Chicago buildings use DR to sell virtual power in PJM
Big buildings in downtown Chicago including some of the best known skyscrapers are expected to take advantage of a new revenue stream via DR technology and PJM's recently established virtual generation option for selling demand response. The smart grid in this case is unique in that it is spearheaded by a non-profit organization and an energy services firm -- and while the IOU is playing a role, Commonwealth Edison (ComEd) is in what seems to be a peripheral position.
Energy service companies (ESCOs) have traditionally offered guarantees to building owners that cuts in energy costs -- achieved with technology upgrades that the service firms recommended -- would cover at least the debt service on money borrowed to pay for the upgrades. Icing on that cake was reduced operating expenses expected after loans were paid off.
But the Building Owners & Managers Assn (BOMA) of Chicago, a trade association for the commercial real estate industry in the Windy City, devised what it believes is the first commercial office building smart grid program in the US, Michael Cornicelli, executive VP of BOMA/Chicago, told us yesterday.
The new approach lets building owners save operating expenses and with the right equipment, in this case DR gear from French technology firm Schneider Electric, the building owners can turn the reduced demand into virtual power that they then sell on markets at PJM, he explained.
Energy services company (ESCO) Metropolitan Energy Services (Met Energy) helped BOMA hatch the project and guarantees that the income stream will be sufficient to repay the debt that's incurred with the upgrades being recommended.
BOMA/Chicago devised a performance-based contract -- as an alternative way to pay the debt service on the project's bank loans, and believes that's "the first time that's ever been done," Cornicelli said. The energy cost savings are, in this scenario, considered gravy.
The Chicago innovation is a result of the combined vision of Cornicelli and Mike Munson, CEO of Met Energy.
"Mike and I have always felt discussions about smart grid technology and DR efforts historically have focused on the supply side -- utilities delivering intelligence," said Cornicelli. "We always thought more could be done with demand side resources. The problem is, one building at a time can't deliver enough to be meaningful. For the first time, our program will demonstrate that demand side resources, such as our commercial buildings, can together provide operating reserves, frequency regulation and capacity in wholesale grid markets."
The duo has been working on a demand-side smart grid play for a couple of years and BOMA/Chicago is using $1.4 million it received 18 months ago from the Illinois State Legislature to start paying for the pilot program that the group calls Phase Zero.
"Our idea to supersize it came when stimulus funds became available," Cornicelli said. "We're trying to create something replicable that is led by the private sector but involves government entities, the distribution utility, the RTO and private lenders," he added, noting that Bank of America and H&A are likely to take part.
The Chicago buildings joined forces under rules that PJM modified to encourage such aggregation and responded to calls from grid operators at PJM -- asking them to curtail power loads in return for cash payments.
Met Energy will schedule the DR transactions for the buildings, using the network operating center (NOC) that BOMA/Chicago is creating. Met Energy is set to provide most of the service and software systems the NOC will use.
Reason to play pile up
Building owners in Chicago are motivated to take part for a few reasons including power costs that represent the 2nd-largest operating expenses line item for a typical building in downtown Chicago. The largest expense is property taxes, Cornicelli said.
Another reason is the expiration of a discounted rate from Chicago IOU Commonwealth Edison (ComEd) for using power for heat. That ended some 18 months ago, he added.
Yet another reason to take part is BOMA is offering a better deal than traditional DR providers, the nonprofit group reported. The NOC the group is creating will take as commission only 10% of energy curtailment payments -- rather than the 40% that DR providers typically take today, said the group.
It is possible that BOMA/Chicago's DR project will save Chicagoans $82 million/year in power costs once it is in full swing, assuming all of the 262 member commercial office buildings take part, said Cornicelli.
BOMA is taking pains to ensure the buildings will be "smart enough and controllable enough to shift electricity load when there's demand on the grid -- in ways that are not disruptive to building tenants," he added.
The association last week applied for $92.7 million in SGIG matching funds for the project. If that grant comes through in full, it would halve the cost of the retrofits, assuming all BOMA/Chicago members in downtown Chicago sign up for the 30-month, $185.4 million project. The association plans to start enrolling buildings after it hears back about the matching grant application.
As it awaits word from DOE, BOMA/Chicago is preparing to test smart-meter-like pulse counters in 50 buildings in downtown Chicago this year. The Hancock Center, the Aon building and the Willis Tower, formerly the Sears Tower, are taking part.
ComEd has role, too
ComEd created the upgraded metering infrastructure for the pilot. The distribution utility is supporting BOMA's demand-side smart grid in part since it will gain automated outage notification and the ability to tactically deploy DR in response to system emergencies, Munson told us yesterday.
BOMA/Chicago sees itself as a new competitor only to existing curtailment service providers. Some buildings in downtown Chicago have already signed up for DR programs and the buildings will be able to do better in BOMA/Chicago's program since it is commercial-building-centric, Munson predicted.
The association's "Clean Virtual Generator" program, as it is sometimes called, involves smart meters that will deliver to BOMA/Chicago's NOC data collected in 4-second intervals. The meters would probably come from Schneider. The French firm has headquarters just outside Chicago and is set to be the primary project engineer.
200 mw is 'power plant'
BOMA/Chicago's building members have an "aggregated peak demand of over 1,000 mw," Cornicelli reported. "We think we can shave 20%, or 200 mw of peak load demand. That's a large power plant" in a virtual sense, made up of moves that would likely include dimming lights, running fewer elevators and turning down water heaters when DR is called for.
If BOMA/Chicago got all of its members to take part, it estimates they could cut carbon emissions by 300 million pounds/year.
Certainly, if the DOE money comes through, Cornicelli will be "out on the road" promoting the Clean Virtual Generator as a "blueprint other major markets with congestion issues can follow," he said, noting that over 90 other cities are members of BOMA, too.
The 107-year-old BOMA/Chicago will draw a worthy blueprint no matter what DOE decides on the grant application, Munson assured. "BOMA Chicago has always been at the cutting edge in the smart grid stakeholder process," and is committed to continuing that leadership."
This story has been reproduced from the August 11, 2009 issue of Restructuring Today with the permission of the publisher, GHI LLC. To view the full story on Restructuring Today’s website, please visit http://www.restructuringtoday.com/public/9171.cfm?sd=77.
