The importance of demand response for electricity providers

Published: Mon 15 Feb 2016
A blog entry by Mark Knight

Contributed by:

Mark Knight
Director, Smart Grid and Asset Management

Mark Knight's Blog

Demand response is one of many resources that have been used to satisfy the increasing demand for electricity, but with net energy consumption remaining relatively static in recent years, what is the future role, if any, for demand response?

To begin with, the growing use of low-carbon technologies could increase net energy use again. In this scenario, demand response provides operators with additional flexibility in maintaining operating reliability, enhancing resource capacity and providing other ancillary services. These uses of demand response will be just as valuable in the future as they are today. But the manner in which demand response is used will probably change. Specifically, the discussion will revolve around whether load should be increased, decreased, or both, and whether this should be controlled centrally, by the owners of devices, or both.

In terms of control, demand response can be both dispatchable and non-dispatchable. In the case of dispatchable demand response, or direct control of load devices, utilities may choose to reduce load based on either price or reliability, or perhaps both. The customer in these scenarios does not see these drivers and is usually remunerated in the form of an annual payment for participation in the scheme. This is how a lot of demand response has been implemented in the past and how it is being used today. For non-dispatchable demand response, the customer is sent a price signal that either causes them to take action or allows action to be taken automatically by pre-programmed equipment (that customers may choose to override or accept). The customer does not respond to the system state, but to prices.

The industry has started along a path that has some fundamental implications for how this sector operates. For electricity providers themselves, the changes are obvious and the underlying causes—aging infrastructure and resource flexibility—are very relevant to this discussion. This industry has mature assets, and distribution systems are built with the assumption that they will behave as modeled during their design years. But these assumptions are being challenged by a rise in renewable energy sources, the advancement in communications and digitalization, the introduction of retail energy markets, and the influence of social media and the app culture.  

Change has been happening gradually for many years now—impacting how the electricity system works, replacing legacy devices with intelligent devices, increasing the availability of reliable high-speed communications at a low cost, and digitalizing consumers’ lifestyle. But the cumulative effect of these developments, combined with the accelerating opportunities introduced by new technologies and emerging business models, are introducing changes that electricity providers must integrate into the way they function.

For instance, the introduction of retail markets has made consumers more aware of energy prices and other options for energy—the way they now interact with their utility provider extends beyond simply paying their utility at the end of each month. The introduction of smart phones and online purchasing has also made consumers more accepting to new ways of transacting and communicating with their providers, while discussions over global warming and emissions have made them more conscious of environmental concerns. These trends have brought new opportunities for the increased use of renewable energy, which is also changing the way the electricity system is operated. Yet, while all generation is not under one central control today, the grid still needs alternative power sources to renewable energy—as renewables are dependent on the environment, and may not always be available.

Though the current rate of change may appear to be manageable, an increase in the frequency of change will accelerate its impact, as new devices will both influence the system directly and interact with each other. When new business models and opportunities emerge as a result of the changes in the industry, there will be increasing opportunities for interaction, and presumably more services offered for customers to engage with each other through the grid. But supply and demand has to be balanced and demand response has the potential to provide an extensible and flexible solution as loads become more responsive. Currently, the biggest roadblock to demand response is the lack of consumer motivation. There is either not enough incentive to participate in programs or a lack of programs and services to choose from, and without smart appliances, consumers will not be able to “set and forget.”

There is also the question of just how much demand response is required to manage today’s grid or whether there are other ways to achieve the same results. But when demand response includes the capability to manage demand to match supply, how will that change things? While demand response could still be used to reduce load when there is insufficient generation, it could also be used to increase demand when there is surplus generation available.

But for demand response to be successful, the balance of supply and demand for electricity has to occur instantaneously. As we move from central generation with the utility as the distributor, and in many cases also the seller of power, to a world where there are many sellers and buyers of power, with buyers also acting as sellers, the balancing challenge suddenly gets more complicated. If demand response is to be effective, there needs to be a sufficient quantity of load that can be increased or decreased to balance generation. There also needs to be a method to communicate response signals regarding reliability and market price to the loads that are expected to respond. As mentioned by the Institution of Engineering and Technology (IET) in a recent report, ad hoc arrangements for whole system changes have worked so far. However, as whole system effects become significant, a more robust response is required. While these challenges are well managed at present, changes are already emerging and may be subject to tipping points in the future.

Yet demand response will be a valuable tool, and I urge utilities to develop and learn from demand response programs today, creating automatic interactions with intelligent devices so that when these tipping points occur and consumer motivation shifts, they have the tools in hand to address them.

The important thing will be to get pilots running so that providers can become familiar with both the technical and market dimensions of demand response, as that’s what this will finally be—a retail market to help balance energy supply and prices, using intelligent consumer devices.

CGI will be distributing a series of whitepapers (with international relevance) over the next couple of months on ‘The World of Demand Response’; the first whitepaper being 'The Demand Response Paradox' which can be found here: