Standby Generators & Demand Response

1. Standby Generators & • Demand Response • Whatis Demand Response • Why Demand Response Works • PJM‘s DR Programs • Financial Benefits • ParticipationRequirements • EmissionsRegulations

2. Demand ResponseFERC & Electric Utility Support • “Demand Response creates a more efficient grid and allows consumers to lower their bills. When you combine those two things together you’ve got a powerful engine that can start and maintain the smart grid”. • FERC Chairman, Jon Wellinghoff, 2010 SmartGrid Today. • “Demand response and energy efficiency really have the highest potential to transform the way we consume electricity”. • Quote from Brett Perlman, former member of the Texas Public Utilities Commission, at the 2012 National Electricity Conference in Washington, DC.

3. Demand ResponseDefinitions • Demand Response is the voluntary and temporary reduction of electricity usage in response to electrical power system stress or economic signals from retail rates. • Reductions in electricity usage can be achieved by turning off building loads (lights, air conditioning, fans…) or by transferring building load to standby generators. • Financial incentives exist across the US to encourage Demand Response participation which is needed to help lower peak demands.

4. NYISO 2011 Demand PeakUtilizing DR for Peak Management

5. Demand ResponseDemand Side Management • DR provides electrical utilities and grid operators a tool to more efficiently balance electrical supply and demand. • Quickly reduces critical peak load demands. • Minimizes transmission congestion / constraints. • Electricity demand continues to grow while supply side solutions are becoming increasingly limited due to: • High construction costs, • Environmental concerns, • Transmission capacity constraints. • Traditional pricing structure also presents a challenge. • Most consumers pay a fixed price, while producers are paid based on a variable clearing price creating inelastic demand.

6. Supply Resources 250 200 150 $/MWh 100 50 Gas Hydro, Nuclear CC Coal Peakers 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 GWs The Electricity Marketplace Price Determined by Load • All resources are paid the clearing price.

7. The Electricity MarketplaceInelastic Demand Curve

8. PJM Demand Response Programs Operational Time Requirements

9. Demand Response ProgramsCapacity Revenue Opportunity • ISO Payments: $ per MW-yr • (Typical DR Aggregator Take ~25%) . NYISO ROS $24,000 Ontario $70,000 - $160,000 ISONE $60,000 NYC (Zone J) $60,000 - $150,000 CAISO $48,000 - $62,000 Duke/PE & SCG&E $30,000 - $42,000 PJM $6,000 - $62,000 ERCOT EILS - $60,000 LaaR - $90,000

10. Demand Response Programs PJM Synch Reserve Revenue Synch payments in Eastern PJM ~$50,000 / MWyr.

11. Demand Response ProgramsEconomic • Economic demand response – load reduction performed when energy market price is higher than cost of generation. • Simple run analysis based on the spread between local energy prices and operational (fuel) costs. • When energy price > fuel cost, run and keep the spread. • When energy price < fuel cost, don’t run. • FERC Order 745 requires RTOs to pay demand resources the full LMP for load reductions. • Order 745 lowers run costs by up to 50% • Economic DR revenue potential with Order 745 ranges between $5,000 and $25,000 / MW-year.

12. Demand Response ProgramsEconomic Opportunity: Avgcents/kWh

13. Demand Response Participation Using Standby Generators • Understand your air permit. • If you don’t have an air permit, you’ll need to get one. • Standby generator air permits vary considerably by state and by application. Commonly categorized as: • Emergency – only operated during loss of utility power and during system operational testing events. • Non-emergency – Anything other than emergency, typically limited by annual allowable operating hours. • Air permitting requirements: • Federal: RICE NESHAP, NSPS, Tier 4, Tier 2… • State Requirements – always trump Fed, most often more stringent • Customer’s can only market their curtailable load.

15. DEMAND RESPONSE PARTICIPATION REQUIREMENTS Definition of Emergency: • Emergency – when power is unavailable due to failure/loss of utility power beyond reasonable control of facility; not including storm avoidance. • Federal Definitions – vary by regulation. • Subpart IIII – strictly emergency operation. • Subpart JJJJ & ZZZZ – allows for 50 hours per year for non-emergency operations (testing), but no peak shaving; allows for 15 hours per year for emergency DR participation. • Definitions vary by state. • DC, PA, NJ and DE – strictly for emergency, maintenance and testing; after-treatment required for emergency demand response and any other DR. • MD and VA – Allow operation in emergency demand response; anything else requires after-treatment.

16. Demand Response Participation Emergency Permitted Generators • EPA Statement regarding emergency generators: “Engine cannot be used for peak shaving or as part of financial arrangement with another entity, except 15 of the 50 non-emergency hours / year can be used for demand response in emergency situations (e.g., imminent blackout)” • EPA / DR aggregator case pending which may increase emergency exception hours to 60 per year. • States still have jurisdiction over whether or not they allow emergency generator to participate in any Demand Response program. • New Jersey – does not allow customers with emergency generators to participate in any PJM Demand Response program.

17. New Generator Set Purchase Considerations DR Ready Packages • Proven emissions after-treatment technology to meet state specific emissions requirements. • Complete system monitoring. • Closed transition load transfer capabilities allow for easier and safer DR participation with automated record keeping. • Multi-year maintenance and warranty contracts minimize owning and operating risk. • Emissions compliance testing and air permitting assistance provided when needed. • Financing packages and lease to own options.

18. Standby GenerationMore Than Just Emergency Power • A valuable revenue stream from otherwise dormant standby power generation equipment. • Simple system requirements necessary for participation. • Improved data analytics with remote monitoring, smart metering and web-based reporting. • Proactive emergency preparation with advanced notice of grid stress. • Corporate social responsibility and public recognition; helps “keep the lights on” and the grid more efficient and operational for everyone.

19. MTU Onsite Energy Energy Management Initiative • Electrical utility and Federal programs demonstrate the need for increased demand side management. • Distributed generation will continue to be an integral part of lowering peak demands. • A good energy management strategy can improve the bottom line of a company and the broader community.

20. Demand Response: Maximizing value from standby generation.