Marriott Demonstrates that Demand Response Is a Win/Win for Hotels

New York Times
December 12, 2011

Power Savings on Auto Pilot
Janet Morrissey

Marriott has signed a deal with Constellation Energy to have 264 of its hotels participate in demand response programs. Under the deal, Marriott will save on electric bills and also earn incentive payments from utilities as a reward for its efforts during peak periods, like heat waves, when utilities struggle to meet demand and often have to pay high prices for electricity. The VirtuWatt energy management system from Constellation will work with the hotel’s property management system to track power use and automatically activate the cuts when utilities are strained. As described by Gary Fromer of Constellation, “the hotels act like a generator in the market, and a reduction in consumption is roughly the same as the addition of a new generator to the system.” As a result, Constellation can offer the energy reductions produced by Marriott as a valuable product in the demand response markets, and can afford to pay Marriott roughly what would have been paid to a generator to produce the same amount of energy. The energy saving program is expected to generate about $9.9 million in revenue from lower energy costs and incentive payments over five years at the 264 Marriott hotels. Marriott’s energy director estimates that most hotels would break even on the investment within two years and generate at least 25 percent returns — and as much as 100 percent returns — by the end of the five-year agreement through the cost savings and the incentive payments.

This is a smart move by one of the nation’s leading firm in the lodging industry. The operation of the energy management system will be virtually unnoticed by Marriott guests, but it can produce savings during critical times of the day that is very valuable in wholesale electricity markets. Demand response is a tool that is becoming more widely deployed, given improving technology and increased sophistication in the wholesale energy markets. It has also been aided by some aggressive “pushing” by the Federal Energy Regulatory Commission (FERC) and its chairman, Jon Wellinghoff. FERC has been taking the lead in requiring regional wholesale markets to properly value the contributions of the demand response tool and facilitate the participation of entities like Constellation (and, in turn, Marriott) in the electricity markets.