A complete guide to demand response; what it is and how it can help save the planet
Demand response is a huge topic. So before we start this breakdown, let’s take a step back and start with the need for this type of system.
Over the last years, it has become clear that our sustainable energy future depends on full electrification as well as 100% renewable energy supply. The electrification we are seeing naturally leads to a large increase in the demand for electricity. This is accelerated by electric vehicles taking over the roads and heat pumps being installed in every new home.
The new renewable energy supply from wind and solar on the other hand is highly intermittent. Making it more difficult to deliver consistently on the energy peaks produced by electrification.
Luckily demand response (DR) is here to adjust the balance between supply and demand, making it possible to transition to a zero-carbon energy system with less need for infrastructure investments.
As an energy or utility company, demand response is one of the key areas you need to understand and capture value from. Especially in the midst of the green revolution we are part of now.
In this guide, we will give you a full overview of demand response. From what it is to how we can benefit from it, both as a society and as companies operating in it.
This is what we will cover:
- What is demand response (DR)?
- How demand response can help save the planet?
- The two key types of demand response
- What does demand response have to do with DERs?
- What does DR have to do with VPPs?
- Leading players in the demand response space?
- How can my company participate in the demand response market?
- How can my household participate in demand response?
- How can I learn more about demand response?
What is demand response (DR)?
Demand Response (DR) is a reliability tool that helps reduce stress on the utility grid during peak periods of time. During these peaks, energy demand can be adjusted to match the capaicty of the grid. This automatic adjustment of energy demand is called Demand Response.
Reliability is the most important aspect of every electricity grid and market – ensuring when a customer needs power they have power. Matching the supply and demand of energy is a key component of reliability in energy markets. Typically, to ensure reliability, there is an excess generation of energy to serve unexpected demand.
However, during hot summer days, when everyone is running their ACs on full blast, the demand for electricity can approach the highest level of supply. When this happens, and the supply of electricity has nearly been exhausted by the unusually high demand, we have what is called a peak period. These peak periods tend to be on the coldest or hottest days of the year.
There are two ways to give the grid relief: either increase the supply of electricity, or reduce the demand of electricity. The first requires turning on what are called “peakers”, or peaking power plants, which inject additional supply into the grid on a temporary basis. These peaking power plants tend to be both expensive and tend to use carbon-intensive fossil fuel sources. The other alternative, lowering the demand of electricity, is called demand response. Demand response both relieves the stress on the grid as well as high electricity prices.
Customers participate in demand response because of the economic benefits. Customers who sign up to participate in demand response get paid to both be willing to lower their energy use during peak periods as well as reduce their energy usage during these times of stress on the grid. Typically, demand response programs are administered by the utility or the wholesale market grid operators. Third parties, or aggregators, also help administer demand response programs with demand response software. These aggregators work with the utility or grid operator to ensure customers reduce load at the correct time and for the correct length. Aggregators typically share in the economic benefits of demand response with their customers. There are many ways a customer can participate in demand response, including raising the set point on the air conditioner, slowing production lines, or changing operation schedules.
How demand response can help save the planet
Demand response typically happens on the hottest or coldest days of the year. During periods where the grid is stressed, to produce enough energy utilities and grid operators will dispatch peaking power plants. Peaking power plants are typically very old, very inefficient, and are powered by very dirty fossil fuels, often much dirtier than typical grid emissions.
By reducing the demand on the grid during these peak periods of time, demand response ensures that these dirty peaking power plants don’t need to run. There are two environmental benefits to demand response programs. The first is direct and measurable emissions reduction by not running those dirty peaking power plants during these peak periods of time. Along with the avoided emissions from not running peaking power plants, customers also reduce their consumption, and therefore emissions, during these peak periods of time when energy tends to be both the most expensive and the dirtiest.
In addition to avoiding dirty emissions, demand response can also help avoid ratepayer increases. Because reliability is paramount in utility grids, grid operators determine the need for additional generating facilities (think more power plants) by reviewing the peak usage on the grid. These additional power plants are expensive, tend to be fueled by carbon-intensive fuel sources, and construction costs are paid for by consumers. Because demand response lowers energy usage during these peak periods and effectively flattens out the demand, demand response often ensures that these additional power plants do not need to be built, thus saving consumers enormous amounts of money.
More renewable energy
Renewable energy sources such as wind and solar are increasingly being adopted and built because of their ability to produce both inexpensive and clean energy. However, these renewable energy sources are not predictable or available constantly. Renewable energy sources such as wind and solar are known as intermittent. As more and more renewable energy resources are being built and added to electricity grids throughout the world, the need for demand side management and demand side planning increases. As solar and wind continue to be an increasing percent of the electricity mix, grids must become more flexible and dynamic to react to the intermittent supply of electricity. Demand response resources and technologies help address this new dynamic by shifting and reducing demand in response to supply.
More stable grid
Reliability is the most important aspect of every electricity grid. Another way to think about reliability is to think of keeping the grid stable. In order to have a stable grid, an enormous amount of innovation, technology, and human capital has been deployed over the past 80 years. The electricity grid is one of the greatest achievements in modern time. However, as the energy transition continues to evolve and more renewable energy, and electrification occurs, more innovation will be necessary. Demand response, and the foundational approach of shifting demand to meet supply will continue to play an important role in ensuring grid stability. The dynamics of demand response will become more granular and more frequent as the grid becomes more complex and dynamic.
The two key types of demand response
Energy customers can be broken down into two broad groups. The first is commercial and industrial (C&I) customers. These customers include large industrial, manufacturing, big-box retailers, office buildings, as well as small and medium-sized businesses. The other group is residential customers.
Typically, C&I customers tend to participate in demand response programs with what is known as behavioral demand response. Behavioral demand response is where customers react to peak periods of time, and manually curtail load. Typically, C&I customers have large energy loads, some or all of which, can be curtailed during demand response events. However, due to advancements in monitoring and control technology, more and more C&I customers are participating in DR with automatic controls.
Most wholesale markets set their own rules for demand response participation, with government oversight. Most markets require a minimum of ~100kW of curtail to participate in DR programs. This minimum threshold has traditionally limited participation in wholesale DR programs to Commercial and Industrial (“C&I”) customers. However, in some markets regulatory changes are being implemented, which will allow customers with curtailable load as small as 1kW to participate in DR, through aggregation. When implemented, these changes may offer an opportunity for participation in the wholesale markets to be greatly expanded, including for residential customers.
Utilities also have demand response programs, designed for both C&I and residential customers. Known as retail demand response, or mass market demand response, residential programs are designed to both influence customer behavior as well as to shave the peak, working to ensure additional infrastructure costs are delayed as long as possible driving down costs for consumers. Typically, residential customers participate in demand response programs through automated demand response, where the deployment and curtailment of customers is all planned and executed automatically. The most common form of residential demand response takes place through curtailment enrolled in air conditioning switch-off programs. Many customers also participate with thermostats, where setpoints are raised as well as with hot water heater controls.
What does demand response have to do with DERs?
As climate change has increased severe weather events, utilities and grid operators have recognized a need to transition from the old model of centralized power plants, with miles of transmission lines, to more distributed energy resources (DERs). DERs can come in many forms, and encompass a wide range of technologies, but are defined by their proximity on the grid to their point of use. In other words, instead of generating electricity, and transmitting that electricity, over miles of power lines, to the final point of consumption, DERs tend to generate electricity in very near proximity to where that electricity will be consumed. Traditionally, DERs were thought of as assets that produced electricity, such as solar, wind, and combined heat and power (CHP) technologies. However, more recently, as technology has developed and the grid has become more dynamic, examples of DERs have expanded to include assets that can help balance and control demand on the grid including thermostats, EVs, batteries, and hot water heaters. In fact, as technology continues to advance, the list of technologies that are able to function as DERs is certain to grow.
EVs are perhaps the fastest growing and most important DER asset in the energy transition. The EV market is one of the fastest-growing markets in the world, with a projected 20% of global new car sales to be EVs by 2025. EVs as a DER asset is made even more exciting as technological changes empower the EV to be perhaps the most important resource in the new electricity grid. EVs are effectively a movable grid resource. Smart charging, which empowers EVs to charge only when there is excess supply on the grid or prices are inexpensive, allows for EVs to act as a dynamic DER asset in time. The flexibility of EVs allows them to absorb excess generation from renewable energy resources, as well as act as real-time demand response assets. This ability to respond, in real-time, to fluctuations of both supply and demand, make EVs a powerful DER and a key asset in the energy transition. All of this can be enabled by an EV API for connection and control of this type of DER.
Connected thermostats are growing popularity, as they give homeowners visibility and control into their home energy consumption. Connected thermostats, controlled by a thermostat API, play an important role in demand response. When a demand response event is called, any connected and enrolled thermostat is able to reduce the energy consumption by adjusting the set point. When the setpoint is adjusted, this will reduce the usage of the heating or cooling system attached to the thermostat. Heating and cooling systems, or HVACs, tend to have a large impact on a home’s energy consumption. Thermostats have played an important role in the growth and adoption of residential demand response. Typically, thermostats are automatically adjusted during demand response events, meaning the homeowner does not need to take any action to help shave the peak load, save money, and save energy.
Not only do EVs play an important role in demand response. But, the chargers themselves, both public and private are vital the helping the grid become more flexible. EV charging stations are able to determine whether an EV is plugged in, charging, and how much time is left to complete the charge. During peak periods on the grid, EV chargers play an important role by slowing or stopping the charge of EVs to ensure those connections do not unnecessarily strain the grid. This automated demand response helps ensure that customers receive the charge they need, but does not put an unnecessary strain on the grid. All controls and data are available through EV charger APIs from providers like Enode.
Solar and batteries
As discussed earlier, solar is an intermittent resource meaning it does not produce consistent generation. In fact, solar often produces the most energy, during the middle of the day, when the demand for energy is the lowest. This is why battery storage is so important and necessary to support the growth of more solar in the market. Batteries allow for excess energy to be stored when it is not needed and dispatched when the demand of energy is highest. Batteries play an important role in balancing the supply and demand of energy on the grid. Batteries are also able to respond quickly, which makes them a powerful DER asset.
What does DR have to do with VPPs?
Virtual Power Plants, or VPPs, are a relatively new idea that build on the foundation of demand response, which has been around for decades. VPPs will play an ever-increasing role in the energy transition. So, it is important to understand first, what a VPP is, and then how VPPs differ from demand response. At their core, VPPs are a group, or aggregation, of decentralized assets which can be controlled remotely as a group, but continue to operate independently. A VPPs is comprised of a multitude of resources, which can be a single type of asset, such as EVs, or can be comprised of a heterogeneous mix of assets, such as batteries, EVs, and pCHP facilities. Next, the all of the assets in the VPP are decentralized meaning they are connected to the grid but operate independently providing independent value to the grid, on their own, outside of the VPP. Finally, VPPs are dispatched from a central control. The ability to aggregate flexible capacity and help balance the grid is a key aspect to VPPs.
Leading players in the demand response space
CPower is a leading nation demand response provider, with well over a decade of experience. CPower participates as an aggregator in nearly every wholesale market within North America, and over 50 local demand response programs
You can read more about their offerings here.
NRG is a large energy company which owns generation and also participates in demand response. NRG has been in business for over thirty years and has participated in demand response for nearly a decade and focuses on the large wholesale North American markets.
You can read more about their offerings here.
Enel X is one of the most experienced players in the demand response market. They cover C&I and residential use cases, and with the launch of Enel X Way there is also a huge push for smart charging. If you are looking to run your own DR program or want to participate in one as an energy hardware owner, Enel X is a company to talk to.
You can read more about their offerings here.
Voltus is a leading demand response provider in North America. They operate in each and every deregulated wholesale market where demand response exists. They are a new company, but have grown rapidly over the past five years and has customers in throughout North America. Voltus’ focus on technology has allowed them to enroll large industrial customer into fast response and high-frequency demand response programs.
You can learn more about their offerings here.
Leap is a relatively new company participating in demand response markets. Leap’s customers participate in both commercial and residential demand response programs. In addition, Leap is a software-focused company that is working to build a platform for all DERs to participate in both demand response, as well as respond to price signals.
You can read more about their offerings here.
OhmConnect has been offering demand response services in California for a number of years, and has recently started to expand their offerings to other states within the US. OhmConnect is focused on residential demand response, specifically using behavioral demand response where homeowners are paid to lower their energy usage during peak periods of time.
You can read more about their offerings here.
How can my company participate in the demand response market?
To participate in the DR market most companies rely on a demand response software provider. This is an easy way to get started in the market, and sets you up for additional revenue from your energy resources. There are also similar products available, that we will go through here.
Distributed energy resource management systems, or DERMS, are very closely related to DERs. In fact, DERMs are simply the software platform which is used to manage various DERs. DERMs help balance supply and demand, deliver grid services, and work with utilities to ensure grid stability. DERMS can manage a single DER or a group of DERs. Traditionally, DERMS are owned and operated by utilities.
Virtual Power Plant software
As discussed above, VPPs are a group, or aggregation, of decentralized assets which can be controlled remotely as a group to deliver grid flexibility. VPPs are designed and operated by third parties, delivering Virtual Power Plant software. The software behind VPPs works on a cloud based system, both for reporting and dispatching purposes.
How can my household participate in demand response?
You may be able to participate in demand response today! Utilities across the world have demand response programs, and most allow homeowners, business owners, and anyone with an account to participate. If you have air conditioning, a smart thermostat, an EV, electric heat pump, or a battery you will be ready to participate in demand response!
Smart EV charging apps
If you drive an EV and have a charging app on your phone you may be able to participate in demand response! The first step is to enable smart charging, which will ensure you are only charging when energy is inexpensive. Enabling smart charging is an easy step to help save energy and participate in demand-side management.
Nearly every utility across the world has a demand response program. Checking with your local utility to determine if there is a demand response program is easy and fun! Once you know your utility has a demand response program, you can participate using your existing home infrastructure such as thermostats, HVAC, or an EV.
How can I learn more about demand response?
If you made it all the way here, you should have a good understanding of demand response. That said you can always learn more! If you want to dive even further into a super exciting topic that will be critical to our sustainable future, check out these resources: