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Cut Costs, Reduce Carbon, and Improve Health with Demand Flexibility

As variable renewables and distributed generation surge to replace fossil fuels, the electrical grid must become more agile and data-driven to keep the lights on. And we cannot rely solely on traditional supply-side resources. Our decarbonized future will require flexibility on the demand side as well.

Demand flexibility is the ability to shift eligible building loads across hours of the day, reshaping the daily load curve to limit demand according to various signals and dampen high grid congestion points, such as the ones seen in California’s emerging duck curve. Smart buildings, which allow owners to optimize their building performance to any number of signals, are an essential source of this flexibility.

So how do you flex your building’s load? Using an energy management information system, a building operator can stage cooling loads, plug loads, EV charging, and other assets so that they don’t all run simultaneously—instead staggering these loads to reduce the total peak demand at any given moment. The exhibit below shows demand flexibility in action on a typical day of an office building. The green line represents the demand profile achieved when demand flexibility shifts energy use away from high emission periods (1-4 pm) to low emissions periods (10pm to 10am).

Exhibit 1: Demand flexibility that is optimized based on marginal carbon emissions (gray bars) in an office building in the ISO New England grid.

Demand flexibility has remarkable potential to positively contribute to several different objectives, including driving cost reduction, cutting carbon emissions, and improving health and wellbeing.

 

Cost Reduction

Peak demand charges today can account for up to 60 percent of building owners’ total electricity costs. As heating, cooling, ventilation, lighting, and plug loads converge in the late afternoon hours in commercial buildings, it often drives sharp spikes in energy use. Demand flexibility can help.

At a building level, demand flexibility offers significant cost savings through a variety of ways.

  1. Peak Demand Charge Avoidance: Many commercial and industrial building owners and operators are charged based on their maximum power (kW) consumption every month. Demand flexibility can smooth a building’s daily load curve to prevent these costly peak loads. Our research indicates that buildings can reduce their daily peaks by up to 30–50 percent!
  2. Electricity Tariff Optimization: In areas where electricity rate structures have windows of varying costs, demand flexibility can shift energy (kWh) consumption to less expensive times.
  3. Operational improvements: Demand flexibility is implemented through energy management information systems (EMIS). These systems give granular visibility and insights into a building’s energy usage, allowing building managers to identify operational issues or energy savings opportunities such as efficiency, fault detection, occupant comfort improvements, and emergency down-time prevention.
  4. Resilience and Future-Proofing: Demand flexibility can help buildings flex load, to reduce energy use during grid outages, so the building can run longer on less backup generation. Demand Flexibility also enables operations to adapt to accommodate future rate structure changes.

At a grid level, demand flexibility enables the shifting of demand away from peak times, creating a flexible daily curve and allowing for greater solar, wind, and hydro utilization throughout the day. There is enormous cost saving potential by implementing demand flexibility across the building stock.

  1. Avoided Generation Capacity Costs: Markets that encourage demand flexibility in grid-interactive efficient buildings have the potential to save up to $226/kW annually in peak system demand by avoiding utility capital projects to add new generation power plants or manage old ones.
  2. Non-Wires Alternatives: Demand flexibility can minimize transmission and distribution overloads that occur during grid peaks and prevent the need for additional infrastructure investment.
  3. Avoided Peaker Plant Costs: By shifting loads away from peak hours using flexible assets, buildings can cut demand over specific hours. If enough building owners do so, we could reduce or eliminate the need for peaker plants. Peaker plants are disproportionately expensive generation resources, which in New York can cost up to 1,300% more than other forms of generation.

Lastly, some areas are adopting aggressive codes to drive down carbon emissions in buildings, such as Local Law 97 in New York. Demand flexibility could add another tool in building owners’ and operators’ toolbox by providing another strategy to support compliance, beyond traditional energy efficiency. This not only is a big carbon reduction opportunity but enables building owners and operators to find the most cost-effective pathway to compliance for their specific building.

 

Carbon Reduction

Many regions today rely heavily upon fossil fuel generation with low amounts of variable renewable generation. This results in a fairly consistent carbon intensity of grid electricity across different hours and seasons, limiting the effectiveness of carbon reduction efforts from demand flexibility.

Demand flexibility in buildings can only provide emissions reduction potential when it is possible to shift demand from high to low carbon times of the day—which is not feasible without a sufficient penetration of renewable resources. A recent analysis by RMI indicates that because of low variability in marginal emissions of New York’s grid today, buildings can only achieve an emissions reduction of ~2% through demand flexibility.

But for the 29 states with renewable energy portfolio mandates—including New York—as their grids integrate more variable renewables, demand flexibility will become dramatically more valuable as a carbon reduction method. As variable renewable generation replaces and reduces fossil generation, at certain times of day (when the sun is shining or the wind is blowing) a building’s ability to shift its energy usage could mean the difference between powering a building with natural gas to powering it with sunlight.

Analysis by RMI suggests that as the grid approaches 100% carbon free generation, buildings could utilize demand flexible assets to reduce carbon emissions by up to 40%! Buildings would be able to shift their loads dynamically according to carbon emissions signals, prevent coincident grid peak demand, and avoid the occasional ramping of gas-fired peaker plants.

Most electricity pricing is not correlated directly to emissions yet, as utility structures are priced by cost of generation, transmission and distribution—where fossil fuels are still competitive or outbid renewable sources. As grids adopt more renewable generation assets and rate structures evolve this will hopefully change.

Until that day comes, there are third party signals available that provide the real-time marginal emissions rates of the grid. Demand flexible building owners can opt into a carbon emissions reduction optimization strategy even if the market has yet to incentivize the socially responsible option.

 

Health Benefits

Despite their limited run times, peaker plants contribute extensively to the air pollution of the localities where they are sited. Assuming a sizeable portion of the building stock implements demand flexibility that could respond to peaker plant dispatch, grids could substantially reduce their reliance on these outdated, inefficient polluters and subsequently improve air quality.

Low-income residents and communities of color, in areas like the South Bronx and Sunset Park in New York, often disproportionately bear the negative health effects caused by nearby peaker plants. These are over 50 years old and operate exclusively on fossil fuels. Residents of this community, dubbed “Asthma Alley”, and others like it, are up to eight times more likely to develop pediatric asthma than the national average.

While running, peaker plants can account for more than 1/3 of deadly daily power plant NOx emissions and environmental justice communities suffer. Finally, the particulate matter pollution—including dangerous PM2.5—created by peaker plants causes hospital admissions for lung/heart conditions, emergency visits for asthma and death. Demand flexibility provides a safer alternative.

 

Conclusion

Demand flexibility is a tremendous untapped opportunity that provides cost, carbon, and health benefits that outweigh the advantages of the current peaker plant-reliant generation planning of today. It provides value to individual buildings, the grid, and society as a whole.