Demand Response 101: Everything You Need to Know
Demand Response 101: Everything You Need to Know
In this introduction to demand response, find out how demand response programs offer you new revenue for reducing energy usage at times of grid stress. Learn why demand response can be a straightforward way to improve your energy spend – and how you can enroll.
Demand response (DR) is a popular program that allows organizations to earn new revenue for occasionally reducing energy use during times of grid stress. Demand response is a straightforward way to improve your energy spend, but many organizations don’t fully understand this low-risk program and the opportunities it unlocks. In this blog, find out what demand response is, how you earn money, and why it’s so helpful to the grid.
What is demand response?
By participating in demand response, organizations (typically large energy users) earn payments for reducing energy demand during times of grid stress to help the grid remain in balance. DR programs have now been around for decades, supporting grid reliability and helping to reduce the need for energy “peaker plants” – power plants that the grid leverages at times of peak demand, which are often fossil-fuel intensive.
There are a wide variety of DR programs with different purposes, processes, and details, but DR programs typically work in this general manner:
- Supply and demand on the grid become out of balance, risking a blackout or brownout. This can happen for a number of reasons – consider an extremely hot day, for instance, when risks can arise due to particularly high energy demand from increased need for cooling, paired with difficult conditions for power plants on the supply side.
- The grid operator asks DR participants to reduce or change their energy usage. Grid operators make this request through demand response companies like Enel, who dispatch their portfolio of DR customers to reduce their energy usage by the amount they are enrolled.
- DR participants reduce energy usage to help supply meet demand until they are notified the event has ended. Demand response events can range from several minutes to several hours, depending on the grid’s needs and the specifics of the various DR programs. Once they are notified the event is over, organizations can resume normal energy usage.
The chart below offers a graphical representation of the idea behind demand response. As demand (demonstrated with a blue line) ramps up throughout a high-demand day, electricity supply ramps up ahead of it (demonstrated with a gray background). Eventually, electricity demand may surpass available generation levels on these extreme demand days or due to an outage (this is demonstrated when the blue line rises past the gray background). If this were to happen, blackouts and brownouts would begin due to the lack of available supply. Instead of requiring the grid operator to search for or generate more supply, DR participants help the grid by simply reducing the levels of demand, therefore mitigating any potential grid issues.
Why do grid operators offer demand response?
Demand response is a vital resource for the stability of the grid. It was created to help balance the grid in a cost-effective and environmentally conscious way. By reducing electricity consumption during peak times, DR participants help to avoid local blackouts while also reducing the price of electricity and the need for added generation. In addition, demand response can theoretically prevent some amount of fossil fuel generation by reducing the need for peaker plants.
Demand response is becoming more essential than ever for grid operators, and participating can enable your organization to make a significant contribution to ensuring the power stays on in your local community.
What are the benefits of demand response for my organization?
With most commodities, value is determined by two key factors: price and quantity. But when it comes to energy, a third component – time – plays a big role. When your facilities use energy is just as important as the price you pay for it and how much you use. Ultimately, a facility’s ability to be flexible about when they use energy represents both a value and a cost.
Utility and grid-sponsored demand response programs allow you to monetize that flexibility. DR programs provide payments to large energy consumers that agree to reduce their energy demand during times of electricity grid stress to help the grid remain in balance and avoid blackouts – a win-win for both organizations looking to boost their bottom line, and the communities they serve. Among the benefits:
- Generate revenue: By enrolling in demand response, you can earn potentially lucrative payments for your organization’s ability to reduce energy consumption during times of grid stress.
- Support your local community and a more resilient grid: Participating in demand response helps to avert blackouts and brownouts, supporting your local community and helping to ensure the safety of key processes that rely on a steady supply of energy in your area.
- Receive advance warning about imminent outages: Safeguard your operations by safely preparing your equipment for potential blackouts, thanks to advance warning from demand response.
- Reduce operating costs: Reducing the amount of energy you use during peak times enables you to avoid consuming the most highly-priced electricity, saving your organization money.
- Gain access to real-time data: If you have an Enel metering device, you can gain access to real-time data, allowing you to optimize your energy usage throughout the year.
How do I enroll in demand response?
Enel makes demand response participation easy. We are the largest demand response provider in the world, with decades of experience and 8.6 GW of DR capacity globally as of 2023. That experience means we’ve created demand response plans for every type of organization in every industry.
There are a few basic steps to enrolling in demand response:
- Our expert team works with you to identify your energy reduction potential and create a strategy. We aim to deliver maximum value with minimum impact on your operations. From the start, we use data analysis to identify the optimal level for your site to safely reduce during demand response events, without interrupting your operations more than you’re comfortable with. We outline these measures in a detailed Energy Reduction Plan.
- In some cases, we install necessary metering devices at your facility to establish communication with our Network Operations Center (NOC). This allows us to monitor and control your energy consumption levels in real time.
- Your site enrolls in a demand response program and is ready to respond when a demand response event begins. We conduct tests with your facility to ensure everything is working as planned.
- Throughout the demand response season, we manage enrollment, measurement, verification and payments on your behalf.
How does a demand response event work?
For participants, there are three basic parts to a demand response event:
- Notification: When a grid operator anticipates high demand or a system issue on the grid, it sends the Enel network into action. Enel will then notify you to inform you about when the demand response event will begin. Depending on the program, notifications range from a day ahead, or as quickly as a few minutes – note that shorter response times typically lead to more lucrative payments.
- Response: At the start of the event, your facility will reduce its electricity usage according to your predetermined plan. This is done either automatically or manually at your facility (leveraging your building management system for automation, if applicable), or remotely through our network operations center.
- Support: Before, during, and after an event, our team remains in communication with your facility. Our staff is available 24/7/365, supporting your efforts to achieve the highest possible levels of performance and payments.
What are typical ways my industry participates in demand response?
Demand response has been around for decades, so experienced energy partners, like Enel, have created demand response energy reduction plans for organizations like yours, regardless of size, location, or industry. Energy partners will know the best way to tailor your demand response strategy to your needs and goals.
Most industries have typical areas of focus for their demand response strategy. A few popular methods they leverage for demand response participation include:
- Manufacturing facilities: Turning off unnecessary lighting, shutting down some production lines, or even implementing full shutdowns
- Stadiums and arenas: Turning off non-necessary lighting, raising HVAC set points, and curtailing rooftop units (RTU’s)
- Food and beverage and cold chain: Turning off ovens and injection molds, and reducing freezers and production lines
- Plastics companies: Turning off production lines, extruders, injection molding, air compressors, and HVAC
- Oil and gas companies: Turning off injection pumps, pipeline pumps and motors, and compressors
What happens after a demand response event? How am I compensated?
After an event, Enel will work with your utility to reconcile performance data as required by demand response regulations. This process can take anywhere from a few days to a few months, depending on your utility. After an event takes place, we provide both preliminary and finalized performance data.
After your performance data is confirmed, your earnings are calculated and sent to the utility for approval. Payments are then sent to you after Enel receives settlement from the utility.
What states have demand response?
Most states and utilities today have some variety of demand response program for either residential or commercial energy users. As a business, you typically need to work with an accredited curtailment service provider (another term for a demand response company) like Enel in order to participate in the market. Today, Enel has programs in nearly 70% of the U.S. states.
Our reach is global, too – with Enel, your organization can take advantage of demand response in markets all across the world.
What are the different types of demand response programs?
While our discussion of demand response thus far has mostly simplified the ideas behind demand response into one typical version, there are a variety of different motivations for programs. Programs differ in their rates of payment, required response time, penalties (though some demand response companies shield you from penalties), and more. Some of the most common demand response program types include:
- Capacity – These are the most common programs to alleviate threats of power outages and supply imbalances affecting the grid. They typically have a longer response time than the other programs listed below.
- Economic – These programs are called in response to spikes in pricing, to try to help stabilize the near-term energy price level.
- Frequency – Frequency programs are used to balance grid frequency issues. These are real-time, instantaneous resources, requiring a very short response time for DR participants – though this short response time can often lead to more lucrative payments.
- Emergency – These programs help to balance the grid when power outages and supply imbalances happen or are imminent and can lead to brownouts and blackouts on the grid.
- Ancillary – Ancillary programs are fast-response programs to balance the grid. They can be called for a number of reasons: power outages, extreme weather, high prices, or insufficient generation.
Is demand response right for my organization?
Absolutely. Demand response is a win-win. It supports the grid. It benefits the local community. And it creates a revenue-generating opportunity for organizations.
Organizations of all types can successfully participate in demand response to earn new revenue and support a more resilient grid. Our experts at Enel have witnessed a record number of demand response events in 2022, and if these trends continue, 2023 could be another record year. There is massive potential for organizations to generate revenue by participating in demand response. Organizations that don’t participate are leaving money on the table.
Contact our team today for a tailored demand response strategy and to find out how much revenue you could earn by participating in demand response.