From November 2015 to February 2016, an estimated 94,500 tons of methane was released as a result of a leak at the Aliso Canyon natural gas storage facility in southern California. For context, legislation passed in California in 2006 sought to limit annual greenhouse gas emissions to 431 million tons by 2020. While the effects of methane on the atmosphere are not as enduring as those of carbon dioxide (CO2), methane heats up the atmosphere much more significantly—by orders of magnitude. In that four-month period, the Aliso Canyon natural gas leak released the equivalent of 2.4 million tons of CO2.
The state is already bracing for the effects of the leak on natural gas supplies, potentially compounding the natural capacity issues that arise every summer. Natural gas is a significant source of supply for electricity generators in California (and across the US). During the hot summer months, increased use of air conditioning drives up demand for electricity, and therefore natural gas. In southern California, pipeline capacity alone is not sufficient to meet demand for natural gas supplies. Storage reserves make up the difference.
The Aliso Canyon storage facility provided storage and balancing capabilities to meet the large swings in natural gas demand in the summer. As a result of the gas leak and reduced natural gas storage reserves, the state is exploring ways to alleviate pressure on the grid by reducing demand. In March, Commissioner Michel Peter Florio of the California Public Utilities Commission asked Southern California Edison (SCE) to submit a plan “to take immediate steps to enhance their demand response efforts in response to the Aliso Canyon Gas Storage Facility (Aliso Canyon) leak.” (You can read Commissioner Florio's ruling in full in this PDF).
The scope of such a massive hit to storage reserves isn’t limited to just this summer, either. Commissioner Florio’s ruling seeking exploration of demand response solutions to reduce the risk of blackouts already asks SCE to adjust the focus of 2017 demand response plans.
The current situation in southern California is an example of the kind of unexpected event that can wreak havoc on the grid anywhere. Even for businesses that aren’t located in California, it’s important to understand not only how participating in DR can help preserve the electricity grid in your region, but how demand response can actually generate new revenue for your business.
How Demand Response Can Help Your Business and the Grid Overall
Demand response is an important part of the solution to relieving pressure on the grid. Historically, utilities and grid operators have relied on fossil fuel-powered generation plants to create more supply when demand spikes. But power plants are expensive, have a considerable impact on the environment, and often face stiff objections from the communities where they are built.
That’s where demand response comes in. Rather than building expensive new power plants to add new supply to the market, demand response provides reimbursement for large energy users that reduce their consumption. When pressure on the grid is high, businesses and institutions can execute their demand response plan to reduce their consumption, thereby providing relief to the grid when it’s needed most and maintaining the balance of supply and demand. For some business, energy reduction could be as simple as adjusting HVAC set points. For those with more flexibility or DR revenue aspirations, reduction could mean shutting off large equipment or adjusting operational plans so energy-intensive processes are carried out later in the day, when grid capacity has been restored.
In exchange for their efforts, these businesses are paid for helping to alleviate the pressure on the grid. Businesses create a valuable revenue stream from participating in DR, earning regular capacity payments for being on call and additional energy payments based on their performance during dispatches. These funds are often used to generate even greater savings, through reinvestment into other energy initiatives.
Demand response is one of the last lines of defense for the grid. So, in addition to the new source of revenue, businesses can improve the security of the grid, prevent costly outages, and develop best practices to safely maintain and reduce operations when the grid suffers disruptions in the future.
With the combination of high expected demand for power this summer and the disruption to natural gas supply, the state of California has already warned of a spike in power outages this summer. It’s clear that demand response will play an important role in the aftermath of the natural gas leak in southern California.
If there’s one takeaway from Aliso Canyon, it’s that disaster can strike at any time. Your business needs to be prepared to handle the effects, or risk falling behind competitors that do. Businesses that assemble a plan ahead of time will be best positioned to both help ensure grid reliability and reap the financial benefits.
