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Question

Should demand contracting evolve?

Rafael Herzberg's picture
Consultant energy affairs Self employed

Rafael Herzberg- is an independent energy consultant, self-employed (since 2018) based in São Paulo, Brazil* Focus on C level, VPs and upper managers associated to energy related info, analysis...

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  • Jun 28, 2022
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In real life, companies and institutions are always changing. It may be 1) the way they deliver what they do, 2) the intensity of their activities, 3) the technology they use to consume energy and of course 4) their strategic plans.

But... the local utility charges kW demand in a very stiff format.  On a monthly basis it is the recorded demand or the contracted demand (it may be a fixed value or a ratchet) - the higher one.

Imagine if the local utility provides a platform for its  customers to adjust their contracted demands.In a more "palatable" fashion, but ... in a win-win mode!

The concept is the local utility offering a web based platform (for its customers that are charged by kW demand) by which customers would be in a position to "exchange their contracted demand differences". Example: one customer is currently contacted with excess demand (thus paying an "idle" monthly demand) and another one wants to increase its demand.

This platform would enable that these two customer would exchange their kW demand differences. There would be a huge win-win situation. Both parties involved in the transaction would better adjust their costs AND the local utility would be in a position to see its load factor increase. It means selling more kWh energy with the same total contracted capacity (a zero sum game).

Of course there are important assumptions that have to be met but thinking high level, it is about optimizing the CAPEX of that utility! But my experience tells that most of the times there would be a better "fit" regarding contracted demands using this concept than the ongoing system.

It's great for customers because in a changing world, being able to change their contracted demand more flexibly than the current model allows them to keep their electricity costs competitive, reducing idle payments and/or fines for surpassing the contracted demand limits.

For the utility, making these exchanges viable means, in practice, increasing its load factor, thus avoiding investments in infrastructure. In other words, with the same capacity - sell more energy. This is because an idle demand from one customer is easily transferred to another (in the reverse position).

The main advantages of this concept are:

1. Very simple
2. The annual benefits will be billions of USD

As a consultant, I am available to help entrepreneurs who wish to "make this concept happen"!

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Hi Jesse and Katherine, one aspect should be mentioned. The proposed evolution benefits the local utility companies because they will increase their "load factor". It means that they will be able to sell more kWh energy (commodity) with the same infrastructure.

Since utilities are regulated monopolies in most jurisdiction with a guaranteed rate of return, the current rate system is rigid. These constraints make it tough, and even risky, for them to try new approaches.

Sure there are these constraints! But... the good news is that even so selected prograams have been introduced such as DR (demand response), BYOD (bring your own device) among others. It is a super challenge but given the high prices of electric energy (demand and consumption) we need to face it! It is for the benefit of the whole community!

Utilities are regulated monopolies with a guaranteed rate of return, which explains the "stiff format" of the current rate system. Utilities operate with a different mindset, that is not based on competition as much as it is based on the regulatory framework in which they operate. Those constraints make it difficult, and even risky, for them to try new approaches.

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