Demand Response
Demand Response Basics
While wholesale electricity prices fluctuate hourly, retail customers generally do not see
those price changes. The rates paid by most consumers are flat, based on the averagecost of electricity over a month or more. Without clear price signals, customers have no
incentive to reduce usage during periods of high wholesale prices, or high demand.
Demand response programs provide electricity customers with price signals and the
ability to benefit by responding to them. More specifically, demand response refers to
changes in electricity usage by end-use customers in response to changes in the price
of electricity over time, or in response to incentive payments designed to lower
electricity use when capacity is stretched and system reliability is jeopardized.
How does Demand Response Work?
Demand response customers, often through the use of dedicated control systems,
reduce electricity consumption in response to a request by a utility or in respond to
market price conditions. Services (lights, machines, air conditioning) are reduced
according to a prioritization plan during periods of high demand or high wholesale
prices. Demand response customers can also participate by generating electricity onsite to supplement the power grid.
By aligning the available supply of electricity with the value of electricity to customers at
a given point in time, demand response programs increase the efficiency of electricity
production. Demand response programs take two forms:
•
Price-based demand response, such as real-time pricing and time-of-use
tariffs, give customers time-varying rates that reflect the value and cost of
electricity in different time periods. In the presence of price signals, customers
tend to use less electricity at times when electricity prices are relatively high.
•
Incentive-based demand response programs pay participants to reduce their
electricity consumption (load) at times requested by the program sponsor,
triggered by high electricity prices or a peak in demand.
Benefits of Demand Response
Uncertainty and variability are inherent to electric power systems; rapid changes in
demand threaten grid integrity and stability. Demand response attempts to reduce the
uncertainties by decreasing peak demand, increasing grid reliability, reducing energy
cost, and optimizing energy consumption:
•
•
Decreasing Peak Demand:
o
In order to respond to significant peak demand and unexpected events, utilities build capitalintensive power plants and transmission systems.
o
Peak demand happens very infrequently; as much as 20 percent of infrastructure is built to
meet periods of peak demand that occur 1 percent of the time.
o
Demand response allows suppliers to “smooth” significant peaks by curtailing or shifting
demand, thus avoiding or delaying investments in new infrastructure that has long lead times
and multi-decadal economic lifetimes.
Reliability:
o
o
•
Price:
o
o
•
Demand response provides additional capacity more quickly and efficiently than new supply.
Flexibility lowers the likelihood and consequences of forced outages.
“Smoothing” significant peaks reduces the need to use the most costly-to-run power plants,
driving production costs and prices down for all wholesale electricity purchasers.
Avoiding large capital expenditures creates savings which may be passed onto retail
customers as bill savings.
Efficiency:
o
Enabling consumers to “see” electricity prices allows them to reduce and optimize their
energy consumption and realize electricity savings.
Demand Response Examples
Utility
California-based PG&E, an electricity and natural gas utility, offers demand response
incentives for their large commercial and institutional customers to reduce electric
power use when the California Independent System Operator (CAISO) determines that
the state’s energy supplies are low. PG&E offers several demand response programs,
including the Critical Peak Pricing program (CPP). CPP participants reduce or shift their
energy usage on summer weekdays from 12pm to 6pm during periods of high
temperatures or high spot-market electricity prices. In exchange, participants receive a
discount on all peak-usage on all other days of the summer.
Independent Provider
Boston-based EnerNOC is a third-party demand response provider. EnerNOC assists
electricity consumers who want to participate in demand response program by
conducting an analysis of the customer’s facility, installing meters, enrolling the
customer in a demand response program, applying for all program incentives and
reimbursements, providing market signals, and managing load reduction when their
customers are called upon by the utility to reduce their electricity consumption.
Consumer
Wal-Mart Stores Inc. operates 6,500 stores worldwide, with annual energy expenses of
over $2 billion. With 330-350 new stores built yearly, and each new store using 0.75 to
1.3 MW, the company adds 400 MW annually. Wal-Mart participates in demand
response programs in seven states, including: Arkansas, California, Connecticut,
Illinois, Kentucky, Kansas, and Missouri. In 2006, Wal-Mart curtailed its electricity
consumption in all six states; in Connecticut, for example, Wal-Mart committed 3,000
kW from 35 store locations and curtailed 5,000 kW.
For more information, visit:
Demand Response Research Center: www.drcc.lbl.edu
Peak Load Management Alliance: www.plma.com
Demand Response Coordinating Council: www.demandresponseinfo.org
UtiliPoint: www.utilipoint.com
ISO-New England: www.iso-ne.com
This overview was prepared for NEEIC by Abigail Anthony, a PhD candidate at the University of Rhode
Island. Contact: abigailanthony@gmail.com