By Jen Jackson
March 31st, 2015


Truth is, energy efficiency and demand-response (DR) not only provide a win-win situation for customers and utilities, but roll up into enormous savings in infrastructure investment at the national level. And from there, the benefits ripple through the economy and the environment. One economist estimates that widespread use of DR alone might save the U.S. some $20 billon in capital and fuel over the next 20 years. (1) The U.S. EPA estimates energy efficiency polices could meet 50% of the electricity load growth between now and 2025 (2); and the ever-ambitious Northwest region is on record to beat this goal, striving to meet 85% of their load growth for the next 20 years. (3) Internationally, energy efficiency measures should be able to put a significant dent in the massive wave of energy infrastructure investment anticipated for the developing world—a staggering $45 trillion over the next 15 years. (4) So, the stakes are high.

Energy efficiency and DR come at the power supply pyramid from opposite ends. The first takes a slice from the base; the second clips the peak. Because large-scale storage of electricity is so difficult, the utilities have created a three-tier supply structure. The bottom tier, baseload power, is made up of coal, hydro and nuclear units that run 24/7. Intermediate power supplied by coal plants and gas turbines is designed to cycle up and down to follow demand throughout the day. And finally there is peak power, used when electrical demand surges, say on a hot summer afternoon. Peaking units may run only 10% of the time, a fairly inefficient use of investment capital.   Energy efficiency programs are intended to take a slice out of the bottom of the supply pyramid by reducing baseload demand permanently (e.g. more efficient lighting). DR programs are designed to tackle the peak; they don’t actually eliminate demand so much as shift it to off-peak hours.

The peak is the most expensive part of the supply chain, when the cost of generation soars. Utilities must keep extra units on hand, some simply idling, ready to jump in at a moment’s notice as demand spikes. DR programs address the problem in several ways. The first and most widely used efforts are economical, using direct incentives to cut peak demand and/or impose peak rates. Most rate structures these days double and triple the cost of electricity during peak hours. Some utilities set up programs that provide rewards for those that volunteer to have their load curtailed or cut off during peak periods. PJM, a regional transmission company that coordinates wholesale energy markets for 13 states in the mid-Atlantic and Midwest regions reports monthly on the results of DR programs in 3000 locations. For the first two months of 2015 customers received $110 million in DR capacity payments.(5)

Technology advances have taken demand response into a new realm—automation. Automated DR (ADR) allows utilities (or ISOs) to drop load automatically by sending signals to participating customers to use less power during peak hours. Customers anticipating the drop can take measures to adjust. Building owners, for example, can overcool their buildings hours ahead of the peak demand period, and then let the building coast through the hottest time of the day. This is the approach BuildingIQ takes in its optimization software, which looks at weather forecasts, occupancy patterns, energy costs and time of use rates to create a strategic trajectory for the HVAC system, achieving the twin objectives of tenant comfort and low costs. According to the OpenADR website, there are now some 60 utilities in the U.S. and around the world using ADR. (6)

We recently completed a successful Demand Response season using BuildingIQ’s PEO platform. We found an average 20% reduction in peak demand during 108 DR events at 6 separate sites. Triggered by remote signals, each event was 2-3 hours in duration. The data set measured a range of peak demand reductions from a low of 7% to a high of 28%. ADR is inherent in the BuildingIQ platform, which relies on two-way communication with the building for purposes of optimization and control. Most competing systems use one-way communication.

The future looks brighter. The capabilities of ADR and energy efficiency have enormous, positive implications for energy infrastructure investments in the future. The older fleet of coal plants can be retired, and fewer new coal plants need be built, contributing to a cleaner environment. The near instantaneous response of ADR means demand curtailment can serve the power grid in a role similar to storage, firming up variable sources of generation, like wind and solar. ADR means the need for peak generation facilities can be scaled back and utility reserve margins tightened.



(3) Barker, Brent, “Top-of-the-Tree Energy Efficiency,” page 15, Public Power Magazine, January-February, 2013
(5) Kessler, Josh, “Demand-Response in Mid-Atlantic, Midwest,” March 18, 2015, Energy Manager Today