Week 6 - Chapter 9 Flashcards
- demand management
- making adjustments on the demand side of the supply chain
- utilization
Worldwide, tens of billions of these electric-powered devices and processes are ready to be called upon, assuming an electricity supply and a willing user.2 Regardless of which service it performs, each of these electric devices can be discussed in terms of its usage characteristics,
Similar to the capacity factor of generators, utilization represents the percentage of the year it is operated at maximum capacity; this can be converted into the number of hours the device operates per year.
- load profile
This describes not just how much electricity is used on average, but precisely when it is used throughout the day, which is very helpful in understanding its contribution to overall system load and peak capacity.
- landlord-tenant problem
Principal-agent problems (landlord-tenant)—Another reason that demand management opportunities may not be visible to users has to do with the landlord-tenant problem.
This classic principal-agent problem occurs because the burden of incurring the costs of making the necessary demand management investments (for example, the building owner paying to install more efficient devices) is separated from the benefits received from those improvements (often benefiting the tenant through lower electricity bills).
Though theoretically this could be addressed through a benefit-sharing contract between landlord and tenant, in practice that is often difficult, particularly when the problem is compounded by other costs and risks related to the adoption of demand-side solutions.
- invisibility problem
One of the main tenets of perfect markets is that information is perfectly available and costless. But understanding the details of any existing device or building’s inefficiencies and the alternative strategies available to overcome those is costly and time consuming. In evaluating options for demand management, customers may have no idea how much energy or power each of their devices consumes (an invisibility problem).
- energy efficiency (EE)
“getting more energy services for less energy input”
Energy efficiency (EE) is the means by which a deliberate intervention improves the energy performance of devices (in contrast to modifying their power characteristics, which will be discussed in the demand response section below). The methods of achieving energy efficiency primarily involve changing the design or operation of electricity-driven devices to meet the desired energy services with less energy and electricity input. Energy efficiency as a concept can be applied to any energy transformation including those in the transportation and thermal sectors, but this section will describe them primarily from the perspective of electricity.
- energy conservation
energy conservation is reducing the demand for energy services, forgoing any potential benefits they might bring
- retrofit
Improving the performance of devices once they are already installed and in service (through a device retrofit).
- electrical efficiency
The electrical efficiency of a device, component, or system in electricity is defined as useful energy output divided by the total electrical power consumed in producing the output.5(This is often denoted by the use of the Greek letter eta, η.)
Efficiency (η) = Total useful energy out / Total electricity in
- design efficiency
- building efficiency
- operational efficiency
Ultimately, the amount of electricity consumed by these devices is determined by some combination of (1) the inherent features of the devices, (2) the design and layout of the buildings in which they operate, and (3) the choices device users make and how they typically use those devices. These are, respectively, called device (or design) efficiency, building efficiency, and operational efficiency.
- parasitic loads
Parasitic loads—Many electric devices—including transformers, power supplies, and other devices that operate on standby—constantly draw energy when connected to the grid, even when not used for their intended purpose. These parasitic loads are often invisible to the device operators but collectively can use a substantial amount of electricity, currently estimated at 10% of residential energy use, unless appropriate design changes or compensatory measures are implemented.
- building envelope
HVAC—Space heating, cooling, and ventilation needs are driven by the thermal characteristics of the building, including the thermal efficiency of the insulation, windows, doors, and roof—collectively, the building envelope, or the collection of components that separate the building from the external environment. Tight building envelopes reduce the need for HVAC, thereby increasing building efficiency. Loose building envelopes increase the energy requirements.
- energy service companies (ESCOs)
ESCOs develop, design, build, and fund projects that save energy, reduce energy costs, and decrease operations and maintenance costs.
The third parties willing to provide this type of solution for customers include a broad class of entities and are often referred to as energy service companies, or ESCOs. Many entities can qualify as ESCOs, a number of which are described earlier in Figure 9.4, and each may have a different angle on providing solutions to customers. Equipment vendors, customer aggregators, and public entities all have a stake in increasing deployment of these solutions and can function as ESCOs, and their main objective is to simplify and reduce the cost of adopting these technologies for the ultimate customers.
- premium investments
To estimate the cost of achieving marginal efficiency investment of a new device, the cost of efficiency is best measured as the premium investment or additional cost necessary to obtain a higher efficiency device vs. a lower efficiency device that serves the same purpose.
The correct method for calculating an energy efficiency investment is to determine how much of the cost of the device is necessary just to achieve the energy efficiency improvements compared with a standard, or benchmark. These premium investments should be the amounts used to construct efficiency investment amounts and any calculation of the returns achieved from adopting them.
- baseline
Properly accounting for a physical volume of energy savings from any energy efficiency adoption is perhaps the most difficult part of understanding the economic impact of energy efficiency. The reason is that the appropriate calculation requires understanding not just how much energy was consumed after the intervention was made, but how much would have been used (a baseline) if the intervention had never happened. Trying to estimate what would have happened, but didn’t, quickly
- payback period
Payback period is defined as the ratio of the total upfront investment divided by the annual savings benefit and is often used to understand how many years it would take for the savings to repay the initial investment.
Payback period is usually measured in the number of months or years that it takes to recover the initial investment in a capital item through the savings or revenues that capital creates (i.e., initial investment/monthly or annual savings). In reality, this metric fails to take into consideration a number of important pieces of information about the contemplated investment, including how long the asset will be in service, the time value of money, the availability of financing options, or any impact on the terminal value of the attached assets.
- system benefits charge
System benefits charge—Paying for the wide variety of EE solutions, training programs, certification, and marketing and outreach requires the outlay of capital by utilities or state agencies. To help pay for these programs, utility regulators often levy a system benefits charge (sometimes called a public benefits charge) to collect funds from customers and then use those funds for the necessary expenditures. These system benefits charges may also accrue from other taxes and levies, such as the payments received under the Regional Greenhouse Gas Initiative (RGGI) in some of the northeastern states, which are then funneled to energy efficiency and innovation programs in their member states.
- decoupling
However, utilities are not always enthusiastic suppliers of EE solutions. In fact, energy efficiency can run counter to the typical utility business model of selling more electrons and recovering larger revenues based on that strategy. It can also have the perverse effect of increasing the volumetric rates (rate per kilowatt-hour) that customers pay as utilities spread more fixed costs over fewer kilowatt-hours being sold. (See the Metrics Sidebar below.)
Utility regulators in many jurisdictions have recognized this conflict and adjusted the revenue mechanisms to accommodate it. One of the primary ways of dealing with this has been the establishment of decoupling (or revenue decoupling), which allows utilities to separate the total amount of cost recovery (importantly, including the gross profit or contribution they would have otherwise received) from the actual amount of electricity sold in the period. This way, the utilities eliminate both the temporary and permanent disincentives to deploy EE programs. California is particularly known for its successful decoupling program, originally established in the 1970s, which has helped lead to a per capita electricity consumption about half of the rest of the United States. While decoupling does remove the disincentive to deploy EE programs, it does not create a particularly powerful incentive. Some jurisdictions have gone further by creating incentive regulation, which increases the revenue, profit, or both when utilities meet or exceed efficiency performance benchmarks.
- demand response (DR)
In contrast to the many EE solutions described above, demand response (DR) represents a set of solutions deployed with the goal to change the peak load of electricity consumption. DR solutions are not about substantively changing the actual energy consumption over the long term but about making sure that demand can be managed to optimize the peak capacity needs of the electricity system, particularly when the grid is most constrained and therefore vulnerable to failure. In this way, demand response represents more of a power application, in contrast to the energy applications of energy efficiency.
When done correctly, reducing or shifting the load of individual devices or collections of devices on the system at peak times helps reduce the overall capacity needs. Doing so substantially changes the supply and demand dynamics in electricity markets by creating some demand elasticity that does not exist in more traditional models of utility dispatch.
- device curtailment
Conceptually, it is easy to imagine that reducing system load through altering the usage of various end user devices (alternatively referred to as device, demand, or load curtailment) when systems are operating at their peak capacity has the potential to meaningfully improve overall system performance and economics.
- smart grid
Even as the limits of the old analog architecture become increasingly apparent, other forces are making the need for a flexible and resilient grid more urgent, including higher penetration of distributed generation, intermittent electricity supply, and emergence of new storage alternatives.
The explosion of sensors, microprocessors, communication protocols, and computer control systems has dramatically expanded the scope of observation and control that system operators can exert at radically lower costs than more traditional methods. When these technologies are applied to electricity system management, they are collectively referred to as smart grid technologies. Figure 9.16 shows a number of the dimensions of transformation from historical and current electricity systems to a smart grid-enabled one.
- advanced meter reading
Before almost any other smart grid investment can be made at the customer’s location, the point of connection between the utility and the customer (the meter) must be enhanced to allow improved visibility and communication between the utility and the customer.
While many possible features and design choices are available, collectively these advanced meters can typically count both power and energy needs of the customer with a lot more detail than traditional analog meters—often at very discrete time intervals of minutes or seconds, if necessary.
These meters must also be able to communicate that data directly to the utility on a real-time basis, so the utility can observe and potentially react to the data it is receiving about customer load. The simplest versions of these advanced meters can simply collect the data and deliver it electronically to the utility (referred to as advanced meter reading), but more complex and expensive versions can also allow additional data granularity and even two-way control of the customer devices by the utility or through a customer application.
- Property-Assessed Clean Energy (PACE) financing
Customer financing vehicles—Some financing alternatives are available to end-user customers to deploy EE solutions in their home or business. Customers comfortable with the technical or performance risks of the solutions they want to adopt can often access personal or commercial credit at reasonable costs through these alternatives, including:
■ Property-assessed Clean Energy (PACE) financing—PACE financing vehicles are designed to help finance both commercial and residential energy efficiency investments and be repaid through an assessment added to property tax bills. This creates many benefits, including using an existing infrastructure for lending and payment, and also can provide a priority repayment in the event of customer default, similar to other property tax liabilities, both of which result in substantially lower financial cost of capital vs. other loan types. These vehicles must be established through enabling legislation in the local property tax jurisdiction and have historically been resisted by mortgage lenders concerned that these loans could take priority over their mortgage. Even so, a number of these programs have been launched in recent years.
- on-bill repayment (OBR)
Utility finance programs—The utility, where allowed, may also provide financial tools to help pay for these types of customer-sited energy solutions.
On-bill repayment (OBR)—This type of program allows individual customers to pay for upgrades or EE solutions through a charge on their utility bill. This charge is used to pay the third-party lender that provided the upfront capital for the energy efficiency or distributed generation solution. Lenders can develop a high degree of confidence in this type of program due to the strong likelihood of payment on utility bills, even by many customers with substandard creditworthiness that might otherwise prohibit their access to customer financing vehicles or third-party financing.
- on-bill finance (OBF)
Utility finance programs—The utility, where allowed, may also provide financial tools to help pay for these types of customer-sited energy solutions.
On-bill finance (OBF)—This program is similar to OBR in that it collects a payment from individual customers through their utility bill for chosen investments in energy efficiency or distributed generation, but OBF programs are designed to allow the utility to use its own balance sheet to provide the capital, which is repaid through the OBF payment from customers. Obviously, these types of programs need to have enabling legislation, and their design must be vetted and approved by utility regulatory authorities.
