Kenya is ripe for a Demand Response Provider
After KPLC re-branded to Kenya Power few weeks back, the country started experiencing frequent power blackouts. This is any power company’s brand managers worst nightmare especially coming right after a much publicized re-branding campaign.
Rumor has it the country is well in the power rationing period and this it is said will last until the next long rains. As usual they will try to employ stop-gap measures by signing contracts with fossil powered IPP’s to supply power to the national grid. Fossil fuel generated power is expensive because of the cost of fossil fuels such as diesel and heavy oil. I am sure most of you who pay bills have sometimes seen the fuel cost adjustment figure being very close if not higher than your actual Kilowatt Hour consumption cost.
Annual power rationing seems to be the norm these days as every year we are unable to meet our power demand as a country. The rate of generation capacity growth seems to lag the demand growth by several Megawatts.
The best option is to step up investment in generation systems such as geothermal, hydro, wind and tidal power stations. This is however not as easy as it sounds because as power economists will tell you, they are no better at forecasting the future demand and supply as their counterparts in the financial sector.
This is the reason why I think this country is now ripe for a Demand Response Provider (DRP).
Before we define who a DRP is, some background on demand response loading (aka dynamic demand) should suffice.
I am sure most of us have seen houses where there is a meter for lights and power outlet sockets and another separate meter for water heating. The reason why these two are separated is because there is a tendency of most homes to switch on their water heaters at around the same time in the evening to heat water for evening showering and leave some for morning. This en-masse switching causes a massive increase in power consumption and the utility company has to kick in extra generating capacity just to meet the demand, failure to do this would lead to brown-outs or dimming of lights. The extra generating capacity is a huge cost to the power company because it is idle most times of day as it waits for peak time to kick in. Because peak power needs to have a fast response rate, it cannot be supplied by cheap sources such as hydro (whose ‘turn on’ time is long), peak power mostly derived from fossil fueled generators that kick in instantaneously. This makes peak power very expensive.
The reason why the two meters are separated is because the water heater is on what is called dynamic demand switching system. The power company controls when this heater comes on during the day and therefore spreads the load across the day as opposed to letting consumers switch on at nearly the same time. The utility company therefore offers cheaper tariffs on the water heating system because of you letting them decide when to switch it on. They are therefore able to distribute the load across the day and have no peak demand periods so to speak. In effect they do not now have to keep idle spare capacity for most of day to wait for the peak time. Idle capacity is a cost. This makes power cheaper and reduces the strain on the grid.
This concept has now been harnessed by providers who call themselves Demand Response Providers (DRPs). These companies are independent from the power utility provider and what they do is to pay consumers for power they do not use during peak times and they in turm get paid through carbon credits or get paid by the untility company for helping it manage their load (and therefore costs). The unused power is measured in Negawatts (Negative watts) and not Megawatts.
Why would a Utility company entertain the existence of DRPs? The answer is simple. DRPs help the utility company spread their load uniformly across the day so that there is no off-peak or peak period of generation. One of the biggest costs a generating company incurs is the cost of idle capacity. (under activity based costing system which is used in manufacturing companies, idle capacity is treated as a cost). For further reading on how or why idle capacity is treated as a cost click here
What a DRP does is they sign contracts with high power consumers to guarantee that they will scale down power consumption during peak times and get paid for every Megawatt not consumed (or Negawatt consumed). The Negawatts tariffs vary from provider tp provider and sometimes are equal to the Megawatt rate. In the US, The Federal Energy Regulatory Commission recently announced that the tariff for 1 Megawatts is equal to 1 Negawatt. This means that consumers stand to gain100% of power not consumed at peak tarriff and this will create more incentive to more consumers to save power. What this rule did is that it turned DRP into Negative power generators who generate Negawatts . These companies can also go further and look at domestic users average power consumption for several months and agree with them to reduce a certain % of their normal peak consumption and get paid.
Theoretically if I have a total bill of 4000/= out of which 3,000/- is due to 30 Kwh peak power (100/KWh) and the 1000/= due to 50Kwh off-peak power (20/KWh). If I reduce my peak power usage by a third (10Kwh), I will get a discount voucher of 1000/= that will go towards setting my 1000/= offpeak power and I will pay only KES 3000/=. This is not the same as simply switching off lights and other devices in my house, I benefit more if i switch off during peak time because I don’t just get a discount on what I have not consumed, but I will get paid at peak power rates to pay for off-peak power. In this example, I have saved 10Kwh at peak time rate to pay for 50KWh consumed during off peak.
Kenya stands to benefit from DRPs because our power consumption graphs resemble a sine wave with very high peak demands and very low off-peak demand in an environment of insufficient base load generating capacity. Power consumers therefore stand disadvantaged as they are not only paying for their consumption, but for the inefficiencies of peak power supply and idle capacity costs during off-peak. DRPs will offer money to heavy power consumers to either shift their power consumption to off-peak or switch off during peak times (and get paid for it) and avail this power to the grid for others and at the same time reduce per Kilowatt Hour cost of electricity to Kenyans. This will help the country attain stable power supply and also meet demand for power and at the same time conserve the environment.