Everything You Need to Know About Demand Response

Electricity is a finite resource. And the power grid is similar to a scale that needs to be kept in constant balance. And when more power needs to be generated, those costs will be passed onto the customer.

This is why demand response programs are so beneficial to the consumer. Demand response programs help utility companies manage this delicate balance between supply and demand.

This allows costs to stay low for all consumers and businesses can actually earn money for participating in these programs. Keep reading to learn everything you need to know about demand response.

What is Demand Response?

Many different utility companies offer their own version of a demand response program. Some of the specifics will vary but the basic premise is the same.

Customers agree to voluntarily curtail their consumption of power if there is a shortage on the grid. And customers are reimbursed for participating in these programs.

A shortage happens when there is an imminent threat of a brownout or blackout in their immediate area. There are very well-defined guidelines that need to be met when a program is activated.

The Goals of Demand Response

  • Improve local reliability while ensuring grid stability and resiliency
  • Minimize the need for new natural gas-fired generation plants
  • Manage grid-level needs on an integrated basis
  • Assess clean, affordable, and reliable resources to meet future demand
  • Keep costs low for the consumer

Learn more about the benefits in this video by BOX and NRG

How Demand Response Works

At this point, you may be wondering what this program actually looks like in action. The utility companies will begin by looking at the customer and analyzing their consumption, as well as the industry they are in.

From there, the utility will make suggestions about how the customer can participate. Here is the six-step process all customers will go through:

1. Metering

The utility company will install a meter on the customer’s electricity meter. This provides real-time visibility into their energy consumption through an online portal. The portal also provides real-time updates so customers can see how much they are consuming.

This insight alone helps customers see how they can manage their day-to-day consumption. And it helps the utility track performance during a demand response event.

2. Reduction Action Plan

The next step is to work with the customer to develop a reduction action plan. The team will share best practices based on that customer’s industry. It also lets the customer know what is expected of them so they’ll be prepared when an event does happen.

3. Activation

An activation happens when the electric grid operator experiences a crisis or predicts a shortage in supply for the expected demand. The utility company alerts other energy companies that there is a need for an emergency demand response shutdown.

4. Notification

The energy company will alert all participating customers that they need to reduce their electricity use to prevent the grid from collapsing. The customer will be notified by phone, email, or text message. Customers respond by implementing their reduction action plan.

5. Performance

Performance is tracked through the online portal. Customer performance is determined by how much electric demand was reduced from their previously calculated baseline.

6. Payment

After the conclusion of the demand response season, customers receive a check equivalent to the kW they reduced. It’s important that customers know they will never be penalized if they are unable to participate. They are paid based on their participation so if they can’t participate, they simply won’t be paid.

Objections to Demand Response

The biggest challenge for demand response programs is finding new businesses that are willing to participate. The programs are voluntary but many businesses object to the idea of changing their energy consumption during an event.

Now that you know all there is to know about demand response, stay tuned for the next blog post which will explain how brokers can overcome some of the most common objections to demand response programs. Next, we will explain the various ways customers can participate and how these programs can benefit energy brokers as well.

Did you know that Engie has an ERCOT seasonal program centered around Demand Response? This custom economic program allows you to realize revenue on untapped market opportunities! Learn More Here

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