Demand Response

Description

Demand response tools enhance grid stability by temporarily reducing or shifting electricity consumption to decrease energy use when demand is highest, or generation resources are insufficient. Demand response (and related programs such as interruptible service and voluntary load shifting) have been around for decades and were originally based on direct communication and manual implementation. Today utilities (and where allowed, third parties) deploy smart meters and linked energy load controls to create automated demand response networks for residential, commercial, and/or industrial customers. These advanced systems allow instantaneous, remote, verifiable control of customer electricity load. By aggregating many small energy reductions, demand response programs can create a dispatchable resource that is the functional equivalent of a power plant.

On the customer side of the meter, large energy consumers are deploying advanced energy management systems to decrease demand at the facility to reduce expensive demand charges and optimize against time of use and other tariffs.

Key Concepts

Price-based programs, or voluntary demand response programs, incentivize reduced use of electricity during peak demand periods through price signals such as time-of-use pricing where a price premium is applied during peak demand hours. Incentive-based programs directly pays consumers participating in the program who shift their demand.
Load Shifting describes the general movement of energy consumption from periods of high demand to periods of low demand.
Load Shedding, or peak shaving, describes the temporary curtailment of energy consumption by customers, as part of organized demand reduction programs.
Demand Flexibility refers to demand response and other programs that create the ability to eliminate or shift a portion of total energy demand for a electricity distribution system and is a tool to help the system meet peak customer demand, respond to unexpected outages or extreme weather.

Key Technologies

Dispatchable, automated demand response requires the establishment of a network of load controls on the customer’s premise that can be remotely activated, Demand reduction is made possible by enabling technologies such as smart meters, smart thermostats, building energy management systems, smart load controls (for lighting, HVAC, EV charging, plug loads, etc.), smart meters and submeters that provide real time data automatically report outages and other issues, and networked EV charging systems.

Major elements of a demand response system should include:

Advanced metering and submetering infrastructure to measure and record energy use data with two-way communication capabilities.
Sensors detecting peak loads are required to automatically divert or reduce power in accordance with explicit demand response programs. Sensors help to remove the chance of grid overload and subsequent power failure.
Smart thermostats and give customers more transparent access to their energy usage and can encourage behavior changes in accordance with peak power consumption reduction to save costs.
Smart appliances and smart controls so that major loads in a home, office building, or other building can be remotely controlled pursuant to agreed upon limitations such as duration and size of reduction.
Building automation systems and building energy management systems provide larger commercial and institutional buildings with automated energy management controls, real time data, and, when linked with submeters, sensors and smart controls on lights, HVAC, plug loads, etc., dispatchable demand reduction capabilities.
Phasor Measurement Units (PMUs) allow operators to assess grid stability, a necessary tool for both supply and demand response approaches.
Smart chargers and inverters allow electric vehicle owners to control charging remotely and often communicate to the electric grid to allow utilities to better manage demand.

Potential Market Size & Timing

Existing demand response programs currently provide about 60 GW of capacity, roughly double the size of rooftop solar.¹ Demand response is an important tool for decarbonizing the grid which in turn supports the “electrify everything” strategy of shifting most of transportation, buildings and industry to electricity. The Biden Administration has set the goal of fully decarbonizing the US grid by 2035.² Both the National Renewable Energy Lab (NREL) and the International Energy Agency (IEA) have looked at how advanced demand-side resources, such as demand response, can support grid decarbonization. For instance, a recent NREL study focused on pathways to the decarbonized grid determined that demand response can make about 5% of annual demand flexible or dispatchable by 2035.³ NREL also noted that if demand response eliminates the peak of the top 1% of demand in 2035, it reduces coincident peak demand for the US by as much as 246 GW.⁴ In addition, aggressive energy efficiency combined with demand-side flexibility (such as demand response) can decrease the need for new clean generation by about 25% by 2035.⁵ While flexible loads from demand response programs are currently predominately originating in the residential sector, NREL projects increasing opportunity to temporarily reduce or shift loads in transportation sector with increased EV adoption.⁶

IEA examined Demand Response capacity needed to support a pathway to global Net Zero emissions by 2050 and found that the 2030 milestone requires 500 GW of demand response, a tenfold increase in deployment levels from 2020 levels. IEA itemized some of the key technology deployment gaps that must be bridged by 2030 to meet the Net Zero trajectory. (See Table 1.)

TABLE 1. GLOBAL DEMAND RESPONSE TECHNOLOGY DEPLOYMENT, 2020 AND 2030

Barriers

Lack of automation infrastructure for demand response system: To create a dispatchable demand reduction resource, demand reduction networks must be automated to allow instantaneous dispatch in controllable increments. At a minimum, systems must be able to remotely curtail load with the customer meters and submeters providing real time verification of the load reduction.
Proper Incentives for utilities: Traditional utility rate approaches may not provide sufficient incentives or flexibility to encourage utilities to maximize demand reduction programs.
Cost and Slow Turnover: Automated demand reduction networks require new meters, thermostats, and smart appliances that can be remotely controlled. This technology has come at a higher price than its “dumb” counterpart. Moreover, many systems (water heaters, HVAC) have long lifespans meaning it could take 10 years or more for full turn over of the existing stock. Retrofit solutions are either not available or add costs.
Tariffs and Pricing Signals: Demand response participants are eliminating the need to supply power at times of peak demand, when underlying power prices are often the highest. Too few programs are set up to allow the customer curtailing their load to share in the actual value of the “energy” created. In addition, residential customers have tariffs that provide little price incentive to reduce peak usage outside of demand reduction programs.
Wholesale Energy Market: While FERC Rule 745 seeks to require energy markets to include demand reduction programs, concerns remain about requirements that limit demand reduction participation (e.g., 10-hour duration requirements) or do not pay sufficient value.

Accelerators

Mass deployment of commercially available enabling technologies including smart meters, smart thermostats, smart EV chargers, networked HVAC and water heaters for homes; advanced building energy management systems linking intelligent controls for all major loads in buildings.
Funding for demand reduction deployment: The Infrastructure Investment and Jobs Act includes $65 billion for upgrading the electric grid including improving grid flexibility with demand response. Given the need to install smart load controls on the customer’s side of the meter, more funding specifically targeting residential, commercial, institutional and other segments is needed.
Code Changes to bring automated demand reduction into new homes, offices and other buildings: For instance, the Leadership in Energy & Environmental Design (LEED) certification for Building Design and Construction (BD+C) includes a credit for demand response technologies and programs, encouraging the use of demand response programs in new building construction.⁸ Demand Reduction readiness should be required in all new buildings and significant retrofits.
New policies that encourage expansion of demand reduction programs: Policies must align utility incentives with a massive expansion of demand reductions to all classes of customers, ensure customers receive fair compensation for the energy created by their actions, and ensure that wholesale energy markets allow demand reduction to fully participate as a dispatchable resource on par with a peaking plant.