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Unlocking Overlooked Capacity at The Grid Edge

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Mark Danzenbaker's picture
CEO GridPoint

Mark Danzenbaker has been with GridPoint since 2009 in several leadership positions. As CEO since 2016, Mr. Danzenbaker is responsible for the development and execution of the company’s mission...

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  • Jul 27, 2022

This item is part of the Energy Efficiency - July 2022 SPECIAL ISSUE, click here for more

As the world looks to decarbonize across sectors, utilities are turning an eye to smaller buildings in the underserved commercial market segments as growth areas. For years, utilities and regulators have had a difficult time addressing the small- to medium-size business (SMB) market as an energy resource, finding that it was too hard or too costly to engage with those customers. However, according to the Energy Information Administration, there are approximately 4.6 million small commercial buildings in the country. In order to truly decarbonize the U.S. energy grid, engaging with those SMB customers and leveraging capacity across these millions of buildings will be of critical importance to utilities, regulators and policy-makers nationwide.

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A report from the Department of Energy found that occupant actions can impact up to 80% of energy use in a commercial building. That means connecting with small and medium building owners and operators to understand and engage in smart energy practices is the necessary first step in helping to bring this segment of the market into the conversation. By addressing the way different types of commercial businesses use energy, utilities can help business owners to make smarter decisions about their energy use, meaning a cleaner, more efficient grid.

A Traditionally Overlooked Market Comes Into Focus

Until recently, efforts to engage customers to participate in utility energy efficiency or demand response programs have mainly focused on large commercial and industrial buildings or the residential sector. But in between these varying structures that make up the existing built environment are millions of smaller, inefficient, hard-to-reach commercial buildings that can be leveraged today as a grid resource. Because there are significantly more buildings of this size than of large commercial or industrial buildings, there is a massive opportunity for engagement and plenty of aggregated energy capacity yet to be enrolled in utility programs, like demand response.

These types of commercial customers have been less likely to engage with their utilities and typically consider energy costs as an operating expense. However, rising costs, energy mandates, electrification and more prevalent power disruptions – as seen recently in California and Texas – are all trends putting the energy transition at the forefront of business stakeholder priorities. Businesses are increasingly pressured to report on sustainability initiatives with many even tying environmental, societal and governance metrics to C-suite compensation. We are finally at the tipping point where business and grid priorities are beginning to converge.

The future of energy is one where buildings are optimized individually, networked together and to the grid, establishing bi-directional communication and enabling the built environment and utilities work together to balance supply and demand through grid-interactivity. For utilities, it means ample on-demand capacity that can be called on within minutes to stabilize the grid during times of peak demand. For businesses it means lower energy costs, lower operational costs and more resilient buildings ready to withstand long-term energy infrastructure changes. Commercial buildings account for 40% of global carbon emissions, and they represent the greatest, most cost-effective opportunity to reduce carbon today to ensure a more sustainable energy future.

How To Enroll More SMBs into Utility Programs

Tackling the challenges of enrolling small businesses into utility programs will take many approaches. Programs designed for this market will drastically differ from the larger, more manual commercial and industrial programs and easily repeatable residential programs. Leveraging technology partners will be imperative to utilities engaging with this market because of the customizability required by businesses to participate without impact to day-to-day operations.

First, it’s important to tackle energy efficiency as a part of these programs by baselining energy consumption at the building and uncovering correctable inefficiencies. By working with the right partners, utilities can help their business customers better understand how assets within their buildings impact energy consumption and can then transition their operations to be more efficient – benefitting both their business and the grid at the same time. By first focusing on decarbonization, businesses reduce bottom-line costs, reduce energy demand and begin to prepare for future energy efficiency strategies.

Second, it’s important to understand the customer experience. How are the energy needs different for each business and building type, and what are the critical operations they need for business continuity? Partners who measure and model the energy profile of each individual building, along with the core equipment that need to stay online will be the most successful in bringing more building stakeholders on board. Performance-based programs allow for customers to have options while also meeting the requirements of the program and the local grid. 

Third, the business must have a clear financial incentive for participating in utility programs. While education about grid resilience and sustainability benefits may help move the needle, incentives will drive quick engagement and program scalability. There are many ways for utilities to help businesses leverage energy technology for financial benefits – from technology rebates and demand response revenue to energy efficiency savings and avoiding operational costs. The key to successfully engaging SMBs is stacking these benefits together through one platform to provide the greatest possible value for the customer in a simple way.

Lastly, utilities must include assets of tomorrow in their plans. The all-electric future will include changes to the way energy is generated and stored. As businesses continue setting their own sustainability targets, they will be more likely to harness distributed energy resources (DERs), including renewables, battery storage and electric vehicle (EV) charging to meet their goals. As more DERs become commercially practical, utilities can work with technology providers to serve as the gateway to deploying them cost effectively – unlocking additional capacity within the building, creating additional revenue streams for businesses, strengthening the utility and customer relationship, and benefiting both business and the grid long term.

There is a mutually beneficial relationship between utilities and business owners when programs are properly implemented. Utility programs can provide businesses with a monetary incentive while also increasing resiliency, further protecting them from costly blackouts or interruptions that might occur if not for such programs. The utility benefits from this increased resiliency leverages buildings as grid assets instead of undertaking costly capital upgrades to generation facilities and transmission equipment.

The real-world benefits of aggregation can not only save money for both utilities and the customer, it can also create better living situations. As we saw in 2020, shutdowns from grid outages in Texas and California pose huge health and safety issues when energy resources were not properly managed. Sadly, analysis of the situations in retrospect showed there are actions that could have been taken to mitigate power disruptions.

It's clear that as the world continues its move toward electrification, more automated virtual capacity will be needed on-demand at any given time to avoid costly, and potentially deadly, disruptions. Utilities may have overlooked this market segment in the past but now need to have small- and medium-sized buildings in their focus for the future.

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Matt Chester's picture
Matt Chester on Jul 27, 2022

How can utilities ensure to get the most bang for their buck? Obviously those larger customers are traditionally engaged because they are lower hanging fruit, but is the time spent with each smaller customer still worth what might be gained in the end? 

Mark Danzenbaker's picture
Mark Danzenbaker on Jul 27, 2022

Hi Matt - great question! We certainly believe so, but we think the key is to present a multi-element “stacked” value proposition to the end building customer (i.e., energy efficiency, operational benefits, resilience AND grid services) and to do so at scale across lots of buildings to really move the needle.

Julian Jackson's picture
Julian Jackson on Jul 29, 2022

I think perhaps the main difficulty is identifying these SMBs.  Is there some scope for example, satellite mapping to identify buildings leaking heat?  I agree with your statement that the business owners often assume energy costs are just a business expense. It used to be a low priority, although with costs rising fast this may have changed.  If my area of South London is anything to go by, a lot of SMBs exist in ancient, energy-inefficient buildings, which they probably rent, so don't have any control or incentive to improve.  It's a tricky one!

John Benson's picture
John Benson on Jul 29, 2022

Thanks for the post, Mark.

Most of my career I have worked with firms that addressed the electric utility and large commercial and industrial markets (mostly Siemens & Landis & Gyr), but I know that electric utilities are eager to address the needs of small and medium businesses (SMB) and understand that they represent substantial opportunities for energy and peak-demand reduction via improved energy efficiency. The good news is that there are already firms addressing this need. These firms fall into two categories: those address general facilities’ needs (for instance Siemens Building Technologies) and those that address specific processes that are critical to specific SMBs (for instance, refrigeration for grocery stores). Then the role of incumbent electric utilities become supporting a specific SMB by working with them and their energy efficiency provider to help them understand specific elements of the utilities’ business practices. For instance this might be specific utility tariffs or other financial incentives that will enable energy efficiency or load-shifting improvements.

One other comment specific the Mark’s post: I will only speak to my home state (California), and I know that our electric rates are high, and going higher. A goodly part of this is due to our Cap and Trade program, which is really (in part) an escalating carbon tax. Also note that this fee funds grants for many energy efficiency improvements, which can allow a SMB to offset the increasing rates. Go through the link below for more information.

Larry Eisenberg's picture
Larry Eisenberg on Jul 30, 2022

Mark: Excellent summary of the need to decarbonize small to medium size buildings, as well as big buildings. An important point to include is the fact that there is an unlimited amount of private sector money looking to invest in the upgrades of these buildings using Property Assessed Clean Energy (PACE) financing. With the inclusion of necessary measures which can be as simple as state-of-the-art lighting, state of the art HVAC solutions, insulation, multi-pane windows, and any number of renewable energy solutions that work for buildings of all types, enough energy can be saved to easily pay back the PACE loan within the existing budget energy line, creating long term savings for the building owner, a better work environment for building occupants, and bottom line a significant reduction in the need for energy. PACE currently exists in 38 states. The other 12 states will ultimately get the message that this is not about red or blue politics but about common sense and more profit for building owners. PACE also becomes a very effective economic development tool for those communities interested in creating jobs. I am not sure why more building owners are not aggressively pursuing needed building upgrades using PACE financing.  It is a no out of pocket cost program and returns significant value if they just say yes. 

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