The Demand Response Opportunity for Commercial Buildings
Attention building operators: here’s how to earn up to $1/SF per year and reduce your carbon footprint (without spending a dime)
By Reid Carroll, with input from the experts at Leap
When we wrote about demand response for the first time in January 2023, the sector was firmly an “energy” topic — a subject far more likely to be discussed at an energy conference than a real estate boardroom. As the calendar turns to 2024, that’s starting to change.
Most of the demand response that the grid can realistically tap by 2030 comes from buildings, and we’ve seen an explosion of interest from real estate operators who want to learn more about the topic.
To that end, we’ve teamed up with our portfolio company Leap to assemble a primer on the demand response opportunity for commercial buildings: what it entails, how much it can be worth, and how to get started.
What is demand response?
For any electrical grid, supply (generation) must exactly match demand. There are two ways to achieve this: modulate supply to match demand, or modulate demand to match supply.
The former is how the grid has historically worked (fossil fuel power plants ramp up and down to match demand), but that isn’t possible for a grid that is powered by wind and solar — the sun shines when it shines, which rarely coincides with peak demand.
This brings us to demand response, the second way to achieve a balanced grid. For the world to successfully transition to intermittent renewable power, demand will have to respond to supply.
Think about it this way: rather than adding 1MW of generation to the grid in order to meet peak loads (typically just an hour or two in the evenings), demand response can be utilized to shift 1MW of demand out of those peak times. For example, an EV that is plugged in when its owner gets home at 6pm could be adjusted to charge starting at 9pm rather than starting at 6pm when everybody else is also plugging in their vehicles.
While EVs are important, the largest projected source of demand-side flexibility is somewhat unexpected: buildings.
Who can participate in demand response, and what does it entail?
From office buildings to grocery stores, if a building uses electricity, it can participate in demand response.
The largest building electrical loads that can be shifted include cooling, refrigeration, and electric heating.
The good news for building operators is that the same vendors who are responsible for control of these loads can enroll a building in demand response:
Building operators and smart building controls vendors decide jointly which actions to nominate for demand response events. There are a number of actions that can be performed without disrupting the core operations of a building:
- Pre-cooling a building by only a couple degrees can allow a building operator to turn down its AC during a high-demand event.
- Refrigerator energy usage can be shifted while keeping temperatures within agreed set points, unlocking significant demand response revenues.
- Changing the schedule for hot water heating can unlock demand response revenues without any effect on hot water availability.
As time-of-use electricity rates become more common, many of these actions will have the combined benefit of reducing energy bills. Once agreed, these actions happen automatically behind the scenes and are designed so that they won’t be noticed by the building occupants.
What are the benefits, and how should an operator get started?
What’s in it for building operators? Money!
Almost every building can earn meaningful revenue by participating in demand response, a range we estimate to be $0.10/SF to $1.00/SF per year. Furthermore, Leap is working with their partners to pay out several years of revenue in advance for customers who enroll.
The wide range of earnings potential is a reflection of differences in energy density between different buildings, as well as the available energy markets in a particular location.
Operators who want to maximize the revenue potential of their buildings should encourage their controls partners to work with Leap, who aggregate loads from dozens of vendors into a Virtual Power Plant (VPP) and automate the process of connecting to wholesale energy markets and “stacking” the available revenue streams.
There is also a meaningful sustainability benefit to participating, as demand response participation enables more wind and solar to connect to the grid. This is largely an untapped opportunity for real estate operators who are scrambling to decarbonize in cost-effective ways.
To learn more, the first thing a building operator should do is contact their building controls vendor. For those who don’t have a central control system or are still evaluating the many energy optimization options out there, it’s important to make demand response opportunities a part of the selection criteria.
Building operators and controls vendors who want to learn more are encouraged to reach out to Corey Bentine (corey@leap.ac) to understand the opportunities that are available to them.
Demand response participation is lucrative, sustainable, and undetectable to occupants. For most building operators, opting in is a no-brainer.
