Why would an electric utility or an independent system operator (ISO) pay a wastewater treatment plant to use less electricity? Well, because selling less power at certain times on certain days may offer various advantages.
If that seems confusing, then it’s worthwhile to listen to Randy Palombi, vice president, load response, with Constellation NewEnergy, a subsidiary of Constellation Energy Group, an energy company based in Baltimore, Md., that through its subsidiaries provides electricity, natural gas, and energy and sustainability solutions to residential and business customers around the country.
The concept behind demand response is that an electric power customer receives a payment from a utility, an ISO, or a third-party service provider like Constellation, in return for agreeing to reduce its power demand by a specified amount, for a specified time, upon request. The customer can then use the dollars received to offset operating costs or to invest in facility improvements.
Wastewater treatment plants, as large energy users, can be good candidates for demand response programs. Palombi talked about the concept and its applications in the clean-water industry in an interview with Treatment Plant Operator.
TPO: In the simplest terms, what is demand response?
Palombi: Demand response is really the temporary reduction of energy demand. It’s taking action to reduce electric usage — your demand for electricity — upon request. You are adjusting your demand in response to a request, typically from the utility or ISO.
TPO: What motivates utilities to offer demand response programs?
Palombi: It’s usually done for one of three reasons. First is for grid stability. The electric grid is a complex network, and power usage and supply have to be in balance at all times, or they risk brownouts or blackouts.
If a demand response program is in place, then when the grid becomes strained, meaning there is more demand for electricity than the available supply, the utility can ask end users who have signed up for the program to reduce their consumption. This is often done through a third party like Constellation Energy who can aggregate numerous end-use customers and provide a much higher level of demand reduction than a utility or ISO could arrange on its own.
Second, demand response is done for economic reasons — it’s typically referred to as price-responsive demand response. When the utility or ISO needs more power to meet the demand, they can hypothetically pay certain customers to reduce their usage, for less than it would cost to buy additional power supply.
Third, demand response is done as part of utilities’ integrated resource planning, where they look into the future at their demand for electricity and how they are going to deliver the supply. In many cases it’s far more economical for the utility to implement a demand response program to deal with peak demands instead of committing dollars to building and maintaining new peak-time power plants. This is especially true in areas where peak-time power plants are only needed a handful of hours per year.
TPO: What role does your company play in demand response programs?
Palombi: We provide demand response services throughout North America including several regulated and all the deregulated electric power markets, which includes primarily California, Texas, New York, and the Middle Atlantic and New England states.
TPO: Why is demand response appealing to wastewater treatment plants?
Palombi: They are large users of energy, and anything they can do to reduce their energy costs is appealing. Some plants we have dealt with have greater than 10 megawatts of demand, and there are plants with loads much bigger than that. These are 24/7 operations that are also very energy-intensive.
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TPO: How much can a wastewater treatment plant expect in incentives for enrolling in a demand response program?
Palombi: The economic benefit varies significantly across markets. There are programs in California that pay customers up to $100 per kilowatt per year — or $100,000 per megawatt per year — to curtail. In other markets it’s as low as $40,000 per megawatt per year. An average ballpark number is perhaps $60,000 per megawatt per year.
That’s what they receive as a capacity payment, which is simply the right to call them to reduce usage. Depending on the program, when we actually call and they do reduce usage, they may also get compensated for the energy they didn’t consume. And on top of that there is the avoided cost on the electric bill for that energy. So there can be three benefit streams.
TPO: By how much can a wastewater treatment plant reduce its usage for a demand response program?
Palombi: The plants we see participating, fall into two categories: those that simply reduce their usage, and those that have backup generation they can run during the time they are asked to curtail demand — they are shifting load from the utility grid to their on-site generators.
For those reducing their usage, on average we see them curtailing their load by about 15 to 30 percent. However, if a plant has backup generators, and they’re gas-fired, and gas prices are cheap, the cost to operate those generators can be less than they would earn in demand response payments. So they may elect to participate in a program where they shift more of their load, for a longer period of time, and as a consequence they’re going to be compensated more.
TPO: Can any wastewater treatment plant take advantage of demand response incentives?
Palombi: Demand response is not applicable to every facility under every type of operation. Some installations just can’t do it because they don’t have the operational flexibility or they don’t have the ability to reliably control their loads. The real key is for the user to be able to reduce demand, but not to the point where it’s going to affect their process. At the end of the day they need to treat the wastewater — they can’t just shut down.
TPO: How are demand response contracts typically structured?
Palombi: Demand response programs vary greatly from utility to utility and ISO to ISO, but the key parameters participants need to understand are:
• How much notification will you get before you have to curtail? It could be 10 minutes, an hour, three hours, or even a day.
• What is the maximum length of time you can be curtailed per event?
• During what hours of the day, days of the week or months of the year can you be called?
• What are the maximum hours per month and per year that you can be asked to curtail?
Every one of those is defined up front and capped in a contract. For capacity programs, the customers get paid whether they ever get called to curtail load or not. It’s an insurance policy for the utility or ISO, giving them the right to be able to call. In markets where brownouts are highly unlikely and capacity prices are low, the frequency of being called is typically very low — but when you do get called, the requirement is that you will be able to comply and drop the agreed-upon load.
TPO: Is there a size below which a plant is too small for demand response?
Palombi: It isn’t so much a matter of size. A big consideration is what type of control they have — how much of their system is automated versus manual. If it’s a smaller load but they can adjust that in an automated fashion and it’s reliable, then it’s less of a barrier that it’s a smaller load. On the other hand, if it’s a larger load but they have to do it manually or it’s less reliable, demand response may be less feasible. That said, we typically look for a minimum of about 200 to 300 kilowatts of curtailment load. If you use the average of 15 to 30 percent of peak, that’s about a megawatt of peak demand for the customer.
TPO: What are some examples of things treatment plants do to curtail load?
Palombi: First and foremost would be their pumps and aeration blowers. Those are large users of energy, and often they have operational flexibility there. They can sometimes divert wastewater to storage ponds during curtailment periods. One of our customers actually shifts wastewater treatment to another facility.
They can also shut off digester mixing and heating systems, depending on their operations. And apart from treatment itself, these facilities have office and storage spaces, where they can do everyday things like turning off unnecessary lighting, adjusting ventilation and air-handling fans, and changing temperature set points.
TPO: HTPOave you seen plants make investments in order to enable them to take part in demand response programs?
Palombi: Absolutely. In fact, in a lot of markets there are incentive dollars available to offset some of these costs. In California, for instance, if a treatment plant were to put in automation that would better enable them to participate in demand response, the utilities would pay up to $300 per kilowatt of load shed for that equipment. This is referred to as AutoDR. It can make a very big difference in the economics of those projects.
Even without the rebate or incentive dollars from utilities and other sources, there are companies using their own capital to make improvements to be able to take part in these programs. I don’t know if many would do a project solely for that reason, but there are usually additional benefits associated with it.
Putting in variable-speed drives, for instance, gives you more controllability for demand response while also improving your cost structure for energy usage. One thing that does make a lot of economic sense is putting in controls that allow you to better automate some of your load shedding and load shifting capability.
We see a lot of that today, and a lot of the rebate dollars are going to enhancing SCADA systems and putting in more automation and controls.
TPO: How do users take advantage of the incentives from demand response?
Palombi: One benefit of demand response relative to energy efficiency or time-of-use rates is that you actually get a payment — a revenue stream coming in to you, as opposed to just a reduction in your bill. What a lot of entities do is take that money from demand response to help fund other energy initiatives. One of our participating water districts in California is using demand response funds to help pay for new pumps and other equipment for an improvement project.
TPO: Does demand response have any other benefits?
Palombi: Yes. There are really three potential benefits to an end user. First there’s the financial benefit. Second, there can be an environmental benefit — reducing energy usage, reducing the carbon footprint, reducing NOx emissions, and so forth. A lot of entities are publicizing the heck out of taking part in these programs to get the environmental benefit, and if we move to mandatory cap-and-trade markets for carbon I think that will be a much greater benefit.
And finally there’s a societal benefit. We see this for a lot of municipalities. They’re being good societal partners; they’re shedding load to reduce the likelihood of a blackout or brownout that would affect critical facilities like hospitals.
TPO: How can a treatment plant go about investigating demand response?
Palombi: The first thing I would have them do is reach out to a curtailment service provider like Constellation or to their local utility. What we do is sit down with a prospective customer and talk about their operations, what kind of flexibility they have, what types of loads they have, what strategies they could implement, whether they need any enabling technology. It’s basically an energy audit, specific to their site.
We then develop a pro forma to show them how much money they could make by doing demand response, and we create an actual tactical plan of how they would go about curtailing load if they were called upon.
Of course, not all utilities offer demand response programs, so they would have to look at their local utility or ISO and see if they have a program or not.