Why NYC DR needs a paradigm shift under REV

Demand Response (DR) is typically pitched as “free money”: a cash payment to the Building Owner that requires little or no investment on their part.
A mere 1-year payback sets a common upper bound for project cost, per current market practice.

This is unfortunate for several reasons:

  1. Few economically feasible DR assets: DR is basically limited to turning things off (can annoy tenants) or running uncontrolled, dirty emergency generators (bad for New Yorkers).
  2. No plannability: Owners are noncommittal about staying in DR, so it's hard for utility planners to bank on it as a resource--a problem when the whole point is to defer long-term capital investment!
  3. No leverage: With investment at a 1x multiple of DR payments, Public incentives for DR (whether upfront or recurring) are ineffective at leveraging-in private capital.

Reason #3 gets at the crux of the issue: increasing monthly payments (or incentives of any kind) has limited impact on investment in DR. Adding $1 to monthly DR payments may convince an Owner to invest just $0.80 more upfront (accounting for the ongoing costs of DR enrollment).

The key is to get Owners to look at DR as an investment over 10 years or even more, as shown in "Option 2" below:

 

Owners currently look at DR as a current year, "free money" proposition. In order to spur real investment in DR, the paradigm must shift to long-term investment, valuing payments over 10+ years.

 

By capitalizing DR payments over a 10-year horizon at a reasonable, risk-adjusted discount rate, every $1 of DR payment gets leveraged closer to 6-8x (of course, subject to asset-specific operating costs): adding $1 to DR payments would yield $7+ in private sector investment!

 

By applying a 15% discount rate to 10 years of DR payments, investment amounts grow to nine times the current status quo; this effect creates far more leverage than merely increasing rates.

 

NYC's utility Con Edison seems to understand the importance of moving beyond the current "free money" value proposition of DR: in 2014, they doubled DR rates and added a triennial "Retention Bonus"; they also offered to pay Owners half the cost of any DR-enablement investment as part of the Indian Point-triggered DMP
But unless investors and Owners approach DR as a true multi-year investment, these increased  payments-- which get passed through to everyone's electric bill-- have a limited yield.

Peak Power seeks to supply a framework and investment capital for this market transformation, to usher in a new era of affordable, plentiful, durable, peak-flattening Demand Response for New York's electric grid.

DER of our Dreams

New York State is making a concerted push to recognize, adapt to, and encourage a new era for the electric grid: the age of the Distributed Energy Resource (DER, sometimes pronounced 'durrh').

The core of this new policy is a plan and process by the state utility regulator (NY PSC) called Reforming the Energy Vision, or REV.

A driving theme in REV is to "animate markets", i.e. encourage broad-based participation in balancing electric supply and demand through many individuals and projects (i.e. DER), rather than trying to force specific, top-down solutions via regulated utility investment or prescribed state incentives.

Along these lines, REV leaves the definition of DER quite open-ended. A note near the beginning of the REV Order explains:

"DER" is used to describe a wide variety of distributed energy resources, including end-use energy efficiency, demand response, distributed storage, and distributed generation. DER will principally be located on customer premises, but may also be located on distribution system facilities. 

So DER means rooftop solar, and also ice thermal storage, and also LED retrofits; the PSC is not trying to define what one does or looks like.

At the same time, I believe there are clear signals from the building, grid, and societal level that indicate the desired characteristics of the Perfect DER. I put these in 4 buckets:. 

  1. Utilization: Reliably reduce System peak demand (see this post)
  2. Resiliency: Provide 6-24+ hours' emergency backup power
  3. Economy: Be cost-effective (profitable) and non-disruptive
  4. Environment: Cut greenhouse gas emissions and local pollutants

When you look at the list, it seems clear we will get there with a mix:

  1. Batteries and/or on-site generation for #1 and #2
  2. Solar, wind and efficiency to help achieve #3 and especially #4
  3. Policy/tariff reform to bring the right price signals to the right users

I'll get into greater detail here in 2 future notes.

Peak Demand in New York City: What's the problem?

What is Peak Demand?
Electricity typically gets to your home or office through a massive central system, aka the Grid, broken into three basic components: generation (mostly power plants sited outside the City), transmission lines carrying that power over long distances, and local distribution (stations and wires) to condition and deliver the power.
From an infrastructure planning perspective, the total amount of electricity consumed (kilowatt-hours or kWh) is important, but perhaps more meaningful is the rate of consumption (think of the water pressure in your shower), and the volume of the pipes to support this flow. This energy "bandwidth" is measured in kilowatts or megawatts (kW or MW).
The maximum rate of consumption from the centralized electric grid is called Peak Demand. Peak Demand usually occurs on hot days in the summer, when building air conditioners are running full blast.

How Bad is NYC's Peak Demand?
The chart below shows the load duration curve for Con Edison (CECONY), which serves NYC and parts of Westchester. At the upper left corner of the curve is ConEdison's peak demand: about 13 gigawatts (or 130 million old-school 100W lightbulbs, if that helps).
Notice that the curve is steeper at the left, then flattens out as it moves right (i.e. the load duration gets longer).
The problem with peak demand is this steepness: the top 2 gigawatts, 15% of total demand--run less than 7 days per year, or less than 2% of the time. This gets expensive: transmission and distribution costs up to $840 per kW per year. The NYS PSC's REV recently estimated that cutting the top 100 hours of peak demand could save New York State up to $1.7 billion a year.

 

ConEd 2012 load duration data; note CECONY overlaps Westchester Cty, but is mostly New York City.

 

Like other capital-intensive endeavors, the electric grid is made possible by volume. This immense, expensive and resource-intensive infrastructure is worthwhile if it's in use say, the 2,000 "regular" working hours in a year (or better yet 24-7), because fixed infrastructure costs can be spread over more hours. By contrast, high peak demand means the capacity gets spread over fewer, very expensive hours. 
Clipping peak demand reduces capacity requirements for the electric grid, which would ease the financial burden on utility rate payers, taxpayers, and future generations of New Yorkers seeking economic competitiveness. It could also help preserve our open space by reducing the need for new transmission lines.

What the Future Brings.
Unfortunately (see chart below) experts forecast peak demand to keep rising. Through a combination of energy efficiency, slowing population growth, and perhaps things like rooftop solar, average demand (total demand / annual hours) will stay flat or even slightly decline over the next 10 years. Peak demand, on the other hand, will continue to rise. Structural changes to the economy (more office workers on the same work-home schedule, for example), and the increased preference for climate controlled environments, are driving peak demand higher in New York City and other grids across the country.
The quick-and-dirty metric for demand "peakiness" (or inversely, grid efficiency) is called utilization factor: the ratio of average over peak. In NYC, utilization goes from ~60% in 2004 to ~45% in the 2024 forecast, a costly 25% reduction in efficiency. The supply-demand picture could be rendered even more troublesome by the increased penetration of intermittent renewables and the potential shut-down of large baseload power plants like Indian Point and Danskammer.

 

NYISO: NYC peak and average annual demand, 2004 - 2024F.

 

What Peak Power LLC is doing about it.
The problem is clear: peak demand in NYC ought to be slashed, on the order of gigawatts, asap. Efficiency, behavioral, and mechanical tweaks won't get us there; creating alternative, clean sources of peak power at NYC's major load centers (read: big buildings) will.
Stay tuned here, or better yet contact us to learn more!