Like energy, demand response (DR) is too often positioned as a commodity by businesses offering curtailment services. As is the case with most commodities, the best price usually wins. However, that mentality can end up costing you and your company valuable revenue in the long run when it comes to selecting a curtailment service provider (CSP) based solely on the DR split that provider offers.
Consider two DR proposals from the customer’s perspective. One promises a 90/10 split (90% of the revenues earned go to the customer, 10% to the CSP), while the other is an 80/20 split. Clearly the former is the better choice for the customer, right?
Not so fast. When faced with a “split decision” concerning DR, you should always ask a few key questions:
Who’s handling my demand response?
Would you rather receive 90% of the earnings from adequate DR participation or 80% of the earnings from optimized demand response?
It’s a tough question that requires more information before you can make the best decision, but now we’ve at least agreed that demand response is not a commodity… it’s a service.
Some CSPs are much better than others at providing the service of helping businesses curtail more energy and therefore help them earn more revenue from demand response.
How can my company better judge which CSP is going to provide the best DR service?
Imagine you’re an athlete with recurring pain in your foot. Would you prefer to speak to a general practitioner who may be knowledgeable about the entire human anatomy? Or would you rather consult a podiatrist, whose entire practice specializes on the study and effective treatment of the human feet?
You get the point here. Some CSPs are like general practitioners of energy management. They are knowledgeable about a broad array of energy products, and only offer demand response as part of their repertoire of services. They often have hidden fees and/or outsource many of the intricate pieces needed for successful DR implementation, including engineering, dispatch, billing, payment, settlements, etc. Moreover, many customers may not realize that in some markets just one single day of missed or reduced participation could eat up ALL of their “perceived” savings.
Then there are the specialists—CSPs who focus solely on demand response and who seek to do little else than optimize DR participation in an effort to yield maximum revenue for their customers. These are the service providers who understand the nuances of effective DR participation to optimize energy earnings and savings.
Can a better split result in less revenue earned from demand response?
Let’s go back to the decision of choosing the best split. Is a 90/10 split on demand response unequivocally better than an 80/20 split?
The answer depends on how much revenue a given organization earns from demand response.
If the CSP offering a 90/10 split and can help a business curtail enough energy through demand response to warrant $90,000 annually, that may be considered pretty good.
On the other hand, if a CSP who specializes in demand response and offers an 80/20 split can help the same business optimize its curtailment efforts and earn $125,000 through demand response, that’s typically seen as better since you’ve earned more money as a result of your DR participation.
Of course, that a given CSP helps your business earn more revenue isn’t the only reason to consider selecting that company to handle your demand response participation. Quality service, a transparent process for accurate, prompt and timely payments, and having a dedicated team standing by to answer any DR-related questions you may have should also be considered.
When it comes to decisions about demand response “services” and choosing the best CSP for your business, there is more to the bottom line than just the split. A LOT more.
Please feel free to contact Trevin or the CPower team if you have any questions. Our team is happy to help you understand the nuances of participating in these DR programs and assist in optimizing your overall energy savings and earnings year round.