Enernoc Newsletter Q2 2009

Featured Article: Are You Ready? 5 Tips to Maximize Demand Response Payments

More than 5,000 commercial, institutional, and industrial customer sites in EnerNOC’s demand response (DR) network provide services that make the electric power system more efficient and reliable. While demand response events occur year-round, higher temperatures and associated air conditioner load in the summer months can stress the grid, driving up wholesale prices and increasing the risk of power quality issues and system failures.

There are numerous benefits to participating in demand response, but the biggest one is typically the financial impact it can have on your organization. In order to maximize your payments, it is important to ensure that you are ready to spring into action when called upon. Below are a few helpful tips to make sure that you hit your energy reduction targets.

• Cutting Costs to Survive a Downturn: How One EnerNOC Customer Used Demand Response and PowerTrak to Fight the Recession

  For the first time in company history, Hendersonville, TN-based windows manufacturer MGM Industries had to lay off employees in 2008. Against the backdrop of an economic recession, the company took a hard look at its expenses and began to brainstorm creative ways to stave off further impacts of the downturn. The company started by examining its energy expenses which, similar to many manufacturing businesses, totaled more than $20,000 per month.

  To help offset this significant monthly cost, the company signed up for the TVA-EnerNOC demand response Program offered through its local power distributor, Nashville Electric Service. By shutting down part of its manufacturing processes during demand response events, the company receives approximately $12,000 per year -- but that’s just the beginning. As an EnerNOC demand response customer, MGM also receives free basic access to PowerTrak®, EnerNOC's energy management software platform that arms the company with detailed real-time and historic information about its energy consumption, and highlights important savings opportunities.

  "Every dollar saved helps us save jobs," says John MacKorell, process improvement engineer at MGM. "Annual cost savings thanks to PowerTrak total more than $30,000. So, with PowerTrak, we ended up saving about three times the amount of our demand response payments."

  “During busy times, power optimization was not on our radar screen,” admits MacKorell. Like many companies facing heavy demand, the primary focus was on meeting the need for its products, which include a wide range of vinyl windows required for the then-booming housing market. With the slowdown in demand, MGM worked hand-in-hand with EnerNOC to devise a strategy that would enable the company to participate in demand response without adversely impacting its production capability. An EnerNOC assessment revealed that, while two of MGM’s buildings house its main manufacturing operation where production needs to move ahead unimpeded, a third building contains an energy-intensive extrusion facility, which can be used more flexibly. Because MGM can choose when it manufactures and reprocesses the vinyl, shutting down the extrusion facility for short periods of time “doesn’t make any difference to our production schedule or our customers,” notes MacKorell.

  At first, MGM used PowerTrak just for monitoring reductions during demand response events, but as it became more familiar with the program, MGM expanded its use of PowerTrak to more carefully examine the facility’s overall energy behavior. “Now we use PowerTrak to know a lot more about how we use energy, such as how many amps each piece of equipment draws,” says MacKorell. “This knowledge helps us time our production schedule better and use the right equipment at the right time. Ultimately, we save more by trimming off peaks of demand and rescheduling some production for non-peak periods.”

  In 2008, MGM’s average monthly demand was 598 kilowatts (kW). Its goal is to use PowerTrak to keep this figure below 400 kW. As part of its efforts, MGM’s production managers now have weekly meetings to manage energy use. These meetings provide an opportunity to translate energy management ideas into actual day-to-day operations.

  “PowerTrak helps us maximize throughput from our equipment when it’s turned on and drawing electricity. We work with users to make sure equipment isn’t just sitting there. In the past, it might not have mattered. But now we need to make smarter, more informed energy decisions at all levels,” says MacKorell.

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• Choosing an Energy Services Provider

  According to the Energy Information Administration, commercial and industrial organizations in the United States spend more than $200 billion on energy every year, yet few are actively managing this expense. In this economic climate, businesses can no longer afford not to closely manage this expense. But navigating the energy markets can be daunting. In the following discussion with Gregg Dixon, senior vice president of sales and business development at EnerNOC, we discuss a few key considerations when picking an energy management partner.

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• EnerNOC Launches New Version of PowerTrak

  If you haven’t logged into PowerTrak lately, it’s time to take a look! In May, EnerNOC released the latest version of its energy management software application, with a number of enhancements designed to make the user experience even more intuitive. The new Event Performance Dashboard allows you to easily evaluate your facility’s energy reduction compared to your target. An up-to-date copy of your Energy Reduction Plan appears in the same view, placing your demand response procedures right at your fingertips.

  

  Additional enhancements to PowerTrak enable our Network Operations staff to provide even better customer service during demand response events. With these improvements, you’ll typically wait an average of less than 3 seconds for someone to answer when calling into the EnerNOC support center during a demand response event – that’s quicker than the average 9-1-1 emergency call!

  Updates and improvements aren’t just limited to our demand response customers. PowerTrak is at the core of our Monitoring-Based Commissioning (MBCx) platform. MBCx customers see data sooner and our analysts recognize significant savings opportunities for their customers even faster than with the previous version of PowerTrak.

• Energy Efficiency - It's No Longer Simply Adjusting the Thermostat

  Do you remember when “energy efficiency” meant “freezing in the dark”? For many years, the mere phrase “energy efficiency” conjured up images of Jimmy Carter in a sweater. Is that really what energy efficiency is all about? The answer is emphatically “NO!” Today, energy efficiency is perfectly in line with our current recession-era mandates: make the most of what you currently have; tightly manage your budget; and, make sure you can measure what you’re managing. Before you reach for the thermostat, consider the rest of this article.

  For decades, energy managers have relied on utility bills and their intuition to manage their often multi-million dollar energy spends. That’s all changing. Investments in energy monitoring technology are revolutionizing the way large commercial buildings are managed. As a point of reference, the U.S. Department of Energy estimates that the average building in the U.S. uses 26 percent more energy than it needs – that means there is a lot of room to cut energy usage without impacting occupant comfort. In fact, today’s energy efficiency solutions actually reduce occupant complaints. All this begs the question: why do building owners waste so much money, especially in these lean times? Maybe some of these reasons sound familiar:

  • "This is how it's always been done." Many facility management teams manage their sites the same way today as they did 5, 10, or 15 years ago. If it worked in the past, then there's no need to fix it now.
  • "Energy costs are invisible." For many organizations, the costs and benefits of energy efficiency are opaque. The tenant doesn't pay their fair share, nor do they capture the benefits of their efficiency efforts, which makes energy efficiency feel more like an act of public good versus a solid business initiative.
  • "You can't manage what you can't measure." Utility bills have surprisingly little information in them. Have you ever compared your utility bill to your phone bill? Every teenager with a cell phone can curtail their monthly spend by changing usage patterns (for example, by delaying calls to nights and weekends when rates are lower) more effectively than the most savvy energy managers can reduce their energy spend simply because they have access to information.
  • "Change is risky!" A facility manager's worst nightmare is a slew of building alarms and comfort complaints. When energy efficiency was simply dialing the thermostat up or down it usually meant a lot of unhappy building occupants for an already overworked facilities team. The hassle was hardly worth the effort.

  But these things are all changing. The status quo is no longer safe territory. Tenants are demanding lower energy costs and better environmental performance. Technology is rapidly advancing to allow energy and facility managers to get a better view of their building's real-time and historic energy usage - while at the same time improving occupant comfort. And they're using these new technologies to great effect - to the tune of over 10 percent in annual energy savings. Here is a rundown of some of the latest tested and proven technologies.

  • Energy Dashboards - Simply showing building occupants how their actions impact energy consumption can persuade them to reduce consumption. Savings here can be on the order of 5-15 percent per year.
  • Monitoring-Based Commissioning (MBCx) - Building management systems capture a tremendous amount of data that can be remotely analyzed through automated software applications to detect substantial energy efficiency opportunities. This allows facilities teams to tweak systems over time and avoid the inevitable drift that has become commonplace in today's buildings. MBCx applications can save more than 8 percent per year.
  • Building Portfolio Management - Which of your buildings is the least efficient? How does it compare to its neighbors? How does it compare to a year ago? How much should you budget for energy for next year? With energy benchmarking software, you can track all these items with ease, and use the information to target your efficiency activities where they are needed most.

  So before you open up that checkbook to make a major capital investment in new equipment, consider optimizing your systems by investing in ways to measure and manage energy efficiency first. The savings you generate will pay you back faster, lower your operating expenses, and keep your building occupants happy.

  Sangeeta Ranade is a business development manager at EnerNOC. This article originally appeared in the May issue of the New York Real Estate Journal.

  Read More Articles on Buildings Behaving Badly:

  EnerNOC's Energy Efficiency blog

• Smart Grid 101

  EnerNOC Chairman and CEO Tim Healy used this year's annual Chairman's Letter to discuss how EnerNOC fits within the context of the smart grid - and how new innovations have the potential to reshape how energy users do business.

  He also discussed his views on the smart grid with Renewable Energy World in a multipart series. Part I, "The Smart Grid Explained," provides a high level introduction (Tim's section begins around the 5-minute mark), and Part II, "How Will We Manage Demand on the Smart Grid" (around the 6-minute mark) does a deeper dive into the future of smart grid applications and the shifting regulatory landscape.

  Dear shareholder,
  A few months ago, I met with a journalist who was writing a story about the smart grid. He said, “You can tell that the smart grid is on the verge of something big — everyone is talking about it, but nobody really knows what it is.”

  Perhaps the easiest way to describe the smart grid — and EnerNOC’s role in it — is to compare the smart grid to the Internet. The Internet can be described as having two layers: an infrastructure layer and an application layer. The infrastructure layer consists of the communication and processing network: the routers, switches, servers, and other enabling equipment that make data exchange possible, efficient, and fast. The application layer rides over that infrastructure to unlock the value of the Internet for its users (think Amazon, eBay, and Salesforce.com, for example).

  Similarly, the smart grid will have an infrastructure layer comprising a range of technologies, including advanced transmission and distribution hardware, advanced metering infrastructure (AMI), and perhaps altogether new communications networks and protocols. That infrastructure itself, however, will not be inherently intelligent — it only has the potential to be. The grid will become “smart” when the technological capabilities of the infrastructure and the data it generates are leveraged to create new applications that increase energy productivity. As the grid’s infrastructure is enhanced, a broad range of efficiency, reliability, and customer service applications will emerge, and it’s these applications that seem poised to justify today’s investments in the smart grid.

  Demand response and monitoring-based commissioning (MBCx) are two initial applications that are already thriving, but stand to benefit further as the smart grid infrastructure is built out. In fact, Jon Wellinghoff, the new chairman of the Federal Energy Regulatory Commission, recently called demand response the “killer application” for the smart grid. One can recall that email, e-commerce, online travel, and Internet search were all at one time termed “killer applications” of the Internet. Not surprisingly, the companies that established early dominance in building and delivering these applications are some of today’s most recognized — and often most valuable — Internet application providers.

  EnerNOC has emerged as a leader in demand response applications, and we have adopted a strategy that we believe will position us for long-term success and sustained leadership. While residential demand response may be somewhat “plug-and-play”, with ZigBee-enabled appliances that communicate directly with the meter and respond to pricing or reliability signals, more customized solutions are required for commercial, institutional, and industrial (C&I) customers who have varied loads and specialized equipment.
  C&I demand response requires the coupling of advanced technology with knowledge-based expertise and services.

  The combination of infrastructure, innovative communication protocols, robust software systems, industry-specific energy expertise, and 24/7 services enables C&I demand response capacity to be delivered as a reliable, flexible resource to grid operators and utilities — creating an advanced application that provides real value to the grid.

  Similarly, while smart meters and existing building management systems are capable of generating volumes of detailed energy data, the real challenge is to distill this information into actionable business intelligence. EnerNOC’s MBCx application is just that: a system that continuously monitors and analyzes thousands of building energy data points to optimize efficiency and maintain efficiency gains over time. By constantly monitoring the behavior of a facility’s electrical and mechanical systems, EnerNOC’s MBCx helps to ensure that equipment is operating in the most energy efficient manner desired, while optimizing occupant comfort.

  The results are significant: we are generally able to identify energy savings of 8 to 12 percent for our MBCx customers, primarily through low-cost or no-cost behavioral and operational changes — rather than capital-intensive equipment retrofits — and deliver near-immediate results.

  We believe that innovations to the smart grid will evolve to deliver a more efficient, reliable, and decentralized energy ecosystem that enables the integration of much more renewable generation, dynamic pricing, and vehicle-to-grid solutions. To get there, however, we must focus on the steps that are actionable today.

  Just as the early Internet pioneers did not wait for ubiquitous broadband connectivity to build many of the companies that shape today’s Internet economy, EnerNOC is not waiting for the smart grid revolution to deliver the applications that will change the way businesses and organizations think about energy. We are building these applications right now, starting with the demand response resources that we’ve been delivering since our inception and continuing with our MBCx application that is beginning to experience increasing market traction. As the Internet infrastructure improved to allow for more robust data and content delivery, new application providers emerged, but the early leaders that invested in their applications grew their organizations to become some of the economy’s largest and most respected household names.

  We believe the smart grid is poised to experience the same life cycle of innovation, and EnerNOC is one of its leading innovators, committed to investing in our systems and shaping our markets for growth.

  In closing, I want to thank our employees for a great year in 2008 and thank you, our shareholders, for your continued confidence and support as we continue to strengthen our business in 2009 and beyond.

• Fundamentals of Energy Price Risk Management

  Gas and electric markets have deregulated in many areas in the United States, and that trend is continuing. In deregulated areas, commodity markets for energy have evolved.  These markets are among the most volatile commodities traded anywhere. Electricity and gas prices change continuously, and can be bought or sold on the spot market for immediate delivery or for future terms, from one day to as far forward as someone is willing to trade. Three to five years, however, tends to be the practical limit for most fixed-price arrangements.

  

  The graph above depicts changes in twelve-month wholesale peak power prices in PJM. Spot market pricing changes by the minute and power can actually be purchased by the hour. Prices in the spot market can range from negative values up to $1,000/MWh. While the near term changes in the spot electric market are significant, it is notable that the overall changes in the forward market are greater, on average, than those in the spot market.

  In order to successfully manage costs in this market, it is important to apply commodity-based market purchasing strategies, i.e., hedging. Also, it is important to recognize what portion of total energy costs are actually derived from the wholesale commodity energy markets, and what regulated cost components are. In gas, approximately 60-75 percent of delivered costs are directly related to commodity prices, i.e., NYMEX, while electric costs tend to be 65-75 percent based on commodity market levels.

  

  In the purest sense, there are only two types of participants in commodity markets: hedgers and speculators. Hedgers are seeking to stabilize cost or revenue and willing to pay a premium or forgo revenue, respectively, in order to lower risk that is characterized as unknown pricing that they would otherwise face buying in the spot market. A true hedging decision is not based on price. Rather, it is based on the reduction of risk achieved. Speculators, on the other hand, are willing to accept the risk of price variation inherent in the spot market – for a price. A pure speculative decision is really based on price and acceptance of risk. In reality, there are very few pure hedgers or speculators, and one must identify where they fall in the spectrum in order to have a sound decision basis in the commodity energy markets.

  

  Fixed-price energy contracts are, in fact, based on forward market pricing. The spot market has relatively little to do with the level of the forward market at any given point. To differentiate, spot markets are the meeting of real supply and demand for a given commodity at the time of use. By definition, the market is cleared and the commodity is either consumed or stored for future use (electricity cannot be stored and this limitation leads to more price volatility than is seen in other commodities). On the other hand, forward markets are based on what various parties are willing to pay now for the purchase or sale of a commodity at a defined future time. While these markets are not directly linked, they are obviously related. In the end, all forward commitments close to the spot market.

  Electricity markets continue to open up to competitive supply with deregulation. Currently, 85 percent of Pennsylvania is under de facto regulation with price caps in place for all but one utility in the state. Beginning with the end of this year, however, these price caps will begin to roll off and competitive market pricing will be the norm. In moving from a regulated energy price environment (electric or gas) to a deregulated environment, participants should carefully evaluate their goals, e.g., cost stability, lowest cost, tolerance for variance during budget periods, etc., and identify where they fall on the hedging spectrum. Once that is determined, an effective commodity strategy can be developed, implemented, and periodically reviewed.

  The immediate inclination of most new participants is to seek the lowest price. This target implies that the most risk must be taken in hopes of achieving a price at a market low point. It is critical to the overall success of any commodity purchasing strategy that the requested pricing structure be carefully considered. If energy buyers are strictly focused on the lowest price at a specific time, they might find themselves with a great price on the wrong thing.

  Upon careful examination, nearly all participants will find some form of hedging desirable. While it is often likely that consistent spot market purchasing will result in the lowest overall cost over the long-run, short-term cost swings can be dramatic and can cause material financial stress.

  The alternative to spot markets is forward or fixed- price purchases. There are a multitude of methods that can be used in forward markets or fixed-price contracts to mitigate risk, e.g., full requirements fixed-price, partial fixed-price/partial spot market, staggered fixed-price commitments, etc. However, all means of utilizing these markets require the participant to determine commitment term, tolerable price levels, range of tolerable cost fluctuation, and minimum/maximum time horizons for making the next commitment. Participants (specifically buyers) must recognize that purchasing in commodity energy markets is an ongoing process that never stops until they are no longer in business or no longer require that commodity. Each contract is not independent of others, but it merely limits risk to a point defined in the commodity strategy for a limited time. Since forward markets can fluctuate on an annual basis by an amount greater than the average spot market, the strategy employed should consider price levels related to term commitment to help control costs as well, e.g., as markets rise, term commitments are shortened, and vice versa.

  There are many nuances to energy contracts and regional differences that add complexity, but with some fundamental guidelines based on risk levels and time horizons, a clear hedging strategy can be developed and implemented to effectively control energy costs in commodity energy environments. Those entities with large energy exposures should carefully evaluate their approach to these markets and clearly define their goals and risk limits relative to energy, so as to avoid unpleasant surprises.

  Read more articles on Energy Advocate:

  EnerNOC's Energy Procurement blog