Maximizing the Market A Case Study in Strategic Energy Asset Management

Energy is a singularly important and pressing issue. Even so, addressing this issue has not yet risen to the top of the list for many apartment managers and co-op boards. For large-scale apartment managers, the mandate to limit exposure to energy cost risk may be the only way that this vital issue is even starting to assume the characteristics of “critical mass.” Beyond limiting risk, few realize that most buildings themselves are untapped sources of potential energy-based revenues.

So why don’t more property mangers and co-ops investigate this issue further? When dealing with a large apartment complex, a manager/owner very likely has neither time nor expertise to investigate opportunities to either protect or mitigate against the cost variables that plague electricity markets, or to maximize their energy assets.

Market Factors and Energy

Surging energy use, combined with the fact that the average U.S. power plant is nearly 40 years old and already pushed to maximum capacity, has already caused major problems for the grid. Cadres of utility companies, politicians and consumers are working long-term and ongoing to modernize existing plants and to invest in new plants. In the meantime, federal and state decision-makers continue to empower the deregulated energy markets to offer alternative, incentive-driven energy strategies to reduce demand as quickly and as dramatically as possible.

Deregulation of the energy markets has enabled Independent System Operators (ISOs) in a growing number of states to establish market instruments to construct and maintain energy grid reliability. To ensure the grid is able to meet demand, state managed ISOs offer incentive programs to individual energy users to reduce electricity during periods of peak demand or shortfalls, so that the grid is able to satisfy peak demand. These programs are called demand response markets.

Participants in demand response markets reduce system demand during peak periods when the risk of grid failure is highest, by committing to use their own generation assets or by committing to enact cutbacks in energy consumption. As the ISOs rely on these commitments for grid stability, demand response participants receive significant economic benefits, with minimal participation cost.

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