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12 December 2018
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DEMAND SIDE PROFIT

Cutting energy bills is an incentive for any business, but generating revenue from surplus power is even better. Nicholas Newman explores the intricacies of demand-side response.

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05 March 2018 Nicholas Newman


Cutting energy bills is an incentive for any business, but generating revenue from surplus power is even better. Nicholas Newman explores the intricacies of demand-side response.


Almost a fifth of UK businesses spend more than £250,000 a year on energy, according to the Daily Telegraph and YouGov business energy survey last October. One big customer alone paid £120 million. These already large amounts energy bills are expected to rise over the next few years to pay for the National Grid’s continuing transmission capacity enhancements.


Despite such costs, 46 per cent of business managers don’t know how their firms use energy, says the survey. But advanced technological kits can provide precise real-time data on energy use– the first step in understanding how to reduce energy consumption and use it efficiently. Meanwhile, the falling cost of installing and operating renewable energy technology and storage offers the potential to slash bills, but also turn what was once a cost into a new revenue stream as a result of selling surplus energy back to the grid.


Even for a dedicated energy manager, keeping track of fluctuations in cost can be time-consuming. But being able to do so can provide significant energy-efficiency savings, improve site resilience, cut power bills and generate new income streams. This is where real-time automated building energy management systems, known as computer-based control systems, monitors and controls all aspects of a building’s mechanical and electrical equipment such as heating, ventilation and lighting.


Demand reduction

Demand reductions are efforts by users to cut their consumption of energy. It usually requires investment in energy-efficiency measures such as upgrading lighting systems, insulation, heating and refrigeration. It is the least costly approach and can yield a surprising return. An example of where this has been effective is at Roberts of Port Dinorwic, which provides the restaurant trade with pre-cooked meals from a 50,000ft2 factory and office complex in Wales. 


After an initial energy survey that determined refrigeration contributed significantly to their overall electricity costs, the company decided to replace dated refrigeration, heating and lighting technology with more energy-efficient equipment. This resulted in a 25 per cent reduction in energy consumption, improved temperature control and £75,000 off energy costs. 


Businesses using modern lighting upgrades can cut power bills by 50 per cent, says Mike Sewell, energy services director at Interserve. 


Demand-side response

For owners of office blocks, factories, warehouses and shops, a more costly but holistic investment is worth considering. Whole-building management systems, marketed by utilities and engineering companies such as Siemens and Toshiba, are gaining ground. 


For instance, in 2017, E.ON helped its business clients generate additional revenue and savings of around £1.37 million through its demand-side response (DSR) package. DSR refers to users changing their electricity consumption in response to fluctuations in the price of power over time. Through doing this, savings are expected to increase to £4.3 million in 2018 and £8.1 million in 2019.


This digitised energy management solution is one in which consumption is managed in real time, responding to actual use and market price variations, or requests from the National Grid to cut power use at peak times. Across the country, demand-response systems turn off machinery, and control lighting, air conditioning, electric heating, pumps and other essential equipment. Alternatively, at times of excess wind power, the grid will pay businesses to use the surplus energy.


Participants in demand-response systems include supermarkets, industrial manufacturers, commercial and public buildings operators. Aggregator Open Energi’s Prefect Controls’ BEMS (building energy management solutions), which manages Oxford Brookes’ 71 hot water tanks and 300 panel heaters with a capacity of 700kW, is a good example of demand response in action. It is part of a national plan to deliver 8MW of flexible capacity to the grid from several universities. Working with Prefect Controls, Open Energi has access to many smaller loads at a low cost and in a non-invasive way, allowing it to unlock flexibility from assets that would otherwise not be commercially viable.


On-site generation

It is increasingly common for businesses to install their own on-site combined heat and power (CHP) plants. Suitable for a small office or large university campus, CHP is gaining ground. There are already 2,102 installed CHP plants with a combined maximum electricity generation capacity of 19,900GWh a year, which is enough to power more than 4.8 million average-sized UK households. A large-scale example is Liverpool University’s CHP plant, powered by GE’s J620 Jenbacher 3.4 MWe gas engines. It meets the needs of 30,000 full-time-equivalent students and 4,700 staff. Costing £7.3 million to install in 2014, the plant has taken off £1.5 million from the annual energy bill and – as an added bonus – has cut emissions by 5,730 tons of CO2 a year.


Businesses with on-site generators – most often either wind or solar – can earn revenue from sales of surplus power to the grid under the Short-Term Operating Reserve (STOR) and Triad management schemes. For example, Thameswey, a district heating and power supplier in Milton Keynes, earns extra revenue by providing 6MW of surplus generating capacity from its gas-fired CHP engines, helping to support the National Grid during times of system stress, explains Alastair Martin, CFO at Flexicity.


When onsite renewable power generation is partnered with energy storage, the day’s power surplus can be used at night, lowering bills and achieving carbon neutrality. Lyreco’s national distribution centre in Telford, where EvoEnergy installed the UK’s fourth-largest rooftop solar PV array in 2016, does just that. With the annual capacity to produce 3.2GWh of power, partnered with battery energy storage, Lyreco should be able to cut its annual power bills by £53,000 and make the site carbon-neutral in terms of electricity use.


Battery energy storage is still in its infancy in the UK, with Western Power Distribution having just 1GW of storage connection agreements on its network with an additional 1GW on offer. The National Grid expects just up to 18GW of electrical storage on its system by 2040. 


Financial incentives 

In recent years, generous feed-in-tariff (FIT) rates for renewable energy have been reduced in response to falling costs of renewables. The loss of such subsidies has encouraged FMs to look at bigger, more cost-effective projects to capture the economies of scale possible from such investments. 


“Being able to cut your ongoing operational energy costs is, for many, a great incentive, especially given the prospect of increased grid energy costs in the coming years,” Sewell says. 


To incentivise medium-to-large businesses, there is capital market support for more active demand management in the electricity market. The transitional arrangements auctions will offer targeted support for demand-side response to encourage enterprise and increase levels of take-up in the two years preceding full capacity market delivery in 2018-19.


The choice of scheme will depend on criteria such as the expected contribution to cutting operating costs, improving predictability of energy bills, and meeting corporate targets of improved energy efficiency and carbon emissions against investment costs. A prime example of a significant ROI is the new Oxford University Hospitals NHS Foundation Trust’s £14.8 million CHP and district heating and power system, which will realise daily savings of £7,462 and cut the trust’s CO2 output by 10,000 tonnes a year (the equivalent of CO2 emissions from 4,000 homes).


A key issue for businesses is integrating energy management systems with other building systems. Interserve’s smart HQ building near Birmingham International Airport has sensors to provide data on room temperatures and whether they are occupied. The building management system’s analytics adjusts heating, ventilation and air conditioning.


“Another issue is the ability of clients to generate their own power on site,” says Sewell. “Some clients have the space to do so, while others choose to access an off-site scheme to supply them with the required power.”


A consideration for those exporting power to the grid, or planning to do so, is local grid capacity. Parts of the grid network are congested at times, especially in the South West, which has several renewable projects in development. Firms with on-site power generation should invest in energy storage so that they can store surplus power for sale to the grid when there is spare capacity.


Questions of law

All businesses must upgrade to The Minimum Energy Efficiency Standard, taking effect in April (see page 50).  


Another key legal requirement stems from the Medium Combustion Plant Directive, which prevents ‘dirty’ diesel generators from taking part in balancing services – nudging demand to cleaner technologies.


Conserving energy use by demand reduction, energy-efficiency measures, on-site generation and proactive management through demand-response systems will soon be mainstream, with DSR offering the flexibility and accessibility to balance customers’ needs. 

Emma Potter