One way to help the grid? Smarter air conditioning for big buildings

Air conditioning is a lifesaver on hot days. It also strains the power grid, especially in big cities.

Utilities and building owners alike can save money and forestall blackouts by nudging up the thermostat when a heat wave strikes, but dialing back AC use at such moments can put people at risk.

There’s a way around this conundrum, says James Hannah, U.S. managing director of Parity — and the Toronto-based startup has the data to prove it.

Parity has deployed its building heating, ventilation, and air-conditioning (HVAC) optimization software at multifamily buildings and hotels in East Coast cities including New York, Baltimore, Boston, and Washington, D.C., adding up to about 70 million square feet of real estate.

The company guarantees that its software will squeeze a certain amount of savings out of day-to-day operations and works with HVAC, electrical, and building control systems installers to make sure the equipment runs smoothly. A typical building is able to cut energy use by 15 to 30 percent, Hannah said, and save 10 to 15 percent on residents’ utility bills.

“But what we’re also excited about is this new concept of a grid-interactive, efficient building, where it’s not just about how much you’re consuming but when you’re consuming it,” he said.

The term ​“grid-interactive efficient buildings” was coined by the U.S. Department of Energy to describe buildings that combine energy efficiency measures and load flexibility, meaning they can shift their power use to match when the grid can deliver it most cost-effectively. Studies sponsored by DOE found that the approach could reduce the cost of the clean energy transition by $100 billion to $200 billion per year by 2030, and cut the cost of achieving nationwide carbon-free electricity by 2050 by more than one-third.

When buildings cut back on power use at times of peak demand — a practice known as demand response — they can save a substantial amount of money not only for themselves but also for the grid as a whole. That’s because a big chunk of the cost of delivering electricity to customers is determined by the need to pay for power plants and grid infrastructure that can meet the relatively rare moments when demand spikes.

To be sure, ramping down air conditioners at the very moment that people most want to stay cool is a bit more complicated than fine-tuning HVAC to save money on an ordinary day. But doing the latter helps lay the groundwork for the heavier lift of curbing electricity consumption from buildings during moments of urgent need, Hannah said.

A snapshot of the grid value of smarter AC controls 

Take a summer 2023 demand-response event that Parity orchestrated in New York City as an example.

Summer grid emergencies have become an almost annual occurrence for Con Edison, the utility serving New York City and environs. Con Ed offers lucrative payments to companies and buildings that can successfully cut power demand at those times.

Taconic Partners, the owner of the Parity-managed 24-story, 392-unit condominium building at 525 West 52^nd Street, had participated in demand response the previous year using old-school methods, Hannah said. Those involve tasking building system managers to manually reset thermostats, fans, chillers, and other HVAC gear when the utility calls for help.

Using Parity’s optimization techniques, ​“we were able to more than double the amount of kilowatts curtailed,” he said. ​“And we were able to do it in a way that didn’t cause any occupant comfort issues.”

The above chart illustrates several key differences between the Parity system’s performance and the old way of doing things.

First, as a result of Parity’s broader optimization, the building’s baseline electricity use in 2023 was significantly lower than in 2022.

Second, while building managers were late to act on the demand-response event in 2022 (as shown in the red portion of the power usage line for that year), Parity started curtailing power use slightly before the event began to get a head start on money-making reductions.

Third, the building was also able to achieve a much deeper reduction in power use and maintain it for a longer period in 2023. Parity didn’t have to turn off the HVAC system completely to achieve that either.

That’s because it had spent the prior year analyzing and testing how much it could reduce power use without causing major disruptions to the building. This represents ​“a deep understanding of how these buildings operate and where the limits might be — where you cross over to a level of discomfort that just isn’t tenable,” Hannah said.

Finally, Parity was able to bring the building’s cooling back to its pre-event levels more quickly than building staff had been able to do manually after the 2022 event ended, he said. That avoided subjecting residents to any additional discomfort at times when the building wasn’t being paid to reduce power use.

It’s possible to do this without software like Parity’s. But that’s a lot to ask of ​“building operations managers who are already busy on a very hot day,” he said.

Andrew Schwartz, Taconic Partners’ senior vice president of residential asset management, highlighted that Parity’s demand-response actions had ​“very little impact on the residents themselves.” It took a bit more work for the building’s facilities managers to adjust how they operated the HVAC system around Parity’s automation, he noted, but ​“it wasn’t that big of a hiccup.”

To date, Taconic Partners’ work with Parity has been worth it, Schwartz said. ​“We’ve saved close to $100,000 over the past two years by using less energy,” and as a participant in demand response, ​“we get a check for $70,000 from Con Ed.” That’s not a huge amount of money for a building with annual operating expenses of $15 million, but, he emphasized, ​“every dollar counts.”

Turning apartments and condos into ​“grid-interactive buildings”

Parity is one of a growing number of companies seeking to automate what remains a mostly manual building-energy-management landscape. That goal is complicated by the fact that building owners have limited control over energy costs and mixed incentives to make their buildings more efficient and flexible in using power.

For decades, giant energy service companies have been taking on the upfront costs of energy efficiency investments in large buildings and earning back those dollars through shared-savings arrangements. But these models have mostly been limited to governments, schools, universities, and hospitals that know they will own their buildings for the decade or more it takes to break even on those investments. Commercial and multifamily buildings, on the other hand, change ownership far more frequently.

A host of energy-efficiency-as-a-service companies have sprung up to serve commercial buildings. Redaptive, which has deployed efficiency and energy management at thousands of buildings for major corporate customers, has raised $850 million in capital and project financing. Blueprint Power, a startup that installs and manages combined-heat-and-power systems, solar panels, and flexible loads like HVAC and lighting in corporate buildings, was acquired in 2021 by oil and energy giant BP, one of a number of major energy and utility companies and private equity firms getting into the building-energy business.

Energy efficiency retrofits can be costly and disruptive to building residents, but software that makes better use of a building’s existing HVAC equipment can deliver significant savings in the meantime.

Startup BrainBox AI is seeing reductions in energy use of roughly 15 to 25 percent from the more than 700 buildings that are using its software. A 2023 report from Schneider Electric, a global provider of building HVAC and electrical controls, claims that the ​“digitalization” of large-office-building HVAC controls could cut carbon emissions by up to 42 percent and earn a return on investment in just three years.

Apartments and condos have been harder to tackle with these technologies. Owners of rental housing also have to contend with the split-incentive problem: Since tenants tend to pay utility bills, they stand to reap the rewards from any efficiency investments that building owners pay for.

But inroads are being made in the multifamily building space. Logical Buildings, a startup doing demand response in New York City and environs, last year landed a $110 million credit facility to deploy smart thermostats in apartments in New York and New Jersey. Other companies have developed business models to bring shared solar and backup battery and electric vehicle chargers to multifamily housing.

One key to cracking the multifamily market is bearing some of the financial risk involved. Parity ​“guarantees the utility cost savings we achieve,” Hannah said. That helps overcome financial barriers ​“that have made it harder for real estate operators to invest in energy efficiency in the past.”

Parity has raised about $24 million in equity financing to date, including a $5 million Series A round in 2022 and a $19 million Series B round this year. Brad Pilgrim, the company’s CEO and co-founder, said the new funding will ​“allow us to expand geographically even faster and put that infrastructure into buildings — get them connected from an efficiency perspective first, but then also from a grid-interactive perspective.”

Closing the loop on grid-supportive buildings 

In addition to making demand response easier and more reliable to building owners and occupants, automation also takes a lot of the guesswork out of just how much utilities can rely on buildings to cut power use to help the grid.

Parity doesn’t deal directly with utilities, Hannah said. Instead, it works with a select group of demand-response ​“aggregators” — CPower Energy and Logical Buildings are its two primary partners on this front — that enroll the buildings in programs offered by Con Edison or by the New York Independent System Operator, the state’s grid operator.

Under these programs, demand-response aggregators must commit to delivering a certain amount of load reduction from their portfolio of customers during key moments that will occur several months to a year in the future. The greater the number of megawatts of load reduction they can commit to, the more money they can make.

But if they can’t deliver what they’ve promised when they’re called on, they can face significant financial penalties. What’s more, such failures can erode confidence among utilities and regulators that demand response can reliably replace the need for costly and time-consuming investments in expanding power grids and building power plants.

Parity piloted its demand-response capabilities with a handful of buildings last summer, and has doubled the number of participants this summer, Hannah said. ​“As the aggregator gets a better understanding of what the building can do, they can apply for a greater amount of reduction in the following year.”

This virtuous cycle will be particularly important for dense and congested urban environments like New York City that must transition all building operations from fossil fuels to electricity and also add millions of electric vehicles to meet climate mandates. In a 2021 report, consultancy ICF found that these city- and state-level mandates could nearly double the city’s peak electricity demand by 2050 without massive investments in energy efficiency and load shifting.

New York City’s landmark building performance standard created by Local Law 97 puts additional burdens on building owners by setting benchmarks on their carbon emissions related to energy consumption and penalties for those that fail to reduce those emissions over the coming years. Similar regulations in Boston, Washington, D.C., and the state of Maryland are putting pressure on building owners in those markets as well, Hannah noted.

These regulations are aimed at reducing carbon dioxide emissions and focused first on shifting buildings’ fossil-fueled heating to electricity. But in future years these performance standards are set to account for the changing carbon intensity of the electricity they consume, Hannah noted — and ​“the carbon content of a kilowatt-hour is very different depending on when and where it’s used.”