As electricity demand surges, grid operators and utilities are increasingly asking large-volume customers to curtail, or reduce, the power they draw from the grid during peak periods. Curtailment can be forced, contractual, or paid.
Paid curtailment programs are known as “demand response” programs, and they can be lucrative. However, facilities in paid programs are discovering that air permits stand between them and the paid revenue.
What is Curtailment?
Curtailment is a reduction in the electricity a facility draws from the grid. It can happen in three ways:
- Involuntary curtailment – The grid operator or utility cuts or reduces service during a grid crisis (i.e. rolling outages). There is no monetary gain for the facility as the curtailment was not by choice.
- Contractual curtailment – Increasingly, high-volume customers accept curtailment as a written condition of service. For example, a tariff option may require new large loads, such as those produced by datacenters, to be curtailable.
- Paid curtailment (demand response) – Facilities enroll in a paid program voluntarily and are compensated for reducing load when the utility or grid operator initiates an event.
How Do Paid Curtailment Programs Work?
The facility uses little or no grid electricity when the grid is strained, and in response the facility receives a payment from the grid operator. Contractually, the facility signs up with its utility or grid operator, agrees to cut its grid use when asked, and earns money each time it delivers on this agreement.
With electricity demand surging, curtailment payments have risen sharply. A participating facility can earn well into six figures a year, even after covering the cost of air permit compliance.
What Types of Facilities Participate in Paid Curtailment?
Any facility with meaningful, flexible electric load can participate in paid curtailment. These facilities range from manufacturers and industrial plants to wastewater treatment plans and data centers. These facilities share the capability to reduce their electricity load by utilizing on-site electricity sources (typically a back-up generator) for a few hours without substantially disrupting their operations. Facilities with backup generator fleets are especially well positioned.
How are Backup Generators Permitted?
Almost all backup generators are permitted as emergency engines. Using the emergency pathway, an engine is certified by its manufacturer to meet the EPA's emergency standards and is authorized through state air permits. These permits are typically streamlined, often via a “permit-by-rule” or minor source permit.
An air permit strictly limits when the emergency engines may run, often during emergencies such as a loss of grid power. Annual operating hours are allowed for routine maintenance and testing, typically with hour-meter or fuel usage record keeping to document compliance.
However, if a facility runs emergency-classified engines for a paid curtailment program (a non-emergency use), it is operating outside its permit and is out of compliance. Therefore, a facility seeking to pursue paid curtailment must re-permit the engines for non-emergency operation, typically by adding emission controls, monitoring, and revised permit conditions. This must be completed before the event, not after.
Air permit violations accrue per engine, per day. Noncompliance violation fees can add up quickly for a facility running multiple generators through repeated events.
Why Does Paid Curtailment Matter for an Air Permit?
There are two types of paid curtailment response programs. They differ by what triggers an event, which determines a facility’s air permitting path.
Reliability-triggered programs are only called by the utility during grid crises, perhaps a few times a year. These are the only paid curtailment programs that emergency-classified back-up generators may support without changing their permits.
The EPA's rules preserve a narrow 50-hour-per-year allowance with strict conditions for generators utilized in this scenario. If a facility can abide by the restrictions within the 50-hour allowance, the generators keep their emergency status; if not, an air permitting reclassification is triggered.
Price-triggered programs are typically run directly by grid operators and are based on market prices and routine peak management, which can mean dozens of events per year. Without exception, emergency-classified back-up generators are prohibited from price-triggered programs. Accordingly, a facility cannot utilize back-up generators for on-site power in lieu of drawing electricity from the grid in a paid program. Generator-backed participation requires non-emergency air permits — controls, monitoring, and a permit revision — before the first event.
How Do Paid Curtailment Rules Differ in Various States?
Nearly all states allow for back-up generator use during paid curtailment through air permit re-classification. For example, in Texas, Senate Bill 6 requires new large loads (75 MW+) to be curtailable during grid emergencies and creates a voluntary, paid curtailment program. This program expressly allows facilities to meet a curtailment call by utilizing back-up emergency engines. In Florida, the utility's commercial curtailment program reduces enrolled facilities to a preset load level during control events and expressly permits an on-site generator to keep the facility running while curtailed.
In Colorado, new large-load tariffs (such as those targeted at data centers) include options in which a facility accepts curtailment risk in exchange for faster interconnection. If backup generators will carry the facility through those curtailments, engines sited in a Disproportionately Impacted Community can face added permitting requirements under Colorado's Regulation Number 3.
Iowa authorizes reclassifying a facility's emergency generators for non-emergency operation (with catalytic controls and continuous emissions monitoring), thereby unlocking curtailment revenue that substantially exceeds the compliance costs.
In California, diesel and other fossil-fueled backup generators may not be used in paid curtailment programs. In fact, running a generator during an event without specific air district authorization is unlawful. The state’s compliant paths to paid curtailment are true load reduction and battery storage.
Can Data Centers Participate in Paid Curtailment?Data centers can and do participate in paid curtailment programs. Many (non-data center) facilities curtail by simply using less power for a few hours. However, because data centers generally cannot power down their servers, they typically participate by switching to on-site generation using back-up generators, industrial battery storage systems, or dedicated clean microgrids to maintain internal operations while cutting their grid draw to zero. |
What Should My Facility Do Before Enrolling in a Paid Curtailment Program?
If your facility has back-up generators, you should first inventory each engine's classification, manufacture date, tier rating, and permitted operating conditions, as these can vary engine to engine. Then, confirm what your state and utility program actually allows, since generator-backed participation may be encouraged, restricted, or prohibited depending on the jurisdiction.
Compare the program's dispatch terms against your air permit's definition of authorized operation. You can then quantify the cost of a compliant pathway (controls, monitoring, or permit modification) against projected revenue from the paid curtailment program. Finally, it is key to engage the air permitting agency early.
