Understanding the True Value of Demand Response

The process to properly value demand response has been changing for both utilities and market operators.
Published: Thu 10 Apr 2014

Over the years, the role of demand response has evolved. Starting out as a method for emergency grid load relief, it has also become an ever-present ancillary services resource.

In our article, Demand Response and its Potential Value, we discuss how the electric industry can overcome a wide variety of issues with robust demand response solutions.

Demand response and operational costs

When it comes to providing grid balancing services, utilities know that load shifting can prove to be more efficient than power plants.

However, few studies examine the impact that demand response resources, from industrial to residential loads, have on operational costs for utilities or independent system operators.

A recent study from the National Renewable Energy Laboratory and Lawrence Berkeley National Laboratory specifically examines this point by placing demand response resources into a commercial production cost model.

Production cost models are commonly used by utilities to plan for renewable energy integration. For the study, Berkeley Lab used the Colorado test system to model demand response options. The Colorado system has a summer peak of 13.7GW and an annual demand of 79TWh with about 16% wind and solar resources.

For the top twenty load hours of the year, demand response can provide about 113MW of capacity and shift 135GWh of energy, according to the Colorado model. The model looked at demand response for energy, regulation, flexibility and contingency.

Overall, demand response can meet about one-third of frequency regulation needs, 19% of spinning contingency reserves and 85% of flexibility. The figures are an annual average response and do not include co-optimization. In other words, this is just the start and figures have the potential of being even more impressive.

Use a variety of demand response resources-save more

By using a variety of demand response resources, from data centers and agricultural pumps to home water heating and outdoor lighting, the system has the potential to save US$7.9 million in operations. The savings are greater than the total revenue of US$5.4 million that the study found the resources could earn in a market setting.

Most of the operational value of demand response comes from reducing the highest-cost generation units and reducing the use of less efficient, partially loaded thermal generators. Although demand response assets have both operational and capacity value, the production cost model only takes into account the operational value.

Value process is changing

The process to properly value demand response has been changing for both utilities and market operators. FERC ordered the system operators under its jurisdiction to raise payments for demand response for economic demand response with Order 745, and then increased payments for faster-responding frequency regulation services, such as demand response.

ERCOT, Texas’ grid operator, which is not under FERC’s jurisdiction, is rethinking its whole ancillary services market. It’s not just the large system operators that are adopting this approach-Consolidated Edison just doubled its demand response payments to attract more customers to its program, which focuses on easing distribution congestion in New York.

Most of the focus so far has been on achieving compliance with FERC’s orders. However, more changes may be on the horizon in terms of the ways that demand response is valued at individual utilities and by the larger grid operators.

Further reading:

National Renewable Energy Laboratory-Grid Integration of Aggregated Demand Response, Part 2:Modeling Demand Response in a Production Cost Model [pdf]