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Cutting Electricity Costs for Industrial Plants in a Real-Time World

Fortnightly Magazine - December 1997

and operating reserves. We computed the hourly cost of the load-following service, assuming that its average charge is $10 per MW of capacity and that its price varies from hour to hour with energy prices. We calculated the load-following requirement for each hour as the difference between the average load for that hour and for the previous hour. If the customer's hour-to-hour load changes move in the same direction as spot prices (used here as a proxy for movements in system load), the customer must pay for load following. On the other hand, if the customer's load changes move counter to spot-price changes, the customer receives a credit for load following because its load changes reduce system requirements for load following.

The right hand column of Table 1 shows the optimization results when both energy and load-following costs are considered. Clearly the savings are dominated by reductions in direct electricity costs. Just as clearly, savings increase by considering other services (load following in this case). In this example, optimizing for price changes and load-following costs increases the economic benefit by only 2 to 3 percent. In these cases, the load-following benefit comes primarily at the expense of the energy-cost savings.

The benefits of optimizing for both energy and load-following costs are much greater for the Aug. 1 spot prices (see Table 2). In this case, the dollar savings increase by roughly 75 percent by including load-following costs in optimization of cogenerator output. Whether it is cost-effective to increase the volatility of the cogenerator's electricity output to eliminate the volatility in the purchased-power component would require analysis of the facility's cogenerator operations and costs as well as the utility's rate structure.

In addition to responding to real-time prices and reducing its load-following costs, this facility could sell operating reserves to the system operator. Such sales would grant the system operator the right to a certain megawatt-level of purchased-power demand reduction or cogenerator-output increase within 10 minutes of notification. The system operator could call on these reserves in case of a major system generator or transmission outage. In deciding whether to sell such reserves, the industrial plant would need to assess the risks that these reserves would be called upon against the steady stream of income associated with the sale of what is essentially a call option. In addition, the sale of operating reserves reduces the plant's flexibility to respond to real-time price changes. Thus, the tradeoffs among the facility's response to real-time pricing and the sale of various ancillary services can prove complicated.

These simple and incomplete examples suggest ways that large industrial customers can better manage their electricity use to reduce their costs by:

Modifying the timing of electricity use, which will be increasingly important as real-time pricing becomes widely available;

Modifying the timing of cogenerator-electricity production, which will be increasingly important as real-time pricing becomes widely available;

Controlling the industrial process to reduce the ancillary-services burdens that the industrial plant imposes on the local utility; and

Selling certain ancillary services to the local utility.

Such analyses require a comprehensive consideration of