Ontario’s Demand Response (DR) vs Industrial Conservation Initiative (ICI) Programs
Ontario’s Demand Response (DR) vs Industrial Conservation Initiative (ICI) Programs
Ontario’s Demand Response (DR) vs Industrial Conservation Initiative (ICI) Programs
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Ontario’s Demand Response (DR) vs Industrial Conservation Initiative (ICI) Programs

How to earn money by reducing your peak energy consumption

By: Workbench Energy

It is well known that it costs money to consume electricity, sometimes more than you might like, and organizations these days are utilizing multiple strategies to keep operating costs low and profit margins high. A common method used by organizations to save on energy costs is by becoming more energy efficient, keeping consistent output levels while reducing the amount of electricity to accomplish this.

Other methods to achieve cost savings, or even generate revenue, is to reduce your consumption during selective times throughout the year when the grid is experiencing high electricity demand from consumers, otherwise known as peak demand events. To reduce strain on the grid from peak demand, the Independent Electricity System Operator (IESO) can either rush to get natural gas generation plants online to provide more power to the grid, or they can encourage consumers to lower their consumption in return for compensation. Consumers who reduce their consumption may be providing more benefit to the grid than adding more generators since they reduce strain on local grid infrastructure with less overall power being transmitted through the lines.

Ontario has two unique programs that allow organizations to earn revenue or save a considerable amount of money for their energy reduction efforts during peak demand events, called Demand Response (DR) and the Industrial Conservation Initiative (ICI).

Demand Response (DR)

The Demand Response program allows for large electricity consumers to earn revenue through reducing their consumption during peak demand events (or DR events) that are clearly defined by the IESO. When participants receive notification of a DR event, they are to reduce their consumption during the exact time slot the IESO identifies, often lasting for 4 hours. The notifications from the IESO are typically sent one day away, or early in the morning on the day of the DR event, allowing multiple hours for participants to prepare to reduce their consumption. DR events in the summer (May 1st – Oct 31st) are eligible to occur between 12-9 PM, and in the winter (Nov 1st – Apr 30) between 4-9 PM. As an example, the IESO could send out a notification of an upcoming DR event on June 4th, with the DR event occuring the next day (June 5th) between exactly 5-9 PM, requiring participants to lower electricity consumption from the grid for four (4) consecutive hours.

The value of Demand Response to your organization

The revenue available from participating in the DR program is important to justify the actions required to reduce your electricity consumption as the IESO requires. The DR program currently operates on an annual Demand Response Auction (DRA) that sets the price for DR activities. The average annual clearing price from the 2019 auction was $58,725/MW. To determine the amount of revenue you could earn from participating in the DR program per year, simply multiply the price above by the amount of electricity that you are able to reduce during a DR event. For example, if you are able to stop running some of your non-essential production equipment during a DR event, resulting in a 0.5-MW electricity reduction during each event, you would be able to earn over $29,000 per year!

Participating in Demand Response

Organizations often participate in the DR program through an energy services company that provides program opt-in support, electricity metering and analysis services, communication with the IESO on your behalf and the issuing of DR payments. A common way energy service companies get paid for this service is by sharing a percentage of the DR revenue with their clients. This type of service offering may pool all of their clients together to create one single large DR pool. An alternative approach, used by NRG Peaks, is providing all of the above mentioned services at a flat fee, allowing its clients to earn more from the DR program. Rather than aggregating resources, NRG Peaks administers your participation directly with the IESO. This approach can facilitate reduced test activations and allow you to earn more revenue through a customized bid strategy.

Industrial Conservation Initiative (ICI)

The Industrial Conservation Initiative (ICI), often referred to as Class A Global Adjustment, is a more complicated and lucrative version of the DR program. The ICI program operates under similar principles as the DR program, motivating electricity consumers to lower consumption during peak demand times when the grid is most stressed, but does not provide the luxury of knowing exactly when to lower your consumption like the DR program. Instead, the ICI program operates over a one-year period between May of one year to April of the next year, requiring an electricity consumer to lower their energy consumption when there may be a province wide electricity grid peak happening. When the one-year period is over, multiple province wide electricity peak events would have happened (usually but not always in the summertime), and your electricity bill will be based on how your organization performed during only the top five (5) peak hours. The ICI program does not require you to reduce consumption for a prolonged amount of time, instead only evaluating an organization’s performance based on their consumption during the highest one-hour period of the peak day. For example, if a peak occurred on July 5th at hour ending 17:00 EST (between 5:00 to 6:00 PM EST), your electricity consumption reduction performance would only be measured during this one-hour time slot. Important to note, the IESO does not observe daylight savings, so hour ending actually means hour starting during the summer.

The ICI program is currently available for industrial consumers with an average 12-month peak demand of greater than 500-kW, and for commercial consumers with an average 12-month peak demand greater than 1,000-kW. A consumer is able to have peak demands lower than these thresholds in a given month, as long as the 12-month average works out to be greater than the threshold.

The value of ICI to your organization

The ICI program is used to justify how much Global Adjustment (GA) you get charged for an entire year on your electricity bill. Global Adjustment often accounts for up to 70% of an organization’s electricity bill, which provides a significant opportunity to reduce electricity costs by performing well in the ICI program. The ICI program determines your GA charge by looking at your organization’s contribution to the top five Ontario grid system peaks, resulting in a fixed fraction that is used to bill you for an entire year of Global Adjustment. The higher your electricity consumption is during the Ontario wide peak event, the higher your Global Adjustment charge will be. If you don’t consume any electricity from the grid during these times, your Global Adjustment charge could actually be zero, and you would save 70% on your utility bill for an entire year.

Another method for evaluating the value of the ICI program is using average prices for electricity during these Ontario wide peak events, which are typically $105,000/MW during one single peak event, and $525,000/MW annually if we consider all five peak events, much greater than the $58,725 available from the DR program. If we use the same example listed above in the DR section, an electricity consumer that is able to reduce demand by 0.5-MW during the peak events, the annual savings from the ICI program would be over $250,000!

Participating in the ICI program

Participation in the ICI program simply involves opting in to be a Class A Global Adjustment rate payer by June 15th of each year with a signed form to your local utility. Once you opt-in, you will begin paying Class A rates starting in July of the same year until June of the next year, based on the previous year’s peak event performance. This decision needs to be carefully analyzed each year before locking your electricity rates in for a year-long period. If you did not perform well during the previous year’s peak events, it may actually be a cost increase by opting into Class A. Consult an energy services company, like NRG Peaks, for an evaluation of your Class A savings potential.

To ensure your organization performs well during the Ontario peak events, it is important to have an action team in place so that you can react appropriately and reduce electricity consumption during the potential peak events. It is also best practice to have a system in place that notifies you when a peak event might actually be occurring, since unlike the DR program that sends a notification of when a DR event is going to occur, the ICI program operates in a more unpredictable nature as you try to predict when a peak event may occur. NRG Peak’s core service offering is our market leading peak advisory service and expert team of operators that notifies our clients when a peak event is highly likely to occur. This enables our customers to focus on their business, rather than spending time attempting to identify peaks.

Summarizing the Programs

Below is a summary of the key points to understand for each peak energy consumption program.

Demand Response (DR)

Peak events:

  • Occur at a predetermined time, with fair warning from the IESO.

Value:

  • Current average price is $58,725/MW annually.

Participation in program:

  • Opt-in individually as an organization, or work with an energy services company at a shared savings or fixed fee.

Industrial Conversation Interactive (ICI)

Peak events:

  • Unpredictable and no guarantee when they will occur between May 1st and April 30th.
  • Performance is greatly improved by utilizing a peak event prediction service to never miss a potential peak event.

Value:

  • $105,000/MW during each peak day, $525,000/MW annually.

Participation in program:

  • Opt-in your organization before June 15th of each year.
  • Evaluate the previous year’s performance during the provincial peak events to ensure this rate structure is the right one for your organization.

Demand Response (DR)

Peak events:

  • Occur at a predetermined time, with fair warning from the IESO.

Value:

  • Current average price is $58,725/MW annually.

Participation in program:

  • Opt-in individually as an organization, or work with an energy services company at a shared savings or fixed fee.

Industrial Conservation Initiative (ICI)

Peak events:

  • Unpredictable and no guarantee when they will occur between May 1st and April 30th.
  • Performance is greatly improved by utilizing a peak event prediction service to never miss a potential peak event.

Value:

  • $105,000/MW during each peak day, $525,000/MW annually.

Participation in program:

  • Opt-in your organization before June 15th of each year.
  • Evaluate the previous year’s performance during the provincial peak events to ensure this rate structure is the right one for your organization.

Choose the Program(s) best for your organization

Participation in each program is independent from each other, which means you do not have to be enrolled in one of the programs to enrol in the other, nor do you have to be enrolled in both at the same time. Your organization should weigh the pros and cons of each program with your energy services provider to decide which combination of programs is best for you. NRG Peaks offers free assessment tools, consultations and Ontario’s premier peak advisory and notification service to help you make the best decision and save the most amount of money from your electricity bill.

Questions about each program?

Contact our team of energy market experts to get started with navigating the best options for your organization to save money and earn more revenue.

1-888-523-5620
info@workbenchenergy.com

[1] http://www.ieso.ca/Sector-Participants/IESO-News/2019/12/IESO-Announces-Results-of-Demand-Response-Auction

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