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Demand Response: Committing to Help Lower the Strain on the Grid Can Yield Powerful Rewards

The Ontario Power Authority (OPA) has set some very ambitious goals to help ensure the long-term reliability and sustainability of the electricity supply in the province. To achieve these goals, the OPA has implemented electricity conservation and efficiency programs along with demand management initiatives across every sector.  One such initiative, Demand Response (DR), is being embraced worldwide as an effective way of lowering the wholesale cost of power and reducing the need to build additional capacity.  And, the OPA has several DR programs that offer monetary rewards to business customers who are willing and able to shift load or decrease load to help reduce the strain on the electric grid.

As public sector (MUSH) customers begin to consider what their energy management options will be once they are no longer eligible to receive Regulated Price Plan (RPP) pricing (Nov. 1, 2009), and as other businesses look for ways to reduce costs and protect their bottom line, voluntary or contractual load shedding or shifting may be an option they use to save money and, in some cases, to help generate revenue. The OPA offers three program options for businesses that are looking for a better way to manage their power load: 

Demand Response 1: Voluntary Peak Shedding Program

Each month, the OPA sets a minimum allowable strike price.  Participants in the DR1 program submit their monthly strike price offer (the offer must be equal to or greater than the OPA’s monthly minimum price), which then becomes the price that triggers a participant to reduce their load. Activation of load reduction can happen at any time when the three-hour pre-dispatch price (as posted by the IESO) is equal to or greater than a participant’s approved strike price. The OPA must be notified if a participant intends to provide load reduction once the conditions permit. 

Revenue for this program is based on the approved strike price participants submit along with the certified megawatt hours (MWh) of load reduction (see sidebar on Revenue Yield).

Demand Response 2: Contractual Load Shifting Program
Demand Response 2 (DR2), set to begin on July 5, 2009, is an incentive program that was created to help the industrial sector in Ontario find better ways to manage their energy use and to help the province reach its conservation targets by using less electricity when the province’s power supply is short or when it’s most expensive.  

The DR2 initiative targets Ontario's large industrial or manufacturing businesses—electricity users who are in

a position to commit to consistently shifting production and electricity use away from the peak periods (business days between 8 a.m. and 8 p.m.) into the low cost energy periods, or to move energy-intensive parts of their production to low-cost energy periods, thus stockpiling this production for further refining during high-cost energy periods.

The Ontario Power Authority recommends that the following processes could benefit from participating in the DR2 program: 

• Municipal water pumping and treatment
• Ice storage
• Plastics grinding
• Rock or gravel crushing operations
• Wood pulp production
• Mine de-watering

The DR2 program has contractual obligations (1-, 3-, or 5-year periods) and is therefore expected to contribute significantly to load reduction in the province during peak periods.  Program participants can contract to reduce a pre-determined amount of load for a minimum period of four consecutive hours, up to a maximum of 12 consecutive hours during the peak period.  The load would then increase during the off-peak period.  Load shifting does need to occur every business day but businesses need to be ready to participate for either eight or 12 months of the year.

Through the program, a payment is made for availability (capacity) and participants are offered a guaranteed price spread between peak and off-peak hourly Ontario energy price (HOEP) for load shifting (energy).  Because participants have contractual requirements, if those requirements aren’t met, there can be offsets against potential revenue gain from the program.

Program participation options:

• Businesses with a minimum of 5MW of demand response capacity can contract directly with the Ontario Power Authority
• Businesses may contract through a company that aggregates demand response capacity for any load larger than 0.1MW.
• Businesses may also apply to DR2 Transition Mechanism (up until July 4) to help with evaluating their MW of load shift potential. The DR2 Transition Mechanism provides businesses with an opportunity to modify and test operational changes to processes in advance of the full DR2 Program rollout to help to determine the appropriate level of participation in the DR2 program so that performance requirements can be met.

Demand Response 3: Contractual Peak Shedding Program
The Demand Response 3 (DR3) program provides monetary rewards to businesses for their commitment to reduce electricity consumption during peak demand periods and their participation in reducing load when called upon during scheduled events.

During specifically scheduled hours on designated business days, program participants make themselves available to respond to possible load reduction notices (“events”), which last four hours in duration.  Customers may commit to participate for up to 100 hours or up to 200 hours per year and they must be able to commit to minimum load reduction quantities of 5 MW (if they are participating directly through the Ontario Power Authority). Businesses with less than 5 MW of curtailable load must contract directly with an aggregator to participate in DR3.

The program makes payments for availability (capacity) during events and for the actual load reduction achieved during those events. As a Direct Participant with the OPA, failure to comply with contractual requirements could result in financial penalties.

The Role of an Aggregator
Customers who fall under the minimum 5 MW of curtailable load and who opt to participate through an aggregator, like Direct Energy Business, will have different requirements than those participating directly through the OPA and may enjoy elimination of the risks associated with penalties for shortfalls in curtailment or availability by being a part of a larger pool of participants.  In addition, by pooling the demand resources of businesses in the region together, aggregators can help customers in the pool maximize their program payments.

As an aggregator, Direct Energy Business makes it easy for businesses to participate in the program:

• NO COST to participate
• NO RISK, eliminating monetary penalty for non-performance
• Managing Program Activities; facilitating curtailment planning and program enrollment, curtailment notification, event oversight and settlement
• A minimum of 200 kW of curtailable load

Direct Energy Business also provides program management support that would normally be the responsibility of a direct participant. Once a business expresses interest in DR3, a Direct Energy Business engineering team arranges a visit at the customer’s site(s) to evaluate equipment and operations and determine curtailment opportunities for demand response and other potential peak shedding and energy conservation opportunities. The team will help identify the extent (hours and load) to which a business can participate to ensure that curtailment is feasible at a minimum of 200 kW level or higher across all locations and that the participant is available for up to either 25 or 50 curtailment events a year.

Once a participant enrolls, Direct Energy Business will manage all aspects of the program for the participant, including facilitating enrollment, implementing (if required) the appropriate data capture technology, managing curtailment event notification and participation through a 24/7 remote operating center, managing settlements and ensuring payment to the customer. 

As an aggregator and program manager for its customers, Direct Energy Business helps customers determine the appropriate and most attainable level of participation so that their commitment can be met and they can capitalize on the maximum revenue for their efforts. However, if a shortfall occurs, Direct Energy Business will absorb any financial penalties from the OPA associated with a customer’s under-performance or non-performance. This eliminates the risk that normally comes with direct participation, when all the compliance provisions are the responsibility of the participant.

In addition to the revenue benefits DR3 can generate for participants, companies that are regularly reducing electricity consumption will also be lowering their overall energy bill, putting additional revenue dollars back into their bottom line.

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