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Demand Response Pays Data Centers To Be Flexible

Brother, can you spare a kilowatt? If you can, EnerNOC and other demand response service providers are willing to pay you handsomely for it.

These true-to-life power brokers are the progeny of 1980s utilities that rewarded customers willing to pull a few plugs during peak demand. Such programs continue, but now they have been made much more scalable to include midsized enterprises. "So, with a push of a button, we can take control of the loads," says David Brewster, EnerNOC president and co-founder.

But who has kilowatt capacity to spare? Hospitals, supermarkets, manufacturers, and universities and other large power users are among the clientele.

EnerNOC monitors 3,400 customer sites, managing 1,760 megawatts (MW) of electricity. Berkshire Health Systems, an EnerNOC customer that operates hospitals in western Massachusetts, has been getting paid $25,000 a year since it signed on in 2006. In return, the health care provider voluntarily reduces its energy use by approximately 1.3 MW during peak periods via a mix of curtailment (lighting reductions, HVAC adjustments, shut-down of selected elevators), and short-term back-up generation.

Even data centers -- which became the poster child of green energy reformists this year -- are getting involved. How? By using under-utilized backup generators.

The manager of one disaster recovery data center has been coveting demand response revenue for at least two years. What's stopping him? Bosses who don't understand the demand-response model. "I'd love to get a buck-fifty per kilowatt for capacity I rarely use," he says. Would his disaster recovery customers mind that he was selling emergency capacity? "No. We'd make it clear to them that our natural gas-fired generators will meet their needs. And if they signed up with us in the first place, it's because they have confidence that our backup generators work."

The benefits to users are manifold. First, participants are paid a capacity fee, whether or not they are ever asked to relinquish that capacity. Second, demand response service providers will install energy monitoring equipment that helps users understand what equipment is the biggest drain. Third, demand-response providers participate in reverse auctions and can help users hook up utilities with lower rates. Fourth -- and this is a key attraction for data centers -- utilities notify the demand-response providers before they put a neighborhood or region into brownout. The service providers then tell the data centers, giving them precious extra minutes to batten down the hatches.

Utilities benefit, too. By repurchasing capacity, they can avoid building new peak-power plants. Such plants are expensive to build and usually sit idle for most of the day and night. EnerNOC's energy management alone precludes the building of 17 such plants. Pacific Gas and Electric Company works with 13 demand-response service providers, including EnerNOC. For other service providers, check out trade group DRSG (formerly the Demand Response and Smart Grid Coalition), advocacy group Demand Response Coordinating Committee, and your local utility's Web site. Also, if you care to participate, the Federal Energy Regulatory Commission is conducting a survey of demand-response market interest. And the U.S. Environmental Protection Agency discusses the benefits in detail in the National Action Plan For Energy Efficiency, Vision for 2025: A Framework for Change.

Utilities investing in smart meters or smart-grid gear used in demand response also got a boost last October when Congress tucked tax incentives into SEC. 306 ("ACCELERATED RECOVERY PERIOD FOR DEPRECIATION OF SMART METERS AND SMART GRID SYSTEMS") of the Emergency Economic Stabilization Act of 2008, aka the $700 billion financial industry bailout bill. Worth $915 million over 10 years, the tax treatment lets companies depreciate investments over 10 years instead of 20 years -- "in essence, taking bigger deductions each year," writes Siobhan Hughes of Dow Jones Newswires.

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