help curtail consumption during peak events. In exchange for participation, customers receive discounted energy rates during normal times. When a critical peak event is declared, enrolled customers are charged critical peak prices which are significantly higher than their normal rates. Customers are expected to reduce consumption to avoid these critical peak charges. These programs again favor customers with flexibility in their operations and have the ability to respond quickly during peak events

GridX has modeled similar programs for multiple utilities to help customers understand the benefits and risks of participation. Key Account Managers use GridX rate analysis tools to share scenarios with customers including break even points. This helps quantify potential savings (or bill increases) based on the number of events called in a year.  

Conclusion

Utility rates are constantly evolving to reflect the true cost of energy at a given point in time. Meeting demand when there are constraints on the grid will continue to be a focus area for utilities especially with more intermittent sources of generation providing an increasing percentage of capacity. The mechanisms for rewarding flexibility can result in complex billing challenges but have proven to be a successful strategy for working with end customers to curtail load.