Why NYC DR needs a paradigm shift under REV

Demand Response (DR) is typically pitched as “free money”: a cash payment to the Building Owner that requires little or no investment on their part.
A mere 1-year payback sets a common upper bound for project cost, per current market practice.

This is unfortunate for several reasons:

  1. Few economically feasible DR assets: DR is basically limited to turning things off (can annoy tenants) or running uncontrolled, dirty emergency generators (bad for New Yorkers).
  2. No plannability: Owners are noncommittal about staying in DR, so it's hard for utility planners to bank on it as a resource--a problem when the whole point is to defer long-term capital investment!
  3. No leverage: With investment at a 1x multiple of DR payments, Public incentives for DR (whether upfront or recurring) are ineffective at leveraging-in private capital.

Reason #3 gets at the crux of the issue: increasing monthly payments (or incentives of any kind) has limited impact on investment in DR. Adding $1 to monthly DR payments may convince an Owner to invest just $0.80 more upfront (accounting for the ongoing costs of DR enrollment).

The key is to get Owners to look at DR as an investment over 10 years or even more, as shown in "Option 2" below:

 

Owners currently look at DR as a current year, "free money" proposition. In order to spur real investment in DR, the paradigm must shift to long-term investment, valuing payments over 10+ years.

 

By capitalizing DR payments over a 10-year horizon at a reasonable, risk-adjusted discount rate, every $1 of DR payment gets leveraged closer to 6-8x (of course, subject to asset-specific operating costs): adding $1 to DR payments would yield $7+ in private sector investment!

 

By applying a 15% discount rate to 10 years of DR payments, investment amounts grow to nine times the current status quo; this effect creates far more leverage than merely increasing rates.

 

NYC's utility Con Edison seems to understand the importance of moving beyond the current "free money" value proposition of DR: in 2014, they doubled DR rates and added a triennial "Retention Bonus"; they also offered to pay Owners half the cost of any DR-enablement investment as part of the Indian Point-triggered DMP. 
But unless investors and Owners approach DR as a true multi-year investment, these increased  payments-- which get passed through to everyone's electric bill-- have a limited yield.

Peak Power seeks to supply a framework and investment capital for this market transformation, to usher in a new era of affordable, plentiful, durable, peak-flattening Demand Response for New York's electric grid.

Ben Pickard