Demand response

• 1. Defining Demand Response

  ›

  Electricity flows through wires like water, but unlike water it cannot be stored easily. Until the 21st century, utilities matched supply and demand by throttling power plants up or down. Some generating units take a long time to reach full power while others cost too much to operate. When all available plants are running at capacity, demand can still exceed what is possible. This creates a limit on what can be achieved on the supply side alone. Demand response seeks to adjust in real-time the demand for power instead of adjusting the supply. It functions as a technology-enabled economic rationing system for electric power supply. Voluntary rationing happens through price incentives that offer lower net unit pricing in exchange for reduced power consumption during peak periods. Users who do not reduce usage during these times will pay surge unit prices whether directly or factored into general rates. Involuntary rationing occurs via rolling blackouts if voluntary measures fail to reduce load adequately.

• 2. Economic Pricing Mechanisms

  ›

  In most electric power systems consumers pay a fixed price per unit of electricity independent of production costs. Consumption therefore remains insensitive to short-term production costs since customers face an average cost over a given timeframe. A pure economist might hypothesize that consumers have theoretical call options on electricity though reality differs. In Ontario between August and September 2006 wholesale prices ranged from $318 per MW·h to negative $3.10 per MW·h. Negative prices indicate producers were charged to provide electricity to the grid while consumers receiving rebates for consuming during those periods. The variation in pricing can reach factors of two to five due to daily demand cycles. Two Carnegie Mellon studies in 2006 examined real-time pricing for the PJM Interconnection serving 65 million customers with 180 gigawatts of generating capacity. Even small shifts in peak demand would result in large savings to consumers and avoided costs for additional peak capacity. A 1% shift in peak demand resulted in savings of 3.9% amounting to billions of dollars at the system level. An approximately 10% reduction in peak demand could yield system savings between $8 billion and $28 billion.

• 3. Grid Stability And Load Shedding

  ›

  Electricity consumption and production must balance at all times within any grid. Any significant imbalance causes instability or severe voltage fluctuations leading to failures. Total generation capacity is sized to correspond to total peak demand plus margin for forecasting error and unforeseen events. When loss of load happens utilities impose load shedding on service areas via targeted blackouts or rolling blackouts. Emergency load reduction programs involve agreements with specific high-use industrial consumers to turn off equipment during system-wide peak demand. Energy consumers need incentives to respond to such requests from a demand response provider. These incentives can be formal or informal through tariff-based mechanisms passing along short-term price increases. Mandatory cutbacks occur during heat waves for selected high-volume users who receive compensation for participation. California introduced its own emergency program where enrolled customers get credits for lowering electricity use. In 2021 this credit reached $1 per kWh while rising to $2 in 2022. Commercial and industrial power users sometimes shed loads without utility requests by generating their own power to stay within energy production limits.

• 4. Smart Grid Technologies

  ›

  Smart grid applications improve communication between producers and consumers regarding how and when to produce electrical power. This technology allows customers to shift from event-based demand response toward continuous control based on real-time data. One advantage involves time-based pricing allowing customers to set thresholds and adjust usage to take advantage of fluctuating prices. Automated control systems exist though they may be too expensive for some applications. The city of Toronto operates Peaksaver AC where operators automatically control hot water heaters or air conditioning during peak demand. Participants benefit by delaying consumption until after peak periods when pricing should be lower. Bonneville Power experimented with direct-control technologies in Washington and Oregon residences finding that avoided transmission investment justified the cost. Electric vehicles represent one of the most important means of future smart grids as aggregation preserves stability and quality. Aggregation of electric vehicle parking lots serves as a new source of uncertainty yet also provides critical demand response capabilities. Modern power grids transition from traditional vertically integrated structures to distributed systems integrating higher penetrations of renewable energy generation.

• 5. Regulatory Frameworks And Policy

  ›

  The United States Energy Policy Act of 2005 mandated the Secretary of Energy submit a report identifying national benefits of demand response by the 1st of January 2007. A published report estimated potential demand response capability equaled about 20,500 megawatts representing 3% of total U.S. peak demand. Actual delivered peak demand reduction reached about 9,000 MW leaving ample margin for improvement. Load management capability fell by 32% since 1996 due to fewer utilities offering services and changing supply/demand balance. The Federal Energy Regulatory Commission issued Order No. 745 in March 2011 requiring compensation levels for providers participating in wholesale power markets. Professor William W. Hogan at Harvard University asserted the order overcompensates providers encouraging curtailment of electricity whose economic value exceeds production costs. On the 23rd of May 2014 the D.C. Circuit Court of Appeals vacated Order 745 entirely. The United States Supreme Court agreed to review the ruling on the 4th of May 2015 addressing authority under the Federal Power Act. In a 6-2 decision on the 25th of January 2016 the court concluded FERC acted within its authority to ensure just and reasonable rates. FERC subsequently issued Order No. 2222 on the 17th of September 2020 enabling distributed energy resources to participate in regional wholesale electricity markets.

• 6. Industrial And Commercial Applications

  ›

  Industrial customers provide significant advantages compared with commercial and residential loads through large magnitude power consumption changes. Industrial plants usually already possess infrastructure for control communication and market participation enabling demand response provision. Alcoa's Warrick Operation participates in MISO as a qualified demand response resource while Trimet Aluminium uses its smelter as a short-term nega-battery. Some data centers located far apart migrate loads between them performing demand response simultaneously. Peak demand happens only a few times per year yet utilities build very capital-intensive power plants to meet it. According to the Demand Response Smart Grid Coalition 10%, 20% of electricity costs in the United States stem from peak demand during only 100 hours annually. Shedding loads reduces need for new power plants keeping rates lower overall though consumers lose productive or convenience value. As of December 2009 National Grid had 2369 MW contracted to provide demand response known as STOR. Of this amount approximately 839 MW came from 89 sites representing 35% from the demand side. Approximately 750 MW was back-up generation with remaining being load reduction. Only a small minority engaged in load shifting while majority provided demand response via stand-by generators.