Getting paid to conserve electricity

The Wall Street Journal reports that electric utilities have found a lot of success over the past summer with offering programs that reduce electricity usage by getting customers to use energy more efficiently.

So why would a utility that makes money by selling power encourage someone to use less of it? The short answer is tight supply. Rather than paying higher spot prices to get more electricity onto the grid in times of peak usage, it is actually cheaper to set up these programs so that they can reduce consumer demand instead.

The clear trend in many areas is to pay companies and other consumers sums pegged to what it would cost utilities or grid officials to acquire equivalent amounts of power on the open market or to build and operate new power plants. In the mid-Atlantic region, payments arranged by the grid operator to firms that have cut energy use are running ahead of last year, $19.3 million through July 31 versus $18.3 million for 2006 and $14.9 million for 2005.

Some companies get lower rates in exchange for agreeing to cut use when asked. In California, especially, many users cut back when pleas went out from the ratepayer-funded Flex Your Power campaign that works with utilities, grid officials and businesses to conserve energy.

Companies have sprung up that recruit firms to demand-reduction programs run by grid officials or utilities and help them automatically go into energy-saver mode. EnerNOC Inc. of Boston, which went public in May, had 1,852 locations signed as of June 30, more than triple the number the prior year, giving EnerNOC 756 megawatts of customer load under management, up from 234 megawatts.

One participant is Stop & Shop Supermarket Co., a unit of Netherlands supermarket giant Ahold NV. The chain is able to cut energy use by 40 megawatts when asked, an amount of power equal to the output of what is known as a peaker plant that otherwise might be fired up to meet high demand, through various measures.

At Exelon Corp.’s Commonwealth Edison Co., Chicago, 2,173 business locations have signed up for utility programs this year in which they, collectively, are paid to cut use by 647 megawatts. That compares with 22 sites totaling 25 megawatts last year. Customers decide when to cut energy use, not utility or grid officials, and it is often based on the market price of power they will receive.