What is Demand Response And How Does It Work?

At its simplest, demand response, or demand side response, financially incentivises energy users to turn down or turn off non-essential energy use at times of peak demand, allowing broader demand to be met without additional generation. It also creates a network of potential energy generators that can be called upon to switch on flexible, smaller capacity generation when needed, rather than larger generation plant at part capacity.

Why Is It Needed?

The National Grid has to maintain a certain level of energy production above average demand, about 2.3GW of operating margin, known as ‘headroom’. This margin is maintained to cope with plant going down, or unexpectedly high peaks in demand. It is also used to deal with not just the size, but the speed of the peak, which can be equally problematic.

Maintaining this margin involves ensuring generation capacity exceeds any possible peak, which in turn means part-loading power stations (see example, over the page). However, power stations are at their most efficient when running at 100%, so this means a more inefficient grid. Demand response is designed to provide the margin or headroom needed, either by generating energy or reducing usage. This would allow for fewer power stations, running at optimum rate – essentially allowing demand response to deal with any peak or outage in normal supply.

By balancing the grid, long-term, greater take-up of demand response among UK businesses could help negate the need for new fossil fuel fired generation plant. Plus, demand response is also a green energy enabler, making the less reliable output of renewable generation more attractive for UK business.

The potential environmental benefits are estimated to be between 300 and 750 tonnes of CO2 saved per MW of reserve provided by demand response.

Why Do Demand Response? What Are The Benefits?

One primary business argument for demand response is cost. Demand response not only allows businesses to avoid higher energy prices during times of peak demand, it will also create revenue for those businesses with onsite generation capacity when the grid draws on it.

However, there are other benefits in terms of security of supply and environmental impact. In terms of security of supply, on a macro level, balancing the grid is a win for everyone, avoiding the possibility of brownouts, or worse. At a business level, there is also normally a substantial increase in the reliability of the site’s emergency power supply. Standby generators are there to provide emergency power if the mains supply fails. A demand response programme can help ensure the engine is tested ‘on load’, keeping the standby generator healthy, resulting in safer and cleaner running in the event of an emergency.

Environmentally, demand response reduces national carbon emissions, and by providing a more flexible system, enables and incentivises onsite renewable generation. It also supports a greener grid by encouraging businesses to ‘turn up’ energy use during periods of peak renewable generation when there is an excess of green energy available, and enabling them to ‘turn down’ usage during periods of higher demand.

What Does Demand Response Look Like In Practice?

In a retail space – a supermarket, for example – it might be possible to adjust the amount of energy going into the cold stores for short periods of time without disrupting the business, or damaging stock. In a manufacturing plant, production can be cut or boosted at noncritical times to reduce or increase energy demand.

How Often Will Demand Response Be Activated, And How Long For? Can I Say No?

This depends on the type of demand response (see ‘What are the different demand response options?’). It ranges, however, from 10 times per year to 250 times per year. Most services are fully automated, and site equipment responds immediately. In some cases, the site may deliver the full demand response capacity inside one second. In other cases, equipment might take up to 15 minutes to respond, depending on what it is. Events generally last between 30 minutes and four hours. Generally, the faster the response, the shorter the time the site will be asked to deliver for. Ultimately, the demand response customer can intervene and halt demand response at any time via an onsite control mechanism.

Do I Need To Be An Intensive Energy User?

Demand response is usually measured in capacity terms rather than consumption or output terms – the flexibility or capacity within the system (including both the capacity to generate and the capacity that can be switched off). Third party providers can work with sites offering a broad range of capacity, though 200kW with the flexibility to deliver up to 200 hours of demand response over a year realistically represents the lower end of the scale to make demand response economical.

There is no upper limit, though those at the higher end scale may choose to go direct to National Grid (see next section). The revenue available from demand response will depend on the individual case.

Who Does It?

There are two main options: work directly with the National Grid or work with a third party aggregator who will work with it on your behalf.

The benefits of a direct relationship include businesses gaining experience of direct contract management with National Grid. There are also no fees to pay to a third party, meaning companies can potentially make more money through this arrangement. However, it means having the understanding, resource and responsibility for in-house demand response management.

Working with a demand response aggregator means the above is looked after by a third party company specialising in electricity demand side participation. The demand response aggregator will contract with the individual demand sites – industrial, commercial or residential consumers – and aggregate them together to operate as a single demand response provider, to help balance the grid.

The demand response aggregator then receives a percentage of the value created by reducing peak demand, balancing intermittent generation, providing a balancing service, or increasing security of supply.

The Association for Decentralised Energy (ADE) is developing an industry-backed code of conduct for demand side response aggregators. This is intended to ensure high standards, so businesses enjoy peace of mind when choosing how they provide demand response.

What Will Implementing Demand Response Involve On My Site?

First the business or its demand response provider must ensure that site processes, and the site itself, are suitable for demand response participation. Intelligent ‘out stations’ are then configured to each site and are taught the ‘rules of engagement’, including how to measure power and dispatch electricity reserve, or frequency response. The out station will also know the ‘no go’ areas in terms of demand response and the site’s operations to ensure critical operations are not affected.

The system needs to be tested to ensure the site responds to a STOR or demand turn-up call (see ‘What are the different demand response options?’), or a frequency event, as appropriate for the site. Staff must be trained to know how demand response will operate, when and how to communicate with the provider, and how to opt-out if they need to.

What Are The Different Demand Response Options?

Short Term Operating Reserve

Short Term Operating Reserve (STOR) is needed because at certain times of the day National Grid requires a greater store of reserve power – in the form of either generation or demand reduction – to be able to deal with actual demand. This can be because overall demand is greater than forecast, or because of generation plant unavailability. If frequency response cannot provide the required total power, the grid may issue a call for STOR, involving shutting down consumption, or turning on generation, depending on the demand response site and what it has to offer. Ideally, the grid requires a response within 20 minutes to get a good price for the electricity generated.

Frequency Control Demand Management

Frequency Control Demand Management (FCDM) is required in order to cope with large deviations in frequency caused by the loss of power generation on the grid. It is a fast-acting demand response service, which responds in under a second in some cases. It is unusual for this activity to last more than half an hour.

FCDM provides frequency response to the electricity grid through the interruption of demand at demand response customer sites. The electricity demand is automatically interrupted when the system frequency transgresses the low frequency relay setting on the demand response provider site. Demand side customers who provide a service such as FCDM are prepared for their electricity demand to be interrupted for a 30-minute duration. Interruptions such as these may occur 10-30 times a year, according to National Grid.

Frequency response can be either static or dynamic. Static frequency response waits for an event to happen on the grid – an outage at a power station, for example. When this occurs, the 50Hz ‘heartbeat’ of mains power drops because there is a loss of energy. A demand response provider will ‘clip’ industrial processes that are consuming electricity – i.e. turn them off – to compensate in the wake of the outage. Companies are compensated for the interruption.

Dynamic frequency response involves continually changing demand – either up or down – In response to variations in grid frequency. This is more technically challenging, and is only suitable for some sites. For example, with dynamic frequency response, a 1MW installation on a site might run at 75% of capacity to give a + or – 30% swing. Companies can charge more to provide this type of demand response.

Triad Management

Triads incentivise customers to do everything they can to reduce demand during peak periods of electricity consumption in the winter.

Triads are the three half-hour periods of peak demand on the electricity transmission network during the winter, from November to February. The transmission network uses triads to distribute higher charges between electricity suppliers. These charges are based on how much electricity is being consumed by the supplier’s customers during the triad periods. The energy supplier will reduce the burden of this additional cost by charging its customers a portion of the charge.

If consumers can reduce their electricity demand during these three peak periods, their charges will also reduce. Sites that can generate power can earn revenue based on payments from the transmission network, as opposed to charges.

Triad periods are not known in advance but are calculated after the fact. Predicting when a triad will occur is therefore complex. Demand response providers provide triad management to help customers save money in the winter. If demand is not reduced during a triad, customers will be charged extra for their electricity use.

Triads are currently under review, and it is not known if they will be replaced. If they are not replaced it is likely to mean greater demands on short term operating reserve (STOR). Ofgem is being encouraged by demand response providers and aggregators to undertake a review of the triad charging mechanism.

Negative Reserve

Operating margin is sometimes referred to as ‘headroom’. Negative reserve is known as ‘footroom’ or ‘demand turn-up’. Demand turn-up is about soaking up excess renewable energy and using it to power useful processes. For example, it can mean adjusting manufacturing schedules to make best use of available renewable energy. The demand response provider may receive signals from the National Grid requesting that it start up energy-consuming processes in order to make use of intermittent generation via renewable energy such as wind or solar.

The Capacity Market

The Capacity Market is part of the Government’s Electricity Market Reform package. The Capacity Market is intended to secure electricity supplies by paying extra for reliable sources of capacity. The full cost of this will be recovered from Britain’s electricity consumers – including businesses – from October 2016.