Reprinted by Permission from ASHRAE Journal, April, 1998.

No area of the HVAC industry is more sensitive to the changes developing within the electric power industry than off-peak air conditioning. Thermal storage for cooling applications depends almost entirely on time differentiated utility rate structures for its existence, and the future form and substance of these rates will determine the directions this industry must take in order to survive and flourish. Certainly, there are capacity-limited or niche storage applications, such as churches and theaters, but the vast majority of storage systems are installed to capitalize on favorable time-of-use electricity rates.

The benefits of thermal storage to the customer are only a reflection of the thermal storage benefits to the new power providers and marketers. It is useful to review and expand on the various impacts thermal storage can have on the unregulated electric power industry and how those impacts can improve a customer's negotiating leverage.

As was made clear in recent ASHRAE-sponsored forums, we can only predict how government's regulatory retreat will impact utilities, power producers, the proliferation of energy marketers and ultimately, the customer¹. Definitive directions for the industry are emerging. As in any free marketplace, the ability to produce more with less provides competitive advantage-and ultimate success.

The greatest benefit of thermal storage will be the ability to produce more kWh from fewer kW of operating capacity. In the regulated past, idle generating capacity represented additional operating cost that, although undesirable, could be passed along to a captive market. Utilities attempt to minimize the impact of excess and idle capacity through incentive programs and rate structures that penalize customers' poor load factors. However, in a monopolistic environment these inefficiencies did not result in a loss of customers. This, of course, is rapidly changing. For an industry that is five times more capital intensive than other manufacturing enterprises, the economic albatross of idle capacity will represent an enormous competitive disadvantage².

The commercial customer presents a particularly poor load profile to the utility. Therefore, commercial customers pay, on average, 65% more for their electricity than industrial customers. Air-conditioning equipment is the principal contributor to poor commercial load profiles. As far back as 1983, Electric Power Research Institute reported that cooling equipment consumed about 30% of overall commercial sector kWh, but 44% of the kW demand³.

Using typical industry "rules of thumb," the specific impact of the chiller equipment can be approximated⁴. Including condenser side fans, controls and pumps, peak chiller demand will typically range from 0.7 to 1.3 kW/ton, depending on size and type of equipment, method of heat rejection, etc. At 500 ft²/ ton, the area-based demand would be 1.4 to 2.6 W/ft² (15 to 28 W/M²). Other electrical loads, including lighting, fans, pumps and miscellaneous can be estimated at 3.5 W/ft² (38 W/M²). The specific electrical demand displaced by thermal storage would range from 29% to 43% of the building peak demand.

The ASHRAE Air Conditioning Systems Design Manual contains a detailed analysis of energy consumption for a 264,000 ft² (24 526 M² ) building operating under an Ontario Hydro rate structure. The chiller equipment contributed 31 % to the peak demand but consumed only 8% of the annual kWh. Annual load factor for the building was only 37%. Partial and full thermal storage systems could have improved the load factor to 44% and 55%, respectively.

All other things being equal, thermal storage customers will consume approximately the same kWh as their conventional system counterpart. Even if customers can only displace 20% of the peak demand-a conservative goal-the power provider has the opportunity to sell all of the original kWh, plus an additional 20% in kWh sales to another customer.

For every four similar thermal storage buildings, the power generator has the opportunity to serve a fifth, with all of its associated kWh, from the same generating equipment. Any power purchaser with the ability to shift 20% to 40% of the building demand, thereby releasing that generating capacity to serve another customer, will occupy an enviable position as energy providers compete for the most desirable customers. The power producer that generates more electricity with less capital investment will be able to do so at a lower price.

Attendees at the ASHRAE short course on deregulation heard the message loud and clear-if you -want to negotiate seriously with a power provider, bring your load profile⁵.

Much discussion in recent years involved the energy efficiency of thermal storage systems. Thermal storage systems can be designed to use less electrical energy than their conventional counterparts. However, energy consumption depends on many factors, such as the type of storage, the type of chiller, the arrangement of the components, the local climate, method of heat rejection, air-side design and operating temperatures. Storage systems will use approximately the same amount of electricity as conventional systems, and, in any case, the owner is typically more interested in energy cost than in energy use.

From the perspective of society's interest in the environment and the utility's interest in economy, the real concern is fuel use at the power source rather than the kWh registered at the building's meter. A study completed in 1995 for the California Energy Commission found that thermal storage can increase energy efficiency by 20% to 43% for each kWh shifted to night-time production².

The commission's recommended procedure differs from the "marginal plant" method by addressing two major aspects of utility operation in calculating the potential savings. First, a large percentage of steam generators must be kept in a state of readiness to meet the followings day's peak load. The additional fuel needed to produce electricity represents a relatively small increase.

The study reports that merely increasing the load on a typical California steam plant from 30% to 50% reduces the heat rate in Btu/kWh from 11,744 to 8,934. Also, because thermal storage is displacing on-peak demand, less generating capacity must be maintained in reserve. In terms of fuel use, it is appropriate to include these considerations; however, either method ensures a net source fuel advantage for thermal storage.

Other benefits include the reduction in operating costs compared to on-peak marginal capacity, lower emissions costs per kWh and improved transmission efficiency. However, the benefits reinforce the conclusion that thermal storage provides a strong economic incentive to the power provider, as well as improved environmental performance, regardless of the impact at the meter.

This study was confined to the fuel and generating mix for California. Recognizing both the importance of the conclusions and the limitations of the scope, ASHRAE is funding Research Project 991, Simulation of Source Energy Savings and Energy Utilization for HVAC Systems.

The biggest concern relates to the eventual direction of electric power rates. First, consider some important facts regarding today's power industry⁶.

• Reserve capacity is decreasing (Figure 1). After the energy scares of the early 1970s, capacity margins by 1982 had risen to 33%. By 1993, however, these margins were reduced to 21% and are projected to fall another 4% by early in the next decade.
• Utility work-in-progress totaled $13.5 billion in 1995. This represents a 21 % reduction from 1994 levels and a 34.5 % reduction from 1992.
• Every North American Electric Reliability Council Region, except Alaska (0.1% of total), registered a non-coincident summer peak load higher than the winter peak. Overall, the summer peak exceeded the winter peak by about 14%.
• The non-coincident peak is projected to increase to 718,000 MW by 2005. The 1995 peak was 620,871 MW, an increase of 35,000 MW from 1994. The power industry generating capacity increased by 7,000 MW in the same period.
• Utility generating capability was 706,112 MW in 1995 with total sales of approximately 3 trillion kWh. This provided an annual load factor of less than 50% if all capacity is included (not a standard industry methodology). Non-utility generators add about 10% to the total capacity.
• Coal and nuclear powered generators comprised about 57% of utility capacity in 1995, but they generated almost 78% of utility kWh.
• As of the end of 1995, an additional 9,000 MW of non-utility generation had been planned.

Considerable debate exists about the eventual savings that deregulation will produce, but it is clear that off-peak power will be extremely inexpensive.

Consider the predicament of an industry that has 57% of its capacity in equipment that, in the face of diminishing capacity margins and technical limitations, cannot be turned on and off easily. Furthermore, think about the level of off-peak load factors if the annualized load factor is already relatively dismal. In addition, a power provider no longer is guaranteed whatever off-peak load it may have once had. It must compete with other generators, also desperate to make whatever profit they can, in a market engorged with excess off-peak product.

Also, consider the entire concept of "stranded investment.⁷" The number and scope of factors that must be considered by regulators and utilities in restructuring an industry that equals 5% of the gross national product is staggering⁸. The question of "stranded investments" alone, estimated by Edison Electric Institute at $60 billion to $300 billion⁹, may impact profoundly on the survival and profitability of some of the largest corporations. At least one utility with an extensive inventory of nuclear generating equipment has threatened bankruptcy. Whether these investments were based on prudent decisions made within the isolation of a regulatory environment, or careless exploitation of a privileged position, an enormous percentage of generating equipment may be considered uneconomical to operate under the pressures of an open electric power market. This may impact more on the future of power rates than the actual resolution of the investment burden.

Other evidence exists that the time-of-use differentials that have fostered the growth of thermal storage will continue. A proposed rate by Texas Utilities contains generous discounts for off-peak power that can exceed 80%¹⁰. That same rate includes attractive pricing for interruptible service-an obvious advantage for storage. Other recently filed rates for California utilities include significant energy time-based differentials as well as substantial demand charges^11,12. Rates filed within the past year are still relying on traditional methods of discouraging on-peak energy use for commercial customers.

There is no doubt that Demand Side Management (DSM) programs are in jeopardy, and equipment-related incentives are particularly threatened. The Energy Information Administration summarized this problem by saying,

In simpler terms, something is wrong when a power producer gives money to a customer to purchase less power, particularly if the financial incentive might eventually benefit a competitor. Although the frameworks currently developed for deregulation likely will include procedures for equitable distribution of the costs associated with energy efficiency programs, the individual power entities will have little incentive to willingly and aggressively participate in these programs, or to develop their own. As one analyst puts it, "there may still be some DSM credits, but after the transition they will be relegated to regulatory purgatory." ¹³

Thermal storage is uniquely positioned in this context. Its primary benefit to the power provider is not a smaller customer, but a better, more profitable customer. As deregulation relaxes the restrictions that limit the coupling of incentive programs to long-term contractual relationships, thermal storage incentives will emerge as effective tools for establishing mutually beneficial customer/provider alliances. For instance, Houston Light & Power's successful thermal storage program requires refunding of the incentive amount if power is purchased from another source within 10 years. ¹⁴ Ohio's FirstEnergy Corp also requires long term service agreements in exchange for its equipment incentives and rebates.¹⁵

Table 1: Effect of discharge rate on total Table 2: Comparison of equipment for conventional,

storage capacity for a common cool storage partial and full storage options

If demand reduction and off-peak power consumption continue to command substantial discounts in electric power costs, the question arises, "Why will thermal storage continue to be an attractive method of achieving load shifting in the deregulated energy market?" Several reasons include:

1. Thermal storage systems target the most egregious contributor to poor load profiles-commercial cooling systems. Also, the technology exists and is proven. Thermal storage represents one of the few legitimate tools for shifting load. Energy efficiency benefits society and the customer, but thermal storage also benefits the industry setting the price for that energy.
2. Thermal storage systems are designed for the commercial customer (who always pays the highest time-dependent rates).
3. Storage systems do not negatively impact a facility's operation, as other load shedding or load control programs almost always do.
4. Existing thermal storage technology is easily adaptable to central chilled water plants. Even though centralized chillers only serve about 25% of commercial floor space, 25% of almost 60 billion ft² (5.5 billion M² ) represents a substantial and focused market. ¹⁶ Thermal storage systems can make a significant difference in relatively few installations. Chilled water systems are found in only 3% of commercial buildings but serve almost 80% of buildings over 200,000 ft² (18580 M² ) and more than 20% of buildings between 10,000 ft² (929 M²) and 200,000 ft² (18 580 M²).
5. Thermal storage is versatile. Other than the certainty that on-peak power consumption will continue to command a premium, there is little assurance concerning the form those rates will take. In many cases customers will have a choice as to the structure of the demand penalties. Traditionally, a simple demand charge (kW) and energy charge (kWh), often including a time-of-day differential, have been used to discourage on-peak electrical use. Rate design will surely be more exotic in a deregulated environment as providers maneuver to offer the most competitive plans possible. Real-time rates, often superimposed on a traditional demand structure, and interruptible rates, a fairly common tool in natural gas pricing, will also grow in availability.

The different "flavors" of rate structures available to the power customer will certainly multiply. Attempting to optimize equipment selection for a particular application, when the eventual form of the energy rate structure is in such a state of flux, is difficult at best. One of the most appealing benefits of cooling thermal storage is the wide range of performance typically available from the same equipment. Table 1, derived from published performance charts for a common ice storage device,¹⁷ shows that equipment selected for one type of operating logic can be effective equally as the optimum discharge logic changes.

As discharge periods are compressed and the cooling load on storage increased, there is only a modest decrease in the total storage availability. In a six-hour discharge, almost 90% of the original total capacity is maintained at almost double the original rate. In each case, all the remaining stored capacity will still be available at the reduced discharge rates.

A properly designed cooling storage system is flexible enough to respond to virtually any variation in rate structure that might eventually emerge as the most economic.

6. Thermal storage is also cost effective. DSM programs have helped to foster the growth and acceptance of thermal storage. The generous terms of these programs often made it economical to install storage capacities capable of avoiding all the on-peak chiller operation. This is referred to as "full storage." Often forgotten is the fact that if the goals are more modest, thermal storage can be installed with little or no cost penalty as compared to conventional chiller systems. DSM incentives are certainly welcome, but not necessary to make thermal storage a good investment. There are no defined limits on the quantity of storage that can be theoretically applied to a building.

An alternative referred to as "partial storage" minimizes or eliminates any additional initial capital investment. By operating a chiller for the entire day, on-peak at standard conditions and off-peak at ice-making conditions, its size is usually reduced to 40% to 50% of the conventional design.

Storage is only needed for about 40% to 45% of the required ton-hours. Both chiller and storage are greatly reduced in size, compared to the "full storage" design. Peak demand savings of 50% to 60% of the standard chiller demand are usually achieved. Table 2 summarizes the equipment and demand savings comparison of conventional, "full" and "partial" storage designs. The building is assumed to have a 500 ton (1758 kW) peak load with an average load of 425 tons (1495 kW) over its 11 -hour cooling period.

Many examples exist of effective thermal storage systems that were installed for little or no additional cost over their conventional alternatives and that also provide significant energy and energy cost reductions. One storage system that eliminated all on-peak chiller demand was installed in a state government service center in southwest Florida for $56,000 less than the $2.1 million that was bid for conventional system.¹⁸ The additional $187,500 provided by the utility resulted in a net first-cost savings of almost a quarter of a million dollars. Annual demand and energy cost savings total $120,000 per year. The building operates with 10% less energy than the typical state-owned facility and almost 42% less energy cost on a square foot basis.¹³

The economics of thermal storage can usually be justified under any power rate that significantly penalizes on-peak power consumption.

As Laurence J. Peter once said, "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." The same can easily be said of electric industry analysts. Engineers will take refuge in whatever facts they can grasp within the confused and nebulous nature of today's electric power industry.

1. ASHRAE 1998 Winter Meeting, Forum 7, "Impact of Electric Utility Deregulation on Thermal Energy Storage."

2. "Prepared for the Thermal Energy Storage Systems Collaborative of the California Energy Commission" and "Source Energy and Environmental Impacts of Thermal Energy Storage." Tabors Caramanis & Assoc.

3. "Commercial Cool Storage." 1983. Electric Power Research Institute.

4. Lorsch, Harold G. et al. ASHRAE Air-Conditioning Systems Design Manual.

5. "Deregulation: Utility Industry Restructuring for Professionals." ASHRAE Continuing Education

6. Electric Power Annual 1995, Volume 11. December 1996. Energy Information Administration, U.S. Dept. of Energy, Washington, D.C.

7. Silvetti, Brian M. November 1997. "The Application of Thermal Storage in an Unregulated Power Marketplace." Proceedings of the 20^th World Energy Engineering Congress.

8. Gottfried, David A. May 1997. "Electricity Deregulation." Heating/Piping/Air-Conditioning.

9. "Stranded Cost Recovery: Critical Element for Electricity Competition." February 1997. Edison Electric Institute.

10. Rate GTU - General Service Time-of-Use, Texas Utilities Electric Company, 1997.

11. Schedule AL-TOU. San Diego Gas & Electric Company. February 1997.

12. Schedule 19 - Medium General Demand-Metered Time of Use Service. Pacific Gas & Electric. October 1996.

13. Rouse, James B. March 1997. "Competitive Pressures Drive Businesses to Seek Electricity Choices." Energy User News.

14. "Agreement for Commercial Cool Storage." Revision 3.0. March 15, 1996. Houston Lighting & Power Company.

15. "Energy-The Power to Choose," Advertisement Section. June 9, 1997. New York Times.

16. 1995 Buildings Energy Consumption Survey. Energy Information Administration.

17. "LEVLOAD ICE BANKÒ Performance Manual, System Charge, Discharge and Pressure Drop Curves." Calmac Manufacturing Corp.

18. O'Neal, Edward J. April 1996. "Thermal Storage System Achieves Operating and First Cost Savings." ASHRAE Journal.

19. "Performance Issues for a Changing Electric Power Industry." January 1995. Energy Information Administration Office of Coal, Nuclear, Electric and Alternate Fuels. Washington, DC. U.S. Dept. of Energy.