From reading comments on EnergyDSM.com and LinkedIn, I get the sense that there is a bit of misunderstanding about demand response. Here is the explanation that I use. Please comment on how this compares and contrasts with your understanding of demand response.
Demand and supply on the electricity grid need to be in balance at all times. Therefore, system operators meticulously monitor and forecast energy demand in order to provide the matching amount of supply throughout the day and year. When the matching amount of supply is either unavailable or expensive to acquire., demand response plays a key role. Without demand response, electricity would be less reliable and more expensive.
There are two types of demand response:
Emergency demand response: When electricity demand peaks during the middle of a day with unusually hot or cold weather conditions, the matching amount of supply may not be available. In order to avoid a power outage, electric utilities call upon their emergency demand response programs. For example, California utilities have a program where large commercial and industrial customers reduce their electric load to a previously agreed upon level during emergencies. Although this program is only called upon once every two or three years, it has helped avoid costly power outages.
Economic demand response: As electricity demand increases, the cost to acquire supply increases. When demand is low, supply comes from relatively inexpensive base load generation, such as coal or nuclear power. When demand is high and base load generation is exhausted, supply comes from relatively expensive peaking generators. Although residential customers pay a flat rate, the price their utility pays for electricity generation constantly changes. The flat rate you pay reflects the average cost to deliver the electricity throughout the year. Economic demand response lowers that average cost by providing incentives for customers to use electricity off-peak. For example, many utilities offer time-of-use electric rates, which are higher during the day and lower at night.
Electricity is more reliable with emergency demand response, and less expensive with economic demand response. Anything that makes a product more reliable and less expensive will grow in popularity. Look for demand response to expand and gain more regulatory support in the years to come.
Regarding the demand response if we talk about the electricity consumption its mostly done by the industries and they are having electricity demand according to the production and not due to daily peak time load as the production in industries vary mostly according to the seasons and not daily basis. The demand response as described in peak hours is due to urban activities as there are 3 hours approx. in morning and almost 4 to 5 hours in evening when the electricity demand goes to peak due to various activities like offices and commercial building loads and in evening lighting and other entertainment equipments are in use. In such demand pattern the time based tariff will be useful to get the revenue to generate electricity from costly sources at that time and on other hand the users are being drifted towards to reduce the load during peak times as it will cost them more and will automatically normalize or reduce the load at peak times or atleast will reduce the difference in load of electricity at peak and non peak hours and then the electricity will be more reliable.
For industries there will be maximum demand controller which will not let any industry use the electricity above the set limit and will reduce the non priority loads at the time of peak loading if there is consumption increase in daily basis to the industries too ………
This description seems to cover the conventional current use of DR pretty well. However, I’m becoming convinced that in the future we are going to see a lot more “dispatched load”. That is, load that is turned on and off by the utility to help them balance the grid using the lowest-cost/lowest carbon options.
Good examples of dispatchable loads are water pumping and charging EV/HEVs. They are loads that need to be run a certain number of hours in each day or week, but normally do not need to be run at any particular time. For example, this might allow dispatch of large pumping loads when night-time winds are prevalent, without having to throttle down the baseload generation as severely.
By dispatching these loads when the grid can best meet the loads, the utility can increase its utilization of installed resources which will reduce costs, while still using the most cost-effective and/or cleanest generation resources.
Josh – I think you miss one important point with the economic demand response. I am less familiar with DR in California, but in the PJM RTO out east, when the wholesale price of electricity is higher than the end user’s retail price, the end user can reduce their power consumption and be paid the difference between the wholesale price and their retail price (less admin fees) for the load reduction, essentially selling power back into the grid. This provides the incentive for a large consumer of electricity to shed or shift their usage when the grid is stressed and the prices are high.
The electric utility I work for controls season loads if the member agrees to do so. We give them a discounted rate for letting us control them. It is normally irrigation wells. These wells normally drive our peak demand up about ten to twelve percent if we did not control them. We only control on peak days for up to three hours from 3:30PM till 6:30PM. our peak normally falls on hour ending 6. I know Delaware Electric has placed peak notification devices in residential homes. They just ask that their members cut back on usage when it lights up a peaking light. Last year they were actually able to lower their rates because of this program. The only thing they did for their members was give them a case of soda per year for using the device. Of course then the next year they were able to lower rates which is a BIG thing in the electric utility industry.
This is exactly why I have touted the idea of supply side distribution for over 20yrs…We must stop building plants 200miles away from end user
and we must start building the Structures of the Future…the ones that are Grid Adding not Grid Depleting…sooner or later we will have no need to build any more Generation Stations period….
Josh – great article. Most consumers do not understand the generation of electricity and it’s peak demands and usages throughout the day. I worked for an electric utility for 8 years and clearly understand this. Now that I have moved to sunny Arizona, this subject falls right into the needs for more solar power. One of the negative concepts expressed with solar is what do you do at night re:storage. However, with electricity demands peaking during the day, solar is the perfect solution. Something that absolutely should be included in your excellent informational article.
Josh, I agree that policies to lower demand in times of constraint may be helpful. I would add a couple of aspects for consideration.
In the case of a pure mandate, I have two broad questions: 1) how does such a mandate affect the choices of an industrial manufacturer to locate in that state; and 2) what additional costs are forced upon that manufacturer?
For the first question, I need to be upfront. I am not familiar with the California policy, and as a result, I do not know if their program is only a government mandate or if it is (coupled with) financial incentives for the large users of electricity. A mandate may have different effects upon a manufacturer, depending on whether it uses a continuous process or a batch process for production. A batch-process manufacturer may have less sensitivity to mandated brownouts than would a continuous-process manufacturer. An interruption of production due to an emergency shutdown may pose a problem for a continuous-process manufacturer, who may experience value loss by the destruction of/damaging of WIP or causing by problems when restarting the facility once the brownout ends. In an extreme case, I can see why a manufacturer may choose a different location (one with excess supply) to build a plant.
This leads to my second question, what additional costs are hoisted onto the manufacturer because of this policy? In the above hypothetical scenario, a company may be forced to install back-up generation, which as you say is likely to be more expensive than base load generation. Other mitigation routes include insurance, increased inventory, and/or additional hedging strategies.
The challenge in any analysis is to determine the 2nd tier affects. It is possible that consumers in a state may benefit by having lower rates due to demand response mandates. However, externalities may exist from an ill-conceived policy designed to create demand response. The financial result may not be an overall lowering of costs suggested in the original post. The answer lies in the details of the policy.
I don’t think there are any mandated emergency demand response programs out there. There are mandatory time of use rates for large industrial customers, but nothing too extreme.
Demand response programs have actually been used to keep large industrial customers in the area. The utility would go to them and say, “Hey, I can set up with so-called ‘demand response’ program that gives you capacity credits each month, but will never call the program. How does that sound? Are you still thinking of leaving our service territory?” So basically, demand response has kept customers around rather than driven them away.
Josh, interesting article. I would add a couple things.
First, I think adding something a section about how automated consumer demand response might work in the future would be useful in helping folks see the big picture. So long as demand response is only something big industries do, people don’t necessarily see it as applying to them. I think a definition that allows consumers to apply demand response to themselves goes a long way in helping the concept catch on.
Is it worth thinking about an additional category of Green or CO2 demand response. For example, it doesn’t necessarily make sense to charge a Plug-in Hybrid Vehicle when the carbon density of the electric fuel is greater than the carbon density of gasoline.
Is it worth adding something about how certain some green sources will be variable, so the need for demand response to even out availability will be even more important as we move forward?
Interesting topic Josh. One way to look at demand response is as a service to consumers that results in lower energy prices, improved reliability, reduced volatility and risk, the opportunity to defer needed infrastructure expansion, and better manages scheduling of infrastructure outages (among other things.) While demand response has a lot in common with generation assets in terms of how it helps the system meet demand, demand response is not necessarily the sale of electrons so much as it is a system response service. (An exception would be where DR obligations are performed through the use of customer-sited generation.
This view has implications for how we (consumers, markets) should pay for DR service. If you are a consumer who pays a demand response providers to provide service, you are not purchasing electrons, but rather paying for services that have beneficial effects (like lowering the clearing price of energy, or improving reliability). These services provide broad benefit to all consumers, because they make consumer’s principal energy interest — purchasing the needed supply of electrons — cheaper and more reliable.
“when the carbon density of the electric fuel is greater than the carbon density of gasoline.”
Although “Green Choice” subscribers would seem to avoid this all together I would like more info on when the carbon density of electricity would surpasss gasoline. I’m thinking coal is a base load fuel – always on – and so I wonder what the caron density of other sources are compared to an internal combustion engine’s gasoline.
A joint study by the Electric Power Research Institute and the Natural Resources Defense Council showed that teh carbon intensity of Plug-in Hybrid Electric Vehicles was lower than that of straight gasoline-powered vehicles even if the primary source of the electric power was coal-based generation. Here’s a link:
http://my.epri.com/portal/server.pt?open=514&objID=223132&mode=2
Kim, I like your thinking. Some proponents of electric vehicles (and plug-in hybrid vehicles) want to charge at night during low demand. They claim that at night power companies waste energy by pumping it into resistive loads because they have to build their systems as a compromise between average peak loading and light loading, so the system produces too much power during light loading. So IF electric cars or other “green” loads were only charged during light demand we would waste less energy overall. Unfortunately one can expect that some users will charge during high demand times, out of necessity or carelessness. I’m hoping that as the “Smart Grid” is built power companies can better track energy demand by private customers, similar to how they track industrial customers. Then they can include categories for “green uses” like you suggest, as well as possibly take better advantage of variable green sources. They should also be able to bill using a timed rate (like the telephone company) instead of a flat rate. That could be an incentive for people to conserve during high demand times and take advantage of lower demand times, since they would see the differences in their electric bills.