Demand Response IS Supply Chain Management

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Let’s acknowledge Demand Response for what it really is: the premier tool for supply chain management of electrons.

Really?

I know. DR came into its own by its use in capacity, emergency or economic programs sponsored by ISO’s in open markets. It serves as a hedge against volatility, a backstop to prevent brown-outs, and it even adds a bit to the bottom line, a favorite of CFO’s everywhere.

But Supply Chain Management?

Yep. One of the unanticipated benefits of DR is that is teaches energy users a great deal about that use. They learn that peak demand matters, what causes it and when it occurs. They learn to shape loads to minimize costs, and some even develop pretty good predictive capabilities. The truly gifted have learned how to transform the inherent variability of manufacturing processes into cash through regulation markets.

Inevitably, DR practitioners realize that the very same techniques used in formal DR programs work equally well in avoiding demand charges from their energy supplier. Equally well? Better, actually, because often the savings in demand charges will dwarf the revenue available from participating in DR events. The key is that those DR programs taught them how to be sophisticated and pro-active, rather than passively accepting the surprise up-charges in the monthly energy bill.

Consider the key elements of supply chain management:

1. Cost reduction: not only does this make business more efficient, but every dollar saved drops to the bottom line. In a business with 5% margins, that’s equivalent to $20 in new sales revenue.
2. Communications: From early data loggers to modern user portals, we have more ways to visualize energy and to use that information. More importantly, standards like OpenADR and Green Button, mean key information comes in time to take action; all courtesy of DR.
3. Efficiency: managing the load profile reduces wasted electrons and times heavy energy use during lower cost periods. Monitoring equipment justified and installed for DR programs also enables predictive maintenance and early fault detection. In buildings, knowing where people are and are not means facility staff can energize or not energize appropriately.
4. Innovation: Demand Response itself is a major innovation, but the technology ecosystem around it has exploded. Often termed the “killer app” of the Smart Grid, DR also offsets the cost of improving internal capabilities as well. Enter Data Analytics. DR + DA = BIG $$.
5. Risk Management: The most frequent reason for DR programs is to limit the frequency and impact of power outages. Within a site, the sophisticated DR practitioner may, or soon will, have local energy sources (generators, batteries, fuel cells) which can respond to a DR signal either for an event or for emergency purposes. Old hat for data centers and health care, but increasingly seen elsewhere. Even techniques as simple as recognizing and using mid-process storage can make a difference.
6. Continuous improvement: ISO50001 has codified this for energy managers; but even informally, the practice of DR today is far more advanced than it was in the first DR programs of the early 2000’s, and certainly from the tariffed programs of the mid-20th century. Another key change is seeing DR become mainstream in everything from LEED credit to Certified Energy Manager programs.

Demand Response IS Supply Chain Management, and the competition knows it. Do you have an energy strategy based on DR techniques? Let us know.

In June 2013, Schneider Electric will be hosting “Xperience Efficiency” in cities around the world.  These free events will show you how to take control of your electricity supply chain in your industry, facility and even your home.