Abstract
“Demand response” is a relatively new term to the electric utility industry for an old concept called peak load management. Demand response has gained currency, as the historically cumbersome peak load management programs have been transformed by real-time monitoring, digital controls, and robust communications. The costs of managing demand response resources have become more competitive relative to the costs of old load management techniques such as central station power plants and electric transmission system upgrades. Accordingly, demand response has joined the energy management lexicon as a more refined and flexible alternative to the old term of peak load management.
DEFINING DEMAND RESPONSE
Demand response in electricity markets is defined as “.. .load response called for by others and price response managed by end-use customers.”[1] The definition of demand response conveniently divides activities into two categories: load response and price response, also called economic demand response.
Load response occurs when end users react to requests for reducing electric demand. Examples of load response programs are interruptible programs, curtailable programs, and cycling programs.
Price response occurs when end users react to price signals. Examples of these economic demand response programs include time-of-use rates, real-time pricing, and critical peak pricing.
The scope of this entry is focused on load response programs within the broader category of demand response. Material is presented elsewhere in this publication on the economic demand response programs such as real-time pricing.
The essential difference between load response and price response is who initiates and who follows in the short-term. In load response, an energy supplier initiates the call for load management and the customer acts under the terms of some agreement. In price response, the energy supplier sets the rates and the customer is responsible for initiating usage limitation actions, if any.
BENEFITS OF DEMAND RESPONSE
The potential for demand response is significant. For example, the largest grid operator in the United States, known as the PJM, counted demand response resources as equivalent to 5% of its peak demand in its Mid-Atlantic and Great Lakes regions.[2]
The benefits of demand response are varied and numerous, particularly when considering the many parties such as power grid operators, local electric distribution companies, facility managers, and all the customers who would have to pay higher rates otherwise. The benefits include the following:
• Power system reliability—Local and regional electric grids achieve greater reliability while avoiding blackouts and voltage reductions in emergency situations when customers are able to reduce loads on the grid. It has been estimated that “Power interruptions and inadequate power quality already cause economic losses to the nation conservatively estimated at more than $100 billion a year.”[3]
• Market efficiency—Costs of power production and distribution can vary dramatically during the course of a day, a week, and a year as some plants operate only for the hours of peak demand. Yet standard rates present constant cost signals to consumers rather than the actual fluctuations in costs. Demand response programs provide incentives for customers that are able to reduce and shift loads, which not only benefit the program participants but all customers. The result is a more efficient use of the power generation, transmission, and distribution systems.
• Bill savings—Energy savings achieved during demand response periods typically translate to bill savings and are reinforced when load reductions are further rewarded with incentive payments. Electric bill savings could reach about $7.5 billion per year in the United States according to a study for the Federal Energy Regulatory Commission (FERC).[4]
• Cost reduction—While similar to bill savings, cost reduction is more of a long-term benefit. Demand response reduces the long run costs of new power plants, defers new and expanded high voltage transmission systems, and mitigates the overloading of low voltage distribution systems.
• Environmental quality—To the extent that peaking power plants are old and inefficient, their reduced use can improve the environment. Even where peaking power plants are relatively clean in terms of emissions, demand response that results in a net reduction in energy use can improve environmental quality.
• Customer service—Demand response provides something that customers want—a choice. With demand response programs, customers that are able and willing to adjust their electricity usage for a few hours have another way to manage energy besides simply using less.
• Risk management—Providers of retail electricity must cover the risks of price volatility in wholesale markets if retail prices are less volatile. Demand response programs help cover those risks through greater energy availability, reliability, modularity, and dispensability.
• Market power mitigation—Market power refers to concentrating the central generation capacity into a few organizations. Demand response programs with hundreds, and indeed thousands, of owners of distributed assets can be called upon to help mitigate market power.
• Complements to energy efficiency—Demand response resources are discontinuous or occasional since they are only called upon for a few hours at a time. Energy efficiency actions are usually more permanent or continuous. Even where energy efficiency investments are made, there is opportunity for demand response participation.
LOAD RESPONSE PROGRAMS
Load response programs include those where the customer is responding to requests for short-term peak load reduction. They are sometimes referred to as “reliability-driven” programs in contrast to “market-based pricing” [4] programs.
Load response programs may be divided into two classes. The first is where virtually the entire facility or operation is interrupted. The second is where part of the facility reduces demand on the power grid so that the load is curtailed.
Interruptible Load Response Programs
Interruptible load response programs operate, as the name suggests, where the customer’s entire facility or operations must be interrupted or shut down. A few circuits may be exempted to support lighting, HVAC, communications, and computer services in the administrative portions of the facilities. However, the major proportion of the electrical load is made up of much larger uses of power (e.g., production lines) which may be reduced through power interruptions.
A feature of interruptible programs is the ability of the utility to control the power flow. Thus, a feeder may be opened to prevent power to flow to the participating facility.
Another feature is that participation is voluntary and mandatory at the same time. Customers are free to join interruptible programs; however, once in the program, they must agree to power interruptions.
The incentive has historically been quite attractive to certain types of customers. Typically customers are rewarded with a lower rate that can prove to be a significant discount over the course of a year. In exchange, the customer agrees to interruptions. In most jurisdictions, the customer rarely has power interrupted. Thus, over decades of operation, these customers took advantage of the rate discount without any particular cost or inconvenience. And utilities offered the rate more as an inducement for economic development purposes to lure new facilities to their service territory.
Failure to perform or comply can be expensive. Penalties may be applied to facilities found not to be interrupting. These penalties can be quite substantial and may in fact negate the savings from the year-round rate reductions. Among other features, warning times of no more than 30 min may be imposed before interruption is required.
Participants in interruptible load response programs are typically industrial customers. One reason is that the utilities prefer larger operations with significant load reduction potential. A second is that industrial facilities are more likely to be subject to competing economic development offers, compared to commercial facilities such as office buildings or hospitals.
Load Curtailment Programs
These programs allow facility owners to curtail parts of their operations rather than entire facilities. Another feature of load curtailment programs is that smaller facilities may be eligible since lower thresholds of load reduction potential may still qualify. For example, many program participants must be able to provide only 100 kW of load reduction to qualify.
Another attraction of load curtailment programs is the voluntary nature of participation. Not only is selection into the program voluntary, each curtailment event may be voluntary. That is, when the utility calls for a load reduction, the customer may choose to curtail and get paid for the reduction or to continue operations and pay the price per the agreement. The customer may not be mandated to reduce their load, but failure to meet target load reductions can result in penalties. However, the penalties are not usually as severe as with interruptible load response programs.
Another feature is advance warning. Some programs may provide a 24-h notice before the curtailment event. Others offer a 2-h notice and others still a 30 min notice. Payments to customers for load curtailment may increase as the length of advance notice decreases.
Total power reduction may take place for certain facilities, such as those with standby generators sufficient to carry an entire facility or operation. While load curtailment implies a partial as opposed to total load reduction in most programs, customers may elect to provide the maximum load reduction possible by disconnecting from the grid either figuratively or in fact. In this case, the customer’s load is generally met by standby generators designed to carry the entire facility.
Demand Buyback Programs—Pay for Performance
One variation on the operation of load curtailment programs is the demand buyback program. Also known as pay for performance, customers curtail loads in a two-step process.
First, the customer is notified by the energy supplier that a curtailment event is likely and bids will be accepted for peak load reduction. The customer decides whether to exercise the option of offering a certain amount of load reduction. The customer may also be required to suggest the price it wants to be paid in order to participate.
Then, the energy supplier has the option to accept the offer from the customer. Once accepted, the customer is typically obliged to meet the load reduction target in exchange for the customer’s requested incentive.
The notice that a customer may receive before the possible curtailment event may vary from an hour to a couple of days. Once the customer bids and the energy supplier accepts the bid, the transaction should go through. If the customer does not shed load, a penalty may be imposed by the utility. The size of the penalty may be determined by various factors: the penalty may be based on just the load reduction that failed to materialize, or it could be based on the total load reduction promised under the buyback arrangement.
The amount of the buyback incentive may vary from event to event. Similarly the penalty may vary by event. The incentive may be based on kilowatt-hour reductions, kilowatt reductions or some other measure of performance. The incentive amount plus the performance achieved should determine the payment for customer participation.
COMMERCIAL BUILDINGS AND DEMAND RESPONSE SOLUTIONS
There are many ways to operate facilities for peak demand management.1-5-1 Many of these solutions not only reduce peak demand but also save energy. Of course, any combination of solutions will vary by geography as well as from facility to facility and industry to industry.
Before participating in a demand response program, it is helpful for a facility to conduct an audit of the potential for peak load reduction. The utility that sponsors the demand response program may even provide an audit at no charge to inventory the facilities and equipment for their potential load reduction. An added benefit may be that in addition to obtaining a report on its peak load management opportunities, the audit may also suggest how the customer could increase general savings from energy efficiency upgrades.
The asset management options or resource solutions for demand response may be divided into practices requiring little investment and measures defined by significant investments. The asset options may also be divided according to energy end-uses as presented below.
Lighting represents a significant opportunity for load reduction. During peak periods, turn off unnecessary lights, including storerooms, mechanical rooms, wall washers, and spotlights. For retail facilities, this includes display lights on low-value or on-sale merchandise. In office settings, turn off lobby lights and a portion of hallway lights. In all cases, its advised to turn off exterior lights that happen to be on during the day. If the facility is wired for demand reduction potential, turn off selected lights on circuits with separate controls. For example, some fixtures allow users to turn off half the lights in a luminaire or turn off some fixtures while others continue to operate. For example, some circuits allow one row of fixtures to be turned off, while the adjacent row operates. Other lighting reduction options for peak periods include turning off lighting next to windows. Alternatively, dim lights where turning off lights is not feasible.
Air conditioning represents another large opportunity for reducing electricity usage. Options to reduce peak demand include increasing temperature set points on air conditioning thermostats and relying on outside air for cooling using economizers when weather conditions permit. With advance notice of a few hours or a day before an event, there is time to pre-cool space below normal temperatures prior to peak load conditions. Also, rotate the operation of chillers and packaged rooftop units and turn off condensing units while maintaining fan operations to continue air movement. If there are two-speed compressors on rooftop units, use the lower speed. Institute soft start procedures for multiple air conditioning units and let them coast during peak periods. Thermal energy storage is an air conditioning option that may be worth the investment, particularly in new facilities. This allows air conditioning to be supplied from chilled water or ice stored in tanks during peak hours. All of the air conditioning load can be moved off-peak with large thermal energy storage systems. Even partial systems allow substantial loads to be moved off peak.
Heating systems offer some potential as well for alleviating peaking electric systems in the winter. Options include reducing temperature set points on heating systems and pre-heating space above normal temperatures prior to peak load conditions. Electric thermal energy storage systems allow for off-peak charging at night with heat provided during peak daytime hours.
Ventilation options include installing carbon dioxide sensors that allow air intake to be reduced during peak hours, when levels of indoor air quality are acceptable. Reduced ventilation with outdoor air means less air conditioning load and reduced use of space conditioning systems. Separate carbon monoxide sensors for garages may prevent the operation of supply and exhaust ventilation systems that operate continuously, even though traffic patterns may only warrant operation for a few hours each day. Where permitted by codes, the carbon monoxide sensors can be tied to energy management systems and significantly reduce fan operation during peak load hours with little traffic.
Finally, building automation systems allow peak load strategies to be introduced reliably and consistently for the aforementioned air conditioning, heating, ventilation, and lighting systems. Automated controls also allow for the consolidation of multiple sites on a real-time basis to enable a single point of operation.
Options for commercial refrigeration including turning off some units for a few hours, postponing defrost cycles, staging operations to gain load diversity, and turning off electric strip heaters designed to remove moisture from glass covers. Water heaters are excellent candidates for peak load management, where storage capacity allows a facility to cycle units off for several hours.
Any facility with standby generators for emergency operation may be a candidate for operation during economic peak load management events. If cost-effective for such economic load management programs, facility owners may want to make upgrades to operate fully powered by the generators while in parallel to the electric grid. Another generic strategy for peak load reduction is to take some of the elevators and down escalators out of service for a few hours each day.
INDUSTRIAL DEMAND RESPONSE SOLUTIONS
Industrial facilities also present numerous opportunities to reduce and shift loads for several hours at a time. Some facilities can act within seconds of notification and most within the half hour. However, many facilities prefer advance notice of 2 h or a full day. The greater the advance notice the more consumers can do to reduce electric loads.
Prime candidates for demand response are facilities with storage capabilities in terms of their production materials and product shipping inventories. Air separation plants that produce oxygen, nitrogen, and other gases are examples where products can be stored and inventories managed. These plants operate automatically, and often remotely, allowing few complications with labor and other management considerations to accommodate requests for peak load reduction.
Water storage operations provide other options to reduce peak load. Manufacturing facilities with significant demands for water can coast through load curtailments by relying on stored water. Or, storage tanks may be filled at a slower rate during curtailment events, allowing some net drawdown of water supplies, and then the tanks can be replenished to capacity during off-peak conditions.
Public water delivery systems present a complex mix of pumping, gravity, and storage. With proper configuration, the pumping systems can be shut down or slowed to reduce peak loads. In wastewater treatment plants with multiple aerators, several options are available. One is to turn off the aerators for a few hours. Another is to cycle them so not all units are running at the same time. Still another option is to slow the aerators operation with variable frequency drives on the motors.
Refrigeration systems can assist in reducing peak loads with sufficient notice. A day’s advance notice allows operators to pre-cool refrigeration cases to a lower than normal level and then coast through the curtailment period. Or, refrigeration temperatures may be permitted to migrate upward by a few degrees during curtailments and be restored afterwards.
Batch processing operations also lend themselves to curtailment. Once a batch is completed, the process may be halted and the load reduced until the curtailment event is over. In some processes, batches may be interrupted and then restarted without complications.
Continuous processing operations are also candidates for peak load management if they can be slowed down. Plants with variable frequency drives on pumps and motors can slow their operations for a few hours and still maintain some production.
Compressors are a large consumer of energy and present many options to save energy and peak demand. Plants with sufficient compressed air storage may be able to turn off the compressors for short periods of time. Plants with multiple compressors may be able to rotate their operation and reduce peak demand from simultaneous operation.[6]
Industrial processes with standby generators may not need to change their production operations at all. Generators may pick up significant portions of the internal plant load and free up capacity on the power grid for other purposes.
RESIDENTIAL DEMAND RESPONSE SOLUTIONS
Residential programs for demand response are in place with tens of thousands, and in some utilities, hundreds of thousands of homes participating. Three resources may be targeted for peak load reduction: central air conditioners, electric water heaters, and swimming pool pumps.
The large majority of demand response reduction comes from central air conditioners. While an average load reduction of 1 kW per residential air conditioner during peak summer periods may seem small, when aggregated over numerous households the available load response resource is significant.
Improved technologies are driving the growth of demand response with residential appliances such as air conditioners. In the 1980s, control switches were typically installed on outdoor condensing units of air conditioning systems. The switches were conspicuous and subject to damage. Now, special controls can be installed internally and linked with smart thermostats to cycle climate control systems. Also, new systems allow customers to override the controls on an exception basis and therefore increase load reduction participation rates.
Another improvement in load cycling has been with communications systems. Legacy products received signals to interrupt operations without an ability to acknowledge the request. Now, two-way communications are possible, allowing for more sophisticated control strategies and incentive plans to encourage wider participation.
Another improvement is in the measurement and verification of electrical usage. With better communications, it is possible to determine if systems are being cycled and for how long. Also, improved database systems and management software foster more robust and dependable measurement and verification protocols.
New technologies also allow alternative programs including different cycling strategies that can be varied according to a participant’s energy settings and energy use. When controls are sensitive to natural duty cycles there is greater reliability in achieving optimum reductions. Also, there are more alternatives for different types of incentive plans such as those based on the number of cycling events, override frequencies, temperature adjustments, and the temporary shutdown of the compressor system for several hours under 100% cycling.
Load management strategies range from 25% cycling, where units are cycled off only seven and a half minutes per 30-min period, to 100% cycling where the compressor may be turned off for the duration of the event. Cycling can also be exercised from less than 2 h to over 6 h per day. A risk of cycling too short in hours and too low in percentage of time off is that the natural duty cycle is being replicated with little appreciable savings in peak demand.
An important advantage of load cycling is the ability to target certain neighborhoods and areas within a utility’s service territory. This can be particularly beneficial where specific parts of the electrical system are in danger of being overloaded from rapid growth or aging infrastructure.
METERING, COMMUNICATIONS, AND CONTROL
Metering
Extra metering is typically required for commercial and industrial facilities. The most common application is with interval meters. These meters record usage at least hourly and for many applications, on 15 min intervals. As demand response expands into more time-sensitive operations, 5-min intervals may become more common. Interval meters are also called smart, automated, or advanced meters.
Interval meters record electricity consumption in kilowatt-hours, while demand is recorded in kilowatts and time of use. Some meters calculate the maximum or peak demand over a specified time period such as a day, week, or month. When connected to a personal computer with a modem, interval meters offer the utility of a rich database to analyze energy use levels and patterns.
Interval meters are essential to estimating the load reductions achieved by demand response programs. Load profiles may be developed for each time interval on the designated curtailment days. The load profiles can then be compared with normal days to calculate load reductions on which to base payments.
Communications
Communicating and advance notice of curtailment periods are becoming more sophisticated. In the early days of load response, communications were made manually through a telephone call or by an automated notification arrangement over dedicated telephone lines. Today, there is a trend toward wireless communications where signals are quite economical in short bursts of airtime.
Often multiple forms of communication are employed to insure that facility managers and operators receive notice of planned curtailments. Thus, a request for curtailment may be communicated by some combination of FAX, telephone, email, and pager.
Two-way communications are another feature of many demand response programs. The end-use facility is configured to receive a signal and request for curtailment. In addition, communications are sent back acknowledging the receipt of the request and, just as important, the realtime load levels. Such communications based on the interval meter recordings and stored on a web-enabled personal computer may be sent to the utility, the grid operation, or an additional third party that monitors performance.
The availability of load performance is an attractive feature of demand response programs. This performance information may be of value to the corporate energy engineer, the store manager, the plant superintendent, and others in the customer organization. A facility’s finance and accounting departments may find the information of value, and, if participation may affect shipping schedules and sales, even those in marketing and sales.
Control
With data comes information, and with information comes control. Data from interval meters may be integrated with building management systems and energy management systems. These systems can control lighting, thermostat settings, equipment cycling, and other operations. Certain systems may be programmed to recognize a curtailment request and automatically shift into a different operating protocol to accommodate the event.
Residential applications are amenable to more sophisticated controls for load response. Programmable thermostats can be enhanced to accept signals for curtailment or cycling. Some thermostat models may also be configured to adjust the set-point by some specified amount, such as four degrees, with the effect of reducing air conditioning usage during the curtailment event.
Metering and communications are important in another way, namely by applying credit for a customer’s load response performance. Credit may be issued in the form of a check or electric bill reduction. Done manually, settlement or payment for load response can take months where multiple parties are involved in requesting and managing the load reductions. Advances in metering and communications help accelerate the settlement process.
ANCILLARY SERVICES
Ancillary services refer to such functions as regulation, spinning reserve, supplemental reserve, and replacement reserve on the bulk power grid.[7] Regulation services operate in fractions of a second to maintain the balance between power generation and customer loads while still maintaining voltages within required ranges.
Spinning reserve services are called upon in the event of a generator outage or transmission interruption. Spinning reserves need to be synchronized to the grid and meet capacity within 15 min. Supplemental reserves are similar to spinning reserves but do not need to be synchronized immediately, as long as they can reach capacity within 15 min. Replacement reserves are similar to supplemental reserves but have a 30-60 min window to reach capacity. The supplemental and replacement reserves may be called upon to replace spinning reserves, allowing the spinning reserves to stand down and be ready for another contingency.
Traditionally, ancillary services have been provided by central generation plants. Plants are kept in spinning reserve, but not under load, in the event that there is a system failure on the grid and additional load is needed suddenly. The reserves must be able to supply capacity and regulate power within minutes.
However, many demand response resources perform within the short time deadlines needed to supply spinning reserves. Some demand response resources can respond within seconds. For example, standby generators can respond within 10-15 s.
As another example, air conditioner cycling programs for residential and small commercial buildings can be signaled within a minute. If called upon for spinning reserves, cycling programs are even more advantageous, since they can easily operate for the minimum of 30 min required by ancillary services.
When air conditioner loads are interrupted to meet needs for spinning reserves, the available capacity can be triple the amount of capacity that is available compared to cycling.[8] The reason is that cycling disrupts, but does not necessarily eliminate, the natural diversity of air conditioner operations over each 30 min cycle. Interrupting loads for a spinning reserve can prevent even this part-time operation over 30 min.
The 30 min time period allows central station generation resources to come on line and make up for the capacity lost in spinning reserves. Then, the cycling schedule can be discontinued and the resources once again are available in standby to provide spinning reserves. Multiple parties are satisfied since power plants can operate for hours to meet system needs, while if cycling programs operate for too many hours, the customers may start to experience more discomfort and inconvenience than they are not likely to notice in a 30 min event.
Another benefit is that the aggregation of many demand response resources, while small individually, makes it highly probable that the assigned ancillary services will be achieved in total. This means that demand response resources are more reliable, when compared to a central generation resource, where the failure of one turbine could cause large losses of spinning reserves.
Compared to central station power plants, demand response resources can help “level the playing field” by providing an equivalent capacity, with high reliability, in an economic manner.
ECONOMICS OF DEMAND RESPONSE
By balancing financial benefits with costs, the primary motivation for end users to manage peak loads is economic. Whether the customer is residential, commercial, or industrial, incentives must be sufficient to cover whatever costs, inconvenience, and perhaps discomfort that may arise with load reductions. Furthermore, electric bill savings may be realized through reduced usage.
Another motivation to participate in demand response programs is for community reasons such as helping to improve the environment. A third motivation is to gain information about energy use and operating conditions associated with the more detailed monitoring protocols attendant to demand response programs.
Incentives may be paid from multiple parties. Grid operations are willing to pay for demand response resources at many times the normal electric rates. For example, in 2004, the New York Independent System Operator and the Independent System Operator of New England offered $500 per megawatt-hour or 50 cents per kilowatt-hour for load response resources during peak hours on the grid.
Other parties that may pay for demand response resources are traditional utilities with operations that are vertically integrated from the power plant to the meter, or utilities with only distribution businesses attempting to reduce high demand charges. There can be third parties such as curtailment service providers that make a business of aggregating customer loads to bid into demand response programs.
A key consideration in the economics of demand response is the cost of metering, communication, and control. In some cases, the cost may be underwritten by utilities, grid operators, and even government agencies with energy responsibilities.
There may be other costs to consider, such as modifications to production equipment to increase capacity or improve controls. Of course, labor costs associated with interrupting operations are a factor, particularly if overtime wages must be paid to accommodate the shifts in production schedules.
In general, it is advantageous to anticipate demand response opportunities when building new facilities or upgrading load capacity and operations. As demand response programs continue to expand in size and scope, the relationship of benefits and costs for participation should continue to improve.
CONCLUSION
Load response programs, as one of the principal forms of demand response, are an important way to achieve peak load management in electricity markets. There are many benefits including increased reliability of the power grid, higher efficiency of energy markets, and increased savings in consumer energy bills. Load response can be achieved in commercial, industrial, and residential buildings from numerous assets including air conditioning, water heating, and refrigeration. Standby generation equipment is a common asset deployed for load response in commercial and industrial facilities.
Load response programs are enabled by improved technologies in metering, communications, and control. The economics of load response favor utility systems with high costs, such as those associated with capacity shortages, operating inefficient units at peak loads, and transmission bottlenecks. Financial rewards from load response are expanding beyond the traditional markets for generation and transmission capacity shortages that may be anticipated hours or days in advance. Load response is gaining acceptance in ancillary services markets to provide stability on the power grid with only a few seconds or minutes notice.
