06 26, 2024

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Demand response is a critical reliability resource essential to helping the electric grid maintain the balance between electricity supply and consumer energy demand. This balance is necessary to prevent blackouts and brownouts. When energy demand increases (e.g., running air conditioning during a heat wave), there must be an adequate supply to match it. Grid operators and utilities are increasingly recognizing demand response as a cleaner, more cost-effective solution to building and maintaining peaking power plants.

Instead of capital-intensive infrastructure upgrades or firing up expensive-to-maintain peaker plants, many grid operators and utilities are realizing that the most straightforward solution for addressing peak demand is reducing it. As a result, they offer incentive programs for real-time load reduction, enabling companies to monetize their energy flexibility by participating in demand response. Demand response programs enable the grid to reduce the demand for electricity to match supply rather than the traditional method of increasing supply to meet demand.

Demand response has become essential to contributing to the stability and sustainability of the grid – but it’s evolving to meet the needs of an evolving grid. What does this mean for companies looking to participate – or already participating – in demand response? This evolution means that there is now a wide variety of demand response programs with different requirements for advanced notification, event length, etc. – enabling companies to match the best program (or programs) to their operations to generate revenue, value stack programs to maximize opportunity, and help the grid remain balanced.

The evolution of demand response to meet changing grid needs

In the dynamic world of energy management, demand response is undergoing a significant transformation due to the evolving needs of the grid. The evolution of the generation mix on the grid and the increase in intensity and frequency of extreme weather raise serious concerns about grid reliability. Demand response is no longer just about turning off lights or adjusting thermostats. It is about enabling a dynamic, responsive grid that can meet the challenges of today and tomorrow.

As the needs of both the demand and supply sides evolve, so must the strategies and technologies that balance the grid. While traditional demand response methods are effective, they are giving way to more sophistication, flexibility, and automation. As a result, various resources can be aggregated – in many cases, on-demand in real-time – to respond to the ever-changing demands of modern energy consumption and unlock multiple value streams.

The old state of demand response

  • Manual curtailment: large industrial loads were manually curtailed during demand response events
  • Long response lead times: demand response participants were notified well in advance, from several hours ahead to a day ahead
  • Capacity-only programs: designed to handle grid-wide constraints, not localized issues
  • Single value stream: each asset contributed to one specific aspect of grid stability

Traditionally, demand response has involved a highly manual process of curtailing large industrial loads. This method required fixed curtailment plans and lengthy lead times, ranging from several hours in advance to a day ahead, giving companies plenty of time to prepare their operations in anticipation of demand response events. Demand response programs were primarily focused on wholesale capacity, aiming to address grid-wide constraints by reducing demand during peak times. Each asset participating in demand response was typically tied to a single value stream, limiting flexibility and efficiency.

The new state of demand response

  • Automated and remote curtailment: both small and large loads can participate and, in many cases, are managed through automation
  • Shorter response times: systems can respond in real time or within several minutes
  • Multiple program types: capacity, energy, and ancillary programs address both system-wide as well as localized issues. On-bill savings for coincident peak and transmission peak avoidance is quickly becoming a must-have tool in the toolbelt.
  • Flexible value streams: any asset can participate in any market and contribute to multiple value streams. Utility-level programs now enable stacked simultaneous enrollment and dispatch for both grid and utility system needs. Wholesale markets are enabling more granular and tailored load types to respond whenever they are able. 

Today’s grid operators need a variety of flexible resources that can be called upon as necessary to support both widespread and localized issues. They need to not only plan for anticipated capacity issues but also be able to address sudden drops in supply or spikes in demand quickly. They must also keep grid frequency constant and respond to deviations in real time to avoid equipment damage. All these measures keep the lights on and prevent blackouts and brownouts, but they represent multiple value streams in which companies can participate.

These dynamics are driving the evolution of demand response programs to meet the changing needs of the grid. In addition to the larger demand response loads we’ve seen in the past, we are now also seeing aggregated loads among groups of smaller participants, enabling more flexible management of resources to aid the grid as needed. Moreover, demand response programs have expanded beyond capacity management to include ancillary services, addressing localized issues with greater precision and speed. The flexibility of these programs means that any asset can contribute to any market and value stream, significantly enhancing the efficiency and resilience of the grid.

In addition, many companies are now automating their demand response participation. Small and large loads can be managed with minimal human intervention to take advantage of lucrative opportunities in fast-response programs. Lead times in these programs are drastically lower – automation enables companies to respond in real time or within minutes.

This evolution means many types of demand response programs are available

The variety of demand response programs available means there’s an option to meet almost every company’s needs. Companies may have different motivators for participating in one program over another, as programs differ in payment rates, required response time, penalties (though some demand response companies, like Enel North America, shield you from penalties), and more. Some of the most common demand response program types are listed below. In many cases, companies can stack programs to maximize value.

1. Economic demand response programs

The grid calls economic demand response programs in response to pricing spikes to help stabilize the near-term energy price level. Participating companies get paid to reduce their load in response to high prices, helping to reduce their exposure to the highest-priced hours while lowering system-wide electricity prices​. As weather has become increasingly volatile, wholesale energy prices in excess of $1,000/MWh are becoming increasingly common. ERCOT experienced over 40 such hours in August 2023 alone! 

While economic demand response programs are attractive to some companies and may be the best choice based on their operational needs, it’s important to note that they generally offer lower value than other demand response programs and tend to have complexity around compliance​.

2. Capacity demand response programs

Capacity programs are the most common demand response programs to alleviate threats of power outages and supply imbalances affecting the grid. They primarily focus on alleviating grid-wide constraints. Grid operators project the capacity they need (typically three years out) to ensure sufficient demand-side resources to meet peak load requirements and enhance grid reliability. Once they determine this amount, they hold an auction, where resources – including demand response aggregators, like Enel North America – bid to provide that needed capacity. These aggregators then fulfill their capacity commitment by enrolling companies who want to participate in demand response. 

In addition to helping to meet planned peak load requirements, many capacity programs serve as emergency-based resources for the grid to avoid blackouts or brownouts. These programs help to balance the grid when sudden, unexpected power outages and supply imbalances occur – or if these threats are imminent. These sudden imbalances could happen for a variety of reasons, from drops in electricity supply (e.g., equipment failure, damage from extreme weather, or transmission issues) or spikes in electricity demand (e.g., air conditioners running during heat waves, heaters running during deep freezes) that can overload the grid.

As part of enrollment in the capacity market, companies agree to reduce their load by a predetermined amount if/when called upon. They receive payments for their ability to reduce energy during a demand response event (capacity payment) as well as their actual energy reduction if an event is called (energy payment). In short, participants serve the grid by agreeing to be on standby and being able to perform if called upon.

Capacity demand response programs are attractive to many companies because they typically have a longer notification window. Depending on the specific program, advance notifications can range from 30 minutes to a few days ahead, giving companies time to plan their operations accordingly. They are also attractive because there are typically only a few events a year, and the duration typically lasts a few hours. As a result, they are relatively easy to plan for from an operational standpoint.

3. Ancillary demand response programs

Ancillary programs provide another level of services to the grid to support localized issues. Services include frequency regulation, voltage control, and operating reserves to balance fluctuations in real-time. These are on-demand, instantaneous resources and they can be called upon for a number of reasons: power outages, extreme weather, high prices, or insufficient generation. As a result, companies receive very short response times (seconds to a few minutes), events may be called more frequently (10-30 events, sometimes even daily), and events typically tend to be shorter in duration (less than an hour). 

However, the grid places high value on protecting grid frequency, maintaining an acceptable voltage level, and having capacity set aside in reserves – and they pay for these services at a premium. Thus, ancillary programs pay companies for their participation significantly more than capacity programs.

It’s important to note that while ancillary programs are the more lucrative demand response program option, there are more intensive technical requirements for companies to participate in this type of program. Companies must have the operational flexibility to reduce their energy usage instantaneously and potentially manage daily participation. To do this successfully, building automation is required. By programming curtailment strategies into a building management system, companies can predetermine their entire demand reduction and program their devices to respond to demand response events automatically. Demand response aggregators, like Enel North America, can help build and execute this strategy.

Automation can be leveraged to participate in any demand response program, making it possible for companies to “never lift a finger” to participate in demand response. However, automation is a must for participation in ancillary services.

4. Utility demand response programs

The electric grid is a complex network of power generation, transmission, and distribution. Grid operators are at the helm of managing this network. These operators are also known as independent system operators (ISOs) or regional transmission authorities (RTOs). Examples of RTOs and ISOs in North America include ERCOT in Texas, PJM Interconnection in the Mid-Atlantic, MISO in the Mid-West, ISO-NE in New England, and AESO in Alberta – here’s a complete list and a map. Many of the demand response programs we’ve discussed are available at the grid level.

Within each ISO or RTO, individual utilities play a significant role in managing the electricity needs at a localized level. These utilities often offer their own unique demand response programs. The beauty of these utility-level programs is that they can be combined with grid-level programs, creating a powerful synergy that supports both the grid and utility system needs. This approach maximizes the potential of demand response.

Some utilities have taken the initiative to simplify the process of enrolling in demand response programs. They do this by forming exclusive partnerships with demand response companies or aggregators. In these bilateral partnerships, the demand response partner takes on the responsibility of managing the resources in the utility’s demand response program. This includes enrolling companies into the utility program, assisting them in developing their curtailment strategies, and working with them to maximize their payments. Such partnerships streamline the process and enhance the benefits for all parties involved.

Enel North America, for example, has exclusive bilateral partnerships with Ameren Illinois, Ameren Missouri, Louisville Gas & Electric and Kentucky Utilities, Pacific Power, Puget Sound Energy, Rocky Mountain Power, Salt River Project, Tampa Electric Company, and Tennessee Valley Authority. You can learn more about these programs by visiting our regional map.

5. Peak shaving and price avoidance

Earning revenue from demand response is one part of the energy management equation. Increasingly, companies are looking to balance revenue generation with on-bill energy savings by building robust energy strategies that address energy price volatility and coincident peak avoidance alongside their demand response participation.

With the right tools and insights, companies can minimize their exposure to price spikes and periods of predictably high energy prices by reducing their usage during these times – or shifting operations to when it’s more economical to operate. They can also reduce consumption during the highest demand times on the grid, known as Coincident Peaks, which is instrumental to reducing charges on electricity bills.

It’s important to address these elements in a cohesive manner and not in an inefficient silo. In this blog, you can dive deeper into managing demand response, coincident peak prediction, and energy price forecasting.

Which demand response program is right for your company?

Today’s electric grid needs a diverse toolkit of flexible resources to maintain reliability, resulting in various demand response programs, each with different requirements that help serve the grid in a multi-faceted way. When determining the right demand response program for your company, there are various factors to consider. Do you have revenue generation goals? What assets in your operations can you temporarily shut down? Do you have a building management system?

Working with a demand response partner, like Enel North America, can help match you to the right programs that align best with your operations. Your expert should be able to review program requirements, work with you to build a curtailment strategy you can execute either manually or with automation, and have the expertise to value stack programs to help you maximize revenue generation and opportunity.

Want to talk to an expert to discover what options are available to you? Get in touch with the Enel North America team today. Our experts will work with you to learn more about your operations, discuss your goals, review available options, and tailor a curtailment strategy. Working together, we can help ensure a reliable, resilient, and efficient electricity grid.

Learn more about advancing your energy strategy by leveraging our integrated energy solutions.