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Friday, March 20, 2009
Green Growth
Time to make industrial demand response a priority
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With the signing of the federal stimulus bill, Massachusetts has a tremendous opportunity to address current and looming electricity supply constraints, and save money for all of us.
With several billion dollars allocated to the State Energy Program and Energy Efficiency and Conservation Block Grant program, Massachusetts state and local authorities will be able to tap into these resources to help make homes, office buildings and factories more efficient. By reducing the demand for electricity, we reduce the need for the state to build or import additional, expensive power supplies in the future.
Furthermore, we shouldn’t just think about reducing the total amount of consumption of electricity — we should also think about the timing of it. When there are temporary spikes in demand for electricity, each extra kilowatt-hour can be much more expensive than at other times. So by preventing or countering spikes in electricity consumption, we reduce all of our electric bills. This is the basis for the fast-growing “demand response” market led by Boston’s EnerNOC Inc. and others.
Demand response is a “smart grid” investment that could have strong economic benefits for our region. Unfortunately, Massachusetts and New England in general lag the rest of the country in terms of installations of smart meters and participation in demand response — our region is dead last in the entire country except for Alaska, according to a recent Federal Electricity Regulatory Commission report. This is changing quickly thanks to regional initiatives, but that’s our starting point.
We have a long way to go, and even with this influx of stimulus money, more could be done than there is money with which to do it. So where should we start?
Demand ‘demand response’
The best place to start would be to encourage the installation of demand response systems in our state’s factories. In 2007, there were more than 3 million electricity customers in Massachusetts, but only 14,000 were classified as “industrial.” Nevertheless, that half-a-percent of customers consumed 17 percent of the electricity. The huge amounts of electricity consumed by manufacturers means that each one we can enlist in a demand response program will have a big impact. And it would be a lot cheaper and quicker to install systems for 14,000 industrial customers than in the state’s 2.6 million homes or 400,000 office buildings. It’s the “shovel ready” choice.
It also can be done very cost-effectively from a state budget perspective, because it already makes economic sense for many factory customers, they just need a nudge. Industrial customers who install demand response systems often see great economic benefits from their own reduced electricity bills (18 month paybacks are typical). Advanced systems already available in the marketplace make it easy and inexpensive, with minimal impact on the factory’s operations. Putting in place some financial incentives to help cover the up-front costs, and putting the word out to the manufacturing community, could drive significant adoption. And an effective policy could also help bring more manufacturing jobs to the region, since energy costs are so important to their bottom lines.
We have an opportunity to do much more than this, in terms of upgrading our electric system here in New England, with the stimulus money. But making industrial demand response a priority would be an effect way to start.
Rob Day is a Boston-based principal with @Ventures, focused on investments in the clean tech sector and co-leader of the Renewable Energy Business Network. You can reach him at cleantechvc@gmail.com.
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