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Small Business Peak Load Reduction Incentives

For most small businesses, the electricity choice market simply represents a chance to secure a good rate and minimize energy costs.  Historically, there has been little opportunity or incentive to manage electricity usage other than to reduce overall consumption.  With smart meter installations on the rise, however, time-of-use rate plans and peak load reduction incentives are becoming more common.

Peak load reduction or “demand response” programs were once limited to large commercial and industrial customers equipped with advanced meters.  Smart meters, however, are extending advanced metering technology to small and medium commercial customers.

Demand Response

Demand response programs offer customers incentives to curtail electricity usage during times when the power grid is stressed.  Demand response incentives are not rate plans as much as they are stand-alone programs that overlay or complement existing rate plans.  The challenge with commercial demand response programs is that they have typically been limited to large commercial and industrial electricity customers.

Programs offered by electricity providers including Direct Energy and Constellation often require a commitment to reduce load by a minimum of 100 kW during power scarcity events.  Although customers are usually allowed to reach their load curtailment obligation using multiple locations (e.g., several stores or manufacturing sites), the 100 kW minimum disqualified most small and medium-sized businesses from participating.

Small Business Opportunities

Smart meters and smart grid technology, however, are encouraging electricity providers to develop demand response programs for small commercial customers.  TXU Reduction Rewards is an example of a voluntary demand response offering ideally suited for small businesses customers.  During a scarcity-of-supply event, TXU Energy sends the customer a notification email. The customer can choose to opt-in or ignore the notification.  Customers who opt-in and curtail their electricity usage receive a bill credit.  The amount of the credit depends on market pricing during the event and the amount of energy curtailed by the customer.

The Reliant Business Degrees of Difference program works in a similar fashion.  The Reliant program differs from the TXU Energy offering in two important ways.  First, the notification to the customer is sent the day prior to the of the anticipated scarcity event.  Second, the bill credit is valued at $0.60 per kWh for the electricity usage reduction.  The TXU Energy plan, in contrast, uses market-based pricing which could be more or less than the pre-determined credit set by Reliant.

Small Business Load Reduction

Unlike large commercial or industrial customers, small businesses may have less flexibility to curtail power.  However, business owners should think along the lines of a residential electricity user who can delay running the clothes dryer and bump up the thermostat for a few hours to respond to a load reduction incentive.  There are several usage reduction measures that make these demand response programs feasible for many small business electricity customers:

  • Adjust thermostat settings by at least four degrees
  • Turn off lighting in limited-use areas
  • Postpone using large office equipment until after the usage reduction event

To take advantage of these demand response programs, business owners should survey their operations and identify electrically powered equipment that has any discretion or flexibility as to when it is operated.  With the Reliant program where notice is provided a day prior to the event, small business owners should consider accelerating as well as deferring discretionary electricity use.

While these incentive programs are relatively new to the market, more programs are anticipated in the coming years.  Small commercial and residential customers account for more than 70% of the peak summer load.  Providing meaningful incentives and price signals to encourage these customers to manage their peak demand is key to maintaining power grid stability and optimizing power generation.

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