Keeping the lights on: How efficiency is helping to meet peak demand
As electricity costs continue to soar, many consumers are beginning to more fully embrace energy efficiency as a means of controlling those costs.
But what many consumers don’t realize is that energy efficiency has also been for the last several years playing an increasingly important role in helping our region meet its growing energy demand. And, as we begin another summer that could easily stretch our energy system to its limits, energy efficiency is being relied upon even more to keep the lights on in the Northeast.
According to the U.S. Energy Information Administration (EIA) 2007 Annual Energy Outlook, between 2005 and 2030, peak demand will increase 39 percent in the residential sector, 63 percent in the commercial sector, and 17 percent in the industrial sector.
Electricity demand in the Northeast is growing at a similarly accelerated rate. According to ISO-New England, electricity consumption in the six-state region, especially during summer peak, is growing by 1.9 percent a year. Earlier this month, ISO-New England estimated that some 32,000 megawatts (MW) of electricity will be needed to meet peak demand by 2015, up from the 29,000 MW forecast to meet this summer’s peak demand. Last year, New England set an all-time record for electricity use when demand reached 28,127 MW in the midst of a three-day August heat wave. (A megawatt is enough electricity to power 800-1,000 homes.)
The situations in the New York State, Long Island and PJM Interconnection service areas are similar.
PJM, the nation’s largest electric grid operator, covering 13 states from New Jersey to North Carolina, westward into Illinois and north to Michigan, is forecasting summer peak usage of 136,961 MW, which would be down from last year’s world-record peak of 144,644 MW.
On Long Island, the August 2006 peak demand record of 5,792 MW surpassed by almost 10 percent the peak demand record of 5,267 MW set the previous year, according to the Long Island Power Authority (LIPA).
In the rest of New York State, a new record peak of 33,939 MW was set on August 2, 2006, while the New York Independent System Operator (NYISO), is forecasting a slightly lower summer peak of 33,447 MW for 2007.
Peak demand is the year's single highest demand for electricity for a one-hour period. It usually occurs on late summer afternoons, tends to happen several days into a heat wave, as electricity use increases as tolerance for heat lessens, and is typically driven by high air conditioning use.
Nationally, the North American Electric Reliability Corporation (NERC) has forecast that summer 2007 peak demand will be 1 percent lower than last year, as weather forecasts indicate that this summer will be cooler nationwide than last summer, which was the second warmest on record since 1936. And all of the system operators in the Northeast are forecasting that they will have adequate capacity to meet peak demand this summer. However, in all three sub-regions in the Northeast in 2006, the new summer peak demand records were set just days after the previous records had been broken for that summer. And since we know that five of the hottest years measured since modern record keeping began a century ago occurred in the past decade – thanks to global climate change – forecasting lower demand for this summer would not be a bet many gamblers would be willing to take.
Energy efficiency recognized as key resource
ISO-New England, for one, is being cautious. It has forecast that, while normal conditions of about 90 degrees Fahrenheit would result in peak demand of approximately 27,360 MW, it also advises that if the region sees extreme weather, such as an extended heat wave of 95 degrees, peak electricity use could reach 29,160 MW. Key to managing that peak demand, according to ISO, are demand resources, including energy efficiency.
“If consumer demand for electricity does reach record levels, demand resources and conservation efforts will play a critical role,” according to ISO Chief Operator Officer Stephen Whitley. He speaks from experience: 2006’s peak record would have been hundreds of megawatts higher, according to ISO-New England, if demand response programs and energy conservation had not lowered overall demand on the grid by some 625 MW.
And such impacts on peak demand are not only important for the stability of the electric grid, but to consumers’ pockets as well. According to ISO-New England, if the region reduced electric demand by 5 percent during those few hundred hours of peak summer demand, wholesale electric costs could drop by $600 million annually, or roughly 6 percent. Conversely, if demand grows by 5 percent over normal summer peak levels, wholesale costs could increase $700 million annually. And to the extent these demand reductions come from the installation of energy efficiency measures in buildings and facilities, they provide permanent savings to all customers on the electric grid, and accumulate as more energy efficiency investments are made.
"The most viable option to deal with this [peak demand increases] is to become more efficient about our own usage," ISO Chief Executive Officer Gordon van Welie told reporters earlier this month. "We can do something to address this peak demand growth."
Speaking at the Northeast Energy and Commerce Association conference last month, van Welie also emphasized that “New England’s peak demand grows significantly faster than its overall consumption.” And referencing the ISO’s Scenario Analysis process to model various future resource options, he noted: “…this analysis has clearly confirmed that the New England region has little choice but to fully exploit its demand response and energy efficiency potential…”
While ISO runs a very successful demand response program that has assisted greatly the dampening of demand on peak days, it is energy efficiency that provides the permanent peak demand reductions that will save money, enhance system reliability and reduce emissions not just for this peak summer day, but for peak summer days in years to come.
And, by reducing demand during peak periods when the price of electricity can be significantly more expensive in the whole electricity market, energy efficiency programs benefit all customers in the region, not just those undertaking energy efficiency measures. Studies done by the Massachusetts Division of Energy Resources (DOER) show that demand reductions due to Massachusetts energy efficiency programs in 1999 and 2000 helped to avoid upwards of $6 million in wholesale electricity costs in a single day, where the impact depended largely on the adequacy of electricity supply. And, because these demand reductions remain in place over the life of the energy efficiency measures installed, they provide permanent savings to all customers on the electric grid, and accumulate as more energy efficiency investments are made.
Amid the economic and system reliability benefits of energy efficiency to reduce peak demand, the environmental benefits should not be lost. At times of peak electricity demand, it is not only the most expensive generating resources that are called upon to meet demand, but often the most polluting as well, including older, dirtier plants, as well as highly polluting emergency diesel generators. By more aggressively installing energy efficient technologies that target peak demand reductions – such as air conditioning and lighting systems – not only can peak demand be reduced, but also the associated emissions from more polluting power plants and diesel generators.
Offsetting demand through energy efficiency
Indeed, analysis done for Northeast Energy Efficiency Partnerships in 2004, and updated in 2005, showed that cost-effective investments in energy efficiency in New England can more than offset project electric energy and peak demand growth, deferring the need for 28 combined-cycle power plants (each with 300-MW capacity) by 2013.
Capturing the full energy efficiency potential available to the region, the NEEP analysis showed, could provide total summer peak demand savings of 4,317 MW by 2008 and 8,383 MW by 2013, an annual decrease in peak demand of approximately 2.15 percent. The cumulative annual electrical demand savings for the summer months if states maintain existing energy efficiency programs are 635 MW by 2008 and 1,250 MW by 2013. Enhanced implementation of building energy codes results in a peak summer demand reduction of 230 MW by 2008 and 481 MW by 2013. Minimum energy efficiency product and appliance standards reduce demand an additional 158 MW by 2008 and 601 MW by 2013. The region could offset its summer peak demand growth by also adopting or expanding upon other strategies (e.g., state procurement requirements, the role of energy efficiency to meet specific state and regional electric supply needs such as demand response, transmission and distribution requirements, and default service options). These energy efficiency efforts could maintain peak demand at 2003 levels by providing demand savings of 2,626 MW by 2008 and 3,108 MW by 2013. The chart below illustrates the potential for offsetting demand growth through increased energy efficiency.
Proven programs
Energy efficiency has time and again proven itself as a key resource in lowering demand, in particular with those technologies that go to the root of the peak problem. Take air conditioning as an example: In 2003 alone, the High Efficiency Commercial Unitary HVAC regional initiative, facilitated by NEEP and marketed under the brand name “Cool Choice,” resulted in rebates to consumers for 2,570 qualifying HVAC units, which resulted in a collective load reduction of 5,615 kW. In the previous year, the program saved 5,281 kW. And those savings were only from recorded rebates, with much more likely resulting from high efficient units purchased as a result of the initiative’s outreach campaign.
Other program examples abound: in New York, the New York State Energy Research and Development Authority (NYSERDA) estimated that between 1990 and 2001, the state’s major energy efficiency programs reduced summer peak demand by nearly 1,700 MW.
The American Council for an Energy Efficiency Economy (ACEEE), in is February 2007 report “Examining the Peak Demand Impacts of Energy Efficiency: A Review of Program Experience and Industry Practices,” found that “Energy efficiency programs clearly have achieved significant peak demand reductions.”
Among the case studies cited by ACEEE in its analysis were:
- NSTAR Electric and Gas’ Small Commercial and Industrial Retrofit Program, which focuses on lighting and refrigeration technologies. Total program demand savings across years were estimated to be 8,653 kW, including peak demand impacts of 5,976 kW for summer and 3,660 kW for winter.
- Mass. 2003 Small Business Lighting Retrofit Program, as administered by the Cape Light Compact, National Grid, NSTAR and Western Massachusetts Electric Co., which achieved demand reductions of 10,471 kW, summer peak demand reductions of 9,663 kW and winter peak demand reductions of 5,102 kW.
- 2003 National Grid Custom HVAC Installations, which focused on HVAC systems for medium and large C/I customers, and achieved 165.9 total kW summer peak demand savings and 99.8 total kW winter peak demand savings.
- New York Energy $mart Peak Load Management Program from NYSERDA, focusing on large C/I customers with custom end use technologies. (While primarily a load management program, the NYSERDA program also contains a “path” that specifically targets “permanent peak load reductions” through energy efficiency. From 2001-2003, this path resulted in demand reductions of 14,993 kW.
- An impact evaluation of the National Grid Energy Initiative Lighting Program found 7,562 kW of demand reductions, 6,489 kW of summer peak demand reductions and 4,533 kW of winter peak demand reductions.
On the horizon
ACEEE also noted in its analysis that “Over the past decade … increased concerns about electric system reliability have combined with concerns about the cost of new generation and transmission and distribution (T&D) investments to create a renewed interest and need for energy efficiency to be able to reduce peak demand as well as reduce overall energy use. Because energy efficiency produces a number of additional benefits that load management alone does not, there is an understandable desire to use energy efficiency as a first priority resource to address both demand and energy resource needs…”
One such place where that recognition is occurring is in the developing Forward Capacity Market (FCM) administered by ISO-New England. The FCM was the result of a consensus driven settlement alternative to the widely contested Locational Installed Capacity (LICAP) market proposal. In the FCM, competitive auctions will be held to procure appropriate levels of energy capacity to meet New England’s forecasted demand three years in advance. What is groundbreaking about the FCM is that in addition to traditional supply resources qualifying as capacity, demand resources – including energy efficiency, distributed generation, load management, real-time demand response, and emergency generators – can also qualify as capacity.
According to ISO, approximately 12,400 MW of new resources have submitted applications to participate in the initial FCM auction, scheduled for February 2008. This includes 2,400 MW of demand-side resources.
In addition to allowing energy efficiency and other demand resources to compete with supply, the FCM process has resulted in another positive development. The New England state regulatory commissioners have committed to developing a set of common protocols for the measurement and verification (M&V) to support demand savings bid into the FCM.
And more recently, the Federal Energy Regulatory Commission (FERC) issued its rehearing order in PJM’s Reliability Pricing Model requiring that PJM and its stakeholders consider whether it should adopt similar means of incorporating energy efficient applications into the PJM capacity market to what has been adopted by ISO New England. These developments demonstrate a major paradigm shift in how efficiency is being viewed as a resource to meet regional capacity needs.
As ACEEE noted in its February analysis, while energy efficiency has been proven to achieve significant demand reductions, historically “quantifying the peak demand impacts generally has not been a high priority for evaluation” of energy efficiency programs in the states. As these new markets for efficiency and other demand resources develop, the need for quantifying demand impacts using consistent M&V protocols within and, ultimately, across regions, will be critical to the success of energy efficiency in helping meet our nation’s reliability, economic, and environmental needs.
For more information, please contact NEEP's Policy Director, Jim O'Reilly.
