Demand Response (DR) is the deliberate reduction in electric consumption by energy users in response to system needs, such as periods of peak demand, high wholesale market prices, or system emergencies. DR resources can act as capacity, energy, and ancillary services products and can defer or eliminate the need for new supply-side infrastructure like peaking power plants, transmission, and distribution assets. Utilities and grid operators can also rely on DR as an economic resource that reduces the overall cost of power.
Demand Response 2.0
There are two general categories of DR: Price-based programs and Capacity-based programs. Under dynamic pricing regimes – such as critical peak pricing and real-time pricing – users make a voluntary decision to change behavior in response to varying retail electricity rates. Capacity-based DR resources, by contrast, are generally structured as firm resources. While system operators can’t be assured that users will respond to changes in retail pricing, capacity-based DR programs can be structured as a dispatchable, reliable resource.
Participating electricity users are usually paid incentives, typically cash payments or rate reductions, for their agreement to reduce consumption temporarily when dispatched for DR events.
In many ways, dynamic pricing and capacity-based DR models are complementary; in fact, the California Public Utility Commission recently issued a proposed decision that users can participate in both types of programs concurrently.1
Capacity-based Demand Response in the 21st Century
Dynamic pricing and capacity-based DR programs are directly responsible for reducing a substantial and increasing percentage of peak demand in the United States. A recent study by the Federal Energy Regulatory Commission estimates the total potential for DR to be as high as 20 percent of peak demand in 2020,2 with approximately 41 gigawatts built out today.3
While a variety of studies have shown that dynamic pricing has system benefits, there is a large market for dispatchable, capacity-based DR resources that utility operators can deploy to address a variety of individual system needs. In many cases, utilities chose to outsource the development and deployment of this resource to a third party DR expert (sometimes referred to as “DR aggregator” or “curtailment service provider [CSP]”). In fact, CSPs reportedly already manage over 10,000 megawatts (MW) of DR capacity across the U.S.4
Capacity-based DR is not a new concept – interruptible tariffs for large customers and residential direct load control (DLC) programs for residential customers have existed since the 1970s. But today’s DR is different. In the era of the smart grid, utilities are evaluating and implementing a broad spectrum of technologies for improving system efficiency and driving down costs, integrating renewable resources and demand-side technologies, and generally increasing the level of customer responsiveness to price and other system signals.
What to Expect from Today’s Demand Response
- It’s real, and you can see it. Many DR programs leverage the capabilities of advanced meters or other monitoring devices with two-way communications, which can provide real value to utility operators as they are able to reliably measure DR reductions in real time. Previously, system operators had very little visibility into DR reductions. Consequently, system operators were often skeptical about the reliability of these resources.
- It’s dispatchable – and gives utility operators complete control. Dispatchable DR resources give utility operators the control they need to keep supply and demand in balance continually. Many demand-side management initiatives – e.g., energy efficiency and load shifting programs – permanently reduce kilowatt (kW) and/or kilowatt-hour consumption, but don’t provide direct benefit to system operators that are actively running systems in real time.
- It’s reliable and can be automated. Technology is available that automates DR reductions (often termed “AutoDR”), which can make the resources more reliable. In many cases, CSPs provide financial guarantees that the demand reductions will be delivered.
- It’s customized to meet precise system needs. CSPs can customize DR programs to meet individual utility needs – and utilities can dictate features like notification period (e.g., 10 minutes, 2 hours), when the resources are available (e.g., year round, during business hours), and how often the program can be dispatched per year (e.g., 20 hours, 80 hours).
- It’s scalable, can be built quickly, and can be expanded over time. Unlike a peaking power plant, which can take years to permit and construct, DR is quick to market and can scale easily.
- It is a complement to increasing levels of intermittent renewable resources. As states are adopting aggressive renewable portfolio standards, DR can help operators accommodate the incremental variability and uncertainty added by wind and solar energy in a more efficient and cost-effective manner than traditional fossil-fueled resources.
Tampa Electric has supplied the Tampa Bay area with electricity since 1899 and currently serves more than 670,000 customers within a service area that covers 2,000-square-miles across west-central Florida. Like many utilities, Tampa Electric is facing increasing system demand, higher costs, and a strong need for an environmentally responsible solution for managing peak demand. The company, which was already active in numerous demand-side management programs including interruptible rates, residential direct load control, and more, began looking at DR as a cost-effective option in 2007.
“We were intrigued by DR and open to the possibilities,” recalls Howard Bryant, manager of rates and regulatory affairs.
Tampa Electric recognized that DR was an effective way to balance the utility’s needs for reliable capacity and financial performance, with an opportunity to improve customer satisfaction.
“As an electric company employee, I recognize that we’re here to serve our customers and deliver a return to our shareholders,” says Jackie Perrone, manager of energy management service at Tampa Electric. “Programs like DR show that we can accomplish both of these goals in an environmentally-friendly way.”
After carefully evaluating its options, in 2007, the company partnered with EnerNOC to deliver up to 35 MW of DR capacity. The Tampa Electric program, which runs year-round, from 7:00 am to 7:00 pm on weekdays, gives participants 30 minutes advanced notice of events, which can last from 1-8 hours.
With the program rules established, Tampa Electric needed to get the approval of the Florida Public Service Commission. “The Commission clearly understood the value and potential of DR,” says Bryant. “But they were concerned about turning it over to at third party. Could we count on getting the capacity when we asked for it? Would they be able to perform?” Following regulatory scrutiny, the Tampa Electric DR program received approval in late 2007 and the implementation process began.
In October 2008, the first major test of the Tampa Electric program was conducted, and the system over-performed by approximately 12 percent of the nominated capacity. Success was driven by a number of factors: the close working relationship between EnerNOC and Tampa Electric to recruit commercial, institutional and industrial customers into the program, and a technology-enabled approach to DR.
First, a list of target customers – primarily middle-tier assigned accounts with the potential to participate in DR without any discernible impact on business operations – was identified. “For us, getting accounts signed up
for DR was secondary to a more important goal – the customer had to be happy throughout the process,” says Al Grinnell, commercial and industrial account manager at Tampa Electric.
Once each site was evaluated to identify energy reduction strategies that would work within each company’s specific business parameters, the team installed, programmed, and tested communications and relay equipment, so that real-time energy consumption data could be collected and used to verify the impact of the site’s demand reductions. The entire process was done in close collaboration with the candidate companies, each having different needs, concerns, and levels of knowledge about energy. Moreover, this was all done at no cost to the end user.
With the right mix of customers enrolled in the program, responsibility then shifted to the network operations staff to ensure that events were executed seamlessly. With millions of dollars invested in its DR technology and a modern Network Operations Center (NOC), thousands of DR sites are monitored throughout North America, including Tampa Electric customers. The NOC is staffed by a team of analysts that, among other event readiness activities, are on standby 24/7/365 to coach DR participants to success during an event.
In the end, the DR system proved to be a reliable method of addressing and reducing summer and winter system peak demand. Among the chief benefits, Tampa Electric cites the delivery of a complete end-to-end solution – including program design and implementation, customer recruitment and retention, site enablement, event dispatch and management, reconciliation, and verification – while enhancing the Tampa Electric brand amongst its customers. “We wanted Tampa Electric to be front and center throughout the process, and we were able to do just that,” says Bryant.
Specializing in authentic New Mexican cuisine, Albuquerque Tortilla Company’s popular food products serve restaurants and grocery stores throughout the Southwestern U.S. Succeeding in the food business can be difficult, even in a normal economic environment. But in 2007, Albuquerque Tortilla began experiencing major increases in its energy costs, ranging from a 17 percent increase in electricity rates to higher fuel costs for its trucking fleet. These escalating costs of energy created a major challenge for the company, which needed to carefully control its bottom-line.
“Many of our ingredients are commodities,” comments Ben Lovato, Albuquerque Tortilla’s general manager, who has wide-ranging responsibilities within the company. “We try to lock in prices on items like flour and shortening for a year or more, which lets us anticipate and control costs. But energy is another story,” Lovato says.
In late 2007, ATC’s managers met with EnerNOC and PNM – their electric utility provider -- to learn about DR. Initially, being paid to temporarily reduce electrical use during grid emergencies sounded too good to be true, but a thorough discussion of the PNM Peak Saver program finally convinced Albuquerque Tortilla that there wasn’t a catch.
“When we heard about other savings programs, we weren’t given the whole story,” says Pete Martinez, director of operations for Albuquerque Tortilla. “But all of our questions were answered and we learned precisely how the PNM Peak Saver program could actually generate real revenues, not just save us a dollar here and there.”
These discussions led to a thorough evaluation of electrical usage across Albuquerque Tortilla’s complex, large-scale operation -- from its food production line to its storage freezers. EnerNOC and PNM worked closely with Albuquerque Tortilla’s facility staff to gain a clear picture of what energy-consuming equipment might be a possible candidate for adjustment or shutdown during a DR event.
Encouraged by this evaluation, Albuquerque Tortilla Company enrolled in the Peak Saver program in 2008 at the 450 kW level. The program runs from June to September and provides a 10-minute advance notification of an impending DR event. During an event, the DR system makes remote adjustments to Albuquerque Tortilla’s freezers, coolers, and air conditioning units, enabling the company to achieve its full 450 kW reduction. The freezers are capable of maintaining temperature control limits for 4-8 hours and beyond. Notably, Albuquerque Tortilla can override any of these changes if necessary, giving the company full control over its production facility during DR events.
DR events are largely invisible to the company’s 300 employees and have no effect on food production, quality, or safety. The company’s main food production operation continues to operate on an uninterrupted basis.
During DR events, the customer and provider jointly monitor Albuquerque Tortilla’s energy use through a web-based monitoring software, which provides a real-time view of energy consumption. “We have access to the same data and charts as EnerNOC in Boston,” says Lovato, “so we can always see exactly what’s happening and make any necessary adjustments.”
Participating in the PNM Peak Saver program enables Albuquerque Tortilla to continue to meet its main goal – delivering high-quality, consistent food products to its customers – while also conserving energy resources and saving money. Since its main food production line isn’t affected by DR events, the company can be confident that its high standards for quality and safety are still being met. And temporary adjustments of coolers and freezers have no impact on the food itself. Participation also allows Albuquerque Tortilla to save more than $18,000 a year to help offset its rising energy costs. “We’re extremely happy with our DR system,” says Lovato, “because it makes a significant reduction in our overall energy costs and also lets us monitor our energy usage in real time and on a continuing basis.”
In the past, many cooling units could only be adjusted by sending workers up to the roof, which is an inefficient, time-consuming, and risky approach. Now, centralized control and ongoing monitoring give Lovato and his team new insights into how the company is using electricity, as well as more control over it. These adjustments result in even more energy reductions and savings beyond the company’s annual DR event payments.
While there are many benefits to participating in DR, it’s not just about the numbers. Albuquerque Tortilla is a family-owned business that is deeply rooted in its community. Participating in DR allows the company to support its community in a new way; that is, protecting local businesses and residents from blackouts, brownouts, and other electrical issues while also conserving precious natural resources and helping to protect the environment.
About the Author
Brad Davids, is Vice President of Utility Solutions at EnerNOC, where he manages the company’s activities to expand demand response and energy efficiency program implementation with utilities across North America. Previously, Mr. Davids was Vice President of IDC Energy Insights, a provider of research-based advisory and consulting services focused on technology and business developments impacting the energy industry. He also served as President and CEO of Primen Inc., Vice President and Division Manager at a for-profit subsidiary of the Electric Power Research Institute (EPRI), and Senior Vice President and co-founder of E Source, Inc., among other senior management roles at the intersection of technology and the energy industry. Mr. Davids holds a Bachelor of Science with Distinction degree in mechanical engineering, and Master of Science degree in mechanical engineering, both from Stanford University.
