Owners of commercial real estate can generate a new revenue stream and implement a green initiative, all at the same time. While many real estate owners are focused on minimizing the payback period of investing in renewable energy, energy efficiency and energy management, they are overlooking a means of bringing in added revenue while significantly helping the environment.
Demand Response programs provide needed electric resources, for short periods of time, by having some electric users curtail their use of electricity so that the capacity can be used elsewhere in the system. Demand Response programs are the result of the need to maintain sufficient energy production capacity during peak times.
For New Jersey, the responsibility for maintaining those reserves now falls upon PJM, which is the operator of the regional transmission system. PJM must assure that there are enough resources to provide the electricity to meet: A) emergency situations when some generation facilities unexpectedly go off line and B) the projected peak demand levels that generally are attained during the summer months, during which air conditioning–which requires tremendous amounts of electricity–is running at its highest levels.
Demand Response programs provide a solution for PJM to address the tremendous cost of constructing new power plants in order to meet such peak demand levels, which are reached only during a relatively small number of days in the summer or in emergency situations. As an alternative to building more plant capacity, they have been seeking instead to curtail demand during times when electricity demand reaches levels that literally strain the capacity of the electricity grid.
There is no more efficient means of reducing demand than pursuing the largest users of electricity and incentivizing them to reduce their usage during those relatively few critical days of summer. And that’s exactly the program that began several years ago, and which is increasingly gaining traction in the commercial real estate industry.
The nation’s electricity transmission and distribution grids are divided into regions or utility service territories, and every region or territory has its own demand response program. For New Jersey, PJM sets a price per megawatt (or portion thereof) of electricity shed during peak hours that will be paid to end users that agree to curtail their demand if and when a grid “event” is called, namely the organization calls on the end user to reduce its electricity usage.
This program is supplemented in New Jersey through additional incentives provided by the state’s utilities. In addition, the utilities have their own programs targeted to homeowners and businesses to encourage reduction in electricity use during times of peak demand. There are typically very few events called by PJM during any summer.
In most cases, the reduction in air conditioning usage for as little as four to six hours in a day will be sufficient to have complied with a curtailment of usage for purposes of an event and, in turn, to earn the payment in full or avoid any reduction in payment. In essence, payments are made based upon the commitment to reduce electric consumption for a limited time when needed.
The bottom line, which is what real estate owners are most concerned with today, is that in return for a commitment by the owner to curtail electricity usage, the owner will receive a new revenue stream. All at no capital investment and no payback period whatsoever.
Richard Plutzer is CFO of Resource Energy Systems, LLC, which is headquartered in Rochelle Park, and provides solar energy, demand response and energy management solutions to the commercial real estate industry. The views expressed in this article are the author’s own.