Demand response

• 1. Introduction

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  Demand response is a system for adjusting how much electricity people draw from the power grid, rather than adjusting how much electricity the grid produces. That distinction sounds simple, but it upends a century of assumptions about how power systems work. For most of the history of electrification, utilities handled mismatches between supply and demand by throttling their generators up or down, or by calling on neighboring utilities to ship electricity across state lines. The grid was a one-way street: generators produced, customers consumed, and the only question was whether the plants could keep up. The question this documentary will answer is what happens when the street runs both ways. What does it mean to ask millions of ordinary customers to change their behavior in real time? Who benefits, who pays, and what technologies make it possible? And what happens when regulators, economists, and courts start fighting over who gets to design the rules?

• 2. Why Supply Has Limits

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  Some generating units take a long time to reach full power. Others are so expensive to operate that running them even briefly drives up prices across the whole market. At certain moments, aggregate demand can exceed the combined capacity of every available plant. These three constraints, taken together, explain why utilities began looking at the other side of the equation. Rather than always asking generators to do more, the underlying logic of demand response asks customers to do less, or at least to do it at a different time. The distinction between demand response and a related idea, energy efficiency, matters here. Energy efficiency means using less power to perform the same task, permanently or whenever that task is performed. Demand response is different: it means shifting or reducing consumption specifically in response to a signal about grid conditions or price. A household that installs LED bulbs is practicing energy efficiency. A household that runs its dishwasher at midnight instead of at seven in the evening is practicing demand response. The California electricity crisis of 2000-2001 illustrated the stakes. It is estimated that a 5% lowering of demand would have resulted in a 50% price reduction during the peak hours of that crisis.

• 3. How Pricing Shapes Behavior

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  In most electric power systems, consumers pay a fixed price per unit of electricity regardless of when they use it. That fixed price typically represents an average cost across an entire year, which means it hides dramatic swings in the actual cost of production. In Ontario, between August and September 2006, wholesale prices paid to producers ranged from a peak of $318 per megawatt-hour to a minimum of negative $3.10 per megawatt-hour. A negative price means producers were being charged to put electricity onto the grid, and consumers on real-time pricing may actually have received a rebate for using electricity during that window. That reversal happens at night when demand falls so low that all generators are running at their minimum output and some must be shut down. The negative price is the signal that induces those shutdowns in the least costly way. The system is invisible to most consumers because their bill never reflects it. Ahmad Faruqui, a principal with the Brattle Group, estimated that a 5% reduction in US peak electricity demand could produce approximately $35 billion in cost savings over a 20-year period, not counting the cost of the meters and communications infrastructure needed to make dynamic pricing work. Two Carnegie Mellon studies from 2006, focused on the PJM Interconnection Regional Transmission authority serving 65 million customers with 180 gigawatts of generating capacity, found that a 1% shift in peak demand would produce savings of 3.9% at the system level. An approximately 10% reduction in peak demand would yield system savings of between $8 and $28 billion.

• 4. Tools and Technologies

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  Ontario launched a smart meter program in 2006 that implemented time-of-use pricing, dividing the day into on-peak, mid-peak, and off-peak tiers. By the 1st of May 2015, most Ontario electrical utilities had completed the conversion of all customers to smart meter billing, with on-peak rates running at about 200% and mid-peak rates at about 150% of the off-peak rate per kilowatt-hour. The UK had already been doing something similar since the 1970s through schemes such as Economy 7, which shifted demand from electric heating to overnight off-peak periods. In 2008, it was announced that electric refrigerators would be sold in the UK that sense dynamic demand, delaying or advancing their cooling cycles based on grid frequency, though as of 2018 they were not yet widely available. In Toronto, a program called Peaksaver AC allowed the system operator to automatically control hot water heaters or air conditioning during peak demand for participating residential users. Bonneville Power ran direct-control technology experiments in Washington and Oregon and found that avoided transmission investment justified the cost of the technology. Australia developed national standards for demand response, the AS/NZS 4755 series, which electricity distributors have implemented nationwide for several decades, covering storage water heaters, air conditioners, and pool pumps. In 2016, the Australian standards were updated to address the management of battery storage as well. GridWise and EnergyWeb are two major federal initiatives in the United States aimed at developing demand response technologies further.

• 5. Industrial Scale

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  Industrial customers bring capabilities that no household can match. The power consumption of a single manufacturing plant, and the change in power it can offer, is generally very large. Many industrial facilities already have the infrastructure for control, communication, and market participation, which makes them comparatively easy to integrate into demand response programs. Aluminum smelters, for instance, can offer fast and accurate adjustments in their power consumption. Alcoa's Warrick Operation participates in MISO as a qualified demand response resource. Trimet Aluminium uses its smelter as what the source describes as a short-term nega-battery. Some data centers are located far apart from one another for redundancy and can migrate computing loads between sites while simultaneously participating in demand response. The word negawatts, used to describe power that is saved rather than generated, was coined by Amory Lovins in 1985. California introduced its own Emergency Load Reduction Program, offering enrolled customers a credit of $1 per kilowatt-hour in 2021 and $2 per kilowatt-hour in 2022 for lowering electricity use during an emergency declaration. According to the Demand Response Smart Grid Coalition, 10%-20% of electricity costs in the United States are due to peak demand during only 100 hours of the year.

• 6. Federal Rules and Legal Battles

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  The United States Energy Policy Act of 2005 mandated the Secretary of Energy to deliver a report to Congress quantifying the national benefits of demand response by the 1st of January 2007. That report, published in February 2006, estimated that in 2004 the potential demand response capability in the US equaled about 20,500 megawatts, representing 3% of total US peak demand, while actual delivered peak demand reduction was about 9,000 megawatts, just 1.3% of peak. The report also found that load management capability had fallen by 32% since 1996, driven by fewer utilities offering load management services and declining enrollment in existing programs. The Federal Energy Regulatory Commission issued Order No. 745 in March 2011, requiring compensation for providers of economic demand response participating in wholesale power markets. The order drew opposition from energy economists, including Professor William W. Hogan at Harvard University's Kennedy School, who argued it overcompensates providers and amounts to enforcing a buyer's cartel. The State of California and other parties filed suit in federal court. On the 23rd of May 2014, the DC Circuit Court of Appeals vacated Order 745 in its entirety. On the 4th of May 2015, the United States Supreme Court agreed to review the ruling. On the 25th of January 2016, the Supreme Court issued a 6-2 decision in FERC v. Electric Power Supply Association, concluding that the Commission had acted within its authority to ensure just and reasonable rates in the wholesale energy market. FERC then issued Order No. 2222 on the 17th of September 2020, enabling distributed energy resources to participate in regional wholesale electricity markets, with market operators submitting initial compliance plans by early 2022.

• 7. Renewable Energy and the Future Grid

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  Wind and solar generation is governed by environmental conditions rather than by grid needs. When the sun shines and wind blows, output rises whether demand is high or not; when conditions change, output falls regardless of what consumers need. Traditional generators respond to shifts in demand. Renewable sources require demand to respond to shifts in generation. Coordinating that response at scale requires sensors, actuators, and communications protocols linking large numbers of distributed devices. The devices need to be economical and robust while still managing control tasks effectively. As the ratio of inverter-based generation to conventional generation increases, the mechanical inertia that normally stabilizes grid frequency decreases. That matters because inverter-based generation is itself sensitive to transient frequency changes, making the provision of ancillary services from sources other than conventional generators increasingly important. Electric vehicles represent one of the most significant future demand response resources in smart grids. Aggregating the energy stored in vehicle batteries, which also introduces new uncertainty into electrical systems, is considered critical to preserving grid stability and quality. Electric vehicle parking lots may serve as demand response aggregation entities. In the province of Ontario in September 2006, there was already a short period when electricity prices turned negative for certain users, a preview of the kind of grid condition that will become more frequent as renewable penetration grows.