Creating Flexible Utility Systems Part II: Demand Response and Demand-Side Management

In Part I of this newsletter, I discussed the need for grid flexibility in a broader sense. I’d like to reiterate that we’re going to need every bit of flexibility and system resource optimization as we face challenges in expanding generation and infrastructure to meet exponential load growth. Here in Part II, I focus more deeply on demand-side flexibility.

Why? Because it’s familiar. Electric consumers (customers) have opted into “interruptible load” rate service ever since electrical rate tariffs/fees were widely adopted. Recent studies show that demand-side flexibility programs result in significant reductions, especially during peak hours.

Demand-side flexibility has evolved into what we now call Demand Response (DR) and Demand-Side Management (DSM). DR and DSM are parts of a suite of programs and mechanisms that shift — even reduce — load/resource consumption intended to cut the cost of electricity. This is a powerful way to lessen the need for generation and infrastructure investments. It also contributes to reducing carbon emissions. Although DR and DSM are often used interchangeably, they are not the same. DR programs typically shift electric demand in response to real-time conditions on the electric grid. DSM programs manage demand over the long term and cover energy efficiency as well.

Examples of DSM include switching to a heat pump from pure electric or adding insulation to a structure. DSM energy consumption reductions generally result in permanent demand reductions. A significant part of DSM is in the form of energy efficiency measures, such as installing new windows in an old home. While viewed by some as “old school,” energy efficiency measures are nonetheless critical to optimizing our energy use and reducing stress on our electric grids at this time of high load growth and fossil-fuel generation retirements.

DR covers consumption/resource-shifting incentives, like scheduling electricity use before it’s actually needed. Examples include pre-cooling spaces to avoid the need for cooling later, or reducing load temporarily to help lower system peak demand during critical times. Any appliance or device that consumes electricity through a residential electrical service panel or meter, commercial operation, or industrial plant can contribute to or participate in DR.

For a utility, demand-side flexibility is needed to alleviate grid stress, whether at the distribution (retail) level or bulk power system (wholesale) level. More utility customers are willing to participate in DR and DSM programs or initiatives, driven by several motivations: minimizing energy usage to lower their bills, contributing to sustainability, or helping alleviate critical grid conditions.

DR can be enhanced and taken to another level with onsite power generation, combined heat and power (the concurrent production of electricity and useful thermal energy from a single source of energy, according to DOE), or energy storage to alleviate stress on the utility’s grid. Distributed Energy Resources (DER), therefore, can also be a significant component of DR. These demand-side resources alter the net load as seen by the electric utility and open the door for possible power back-feed by the customer, further reducing the load observed by the utility.

In other words, customers no longer just consume power. They can actively and positively impact loads at their homes and businesses.

Programs enabling these “prosumers” and utilities to interact in this way are a classic win-win, giving economic and sustainability benefits to customers as well as helping the utility. The prosumer has become an active stakeholder in the balance of the grid.

For now, though, hold that thought.

Aggregate Programs for Greater Flexibility

Until recently, most utility DR programs were organized, and their impact measured at the distribution level. However, we have seen DR significantly impact the transmission grid under critical conditions. Aggregated DR programs are on the rise, and FERC Order No. 2222 enables the interactions between these aggregated loads and the bulk power system. It’s still relatively early, but aggregating various DR actions and programs at the distribution level to use as a resource at the wholesale, bulk-power-system level has taken hold in certain parts of the country.

DR aggregation and programs are more advanced and robust in areas with advanced smart grid technologies, those with high renewables penetration, or both. For instance, a study implemented in the New York electricity market showed promising results , providing demand flexibility for up to 18% of the nominal level of electricity consumption compared to the traditional system.

Collective electric load flexibility will make a big difference on our grids. It’s mind-blowing to know that just 0.5 kW flexibility from 10,000 customers could provide the equivalent relief of a 5 MW community battery. Scale to a million customers, and we could potentially eliminate the need to build a new 500 MW power plant. And we have even more opportunity when we take the savings in energy losses through the delivery systems. That is why aggregation is so critical when driven to another level by customer subscriptions/commitments and more control/management by an aggregator or a utility. This is important because utilities need to be able to depend on this resource to contribute toward reliability and provide resilience.

Managing DR through subscriptions might seem like a radical idea to some. Most DR programs to date have involved uniformly asking customers to turn up their thermostats for three hours a day or asking them to respond to a certain electricity price signal.

However, utilities are starting to migrate to simple subscription-based DR program models as they recognize that simpler is better.?

One example is a commitment by the customer to subscribe their thermostat to the utility so that it can leverage the thermostat a set number of times within a month, with temperature variation not to exceed three degrees.????????????????

So now the customer is a stakeholder in grid operations and in the energy equation balance, with their electricity usage and resources maintaining system reliability and affordability. Achieving that level of recognition and active engagement of the customer as a stakeholder will unlock significant opportunities for demand-side flexibility that will allow us to build an efficient system from the ground up. This will also result in communities putting their resources together to form “grids within grids” and achieving greater engagement in equity measures.

Moving Beyond the Barriers

Once greater flexibility is achieved, customers’ electricity usage, devices, and DERs will merge with utilities’ operational needs in a beautiful dance that even Fred and Ginger would envy. Like anything worth doing, this future with flexibility will not be achieved without work. It will require clear expectations and communication between customers and their utilities. In my opinion, customers will need to be more engaged, responsive, and responsible, while utilities will need to be more transparent and communicative. This transformation will also need ongoing support from legislators and regulators, who can and should support these efforts. Great examples of this support are the Federal Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) incentives for utility technology deployments.

Communication, new frameworks, and long-term planning are vital to meeting the technology and electricity needs of this decade and decades to come.

This evolution will also involve deployment of new technology by both customers and utilities – well beyond the initial investment costs. It’s crucial to collaborate with outside vendors and consultants who can supplement utilities’ in-house skill sets. Empowering the utilities’ workforce through training and recruitment is another key element. Hiring specialists in communications and outreach to work with utility customers and their workforce is also foundational.

We can develop a path to this future state — or “North Star” as I like to call it — by focusing on the elements that I just mentioned. We can pick up the pace and get there much faster. We know this dance must come together, and we should embrace its intricate beauty.

Closing Thoughts

We must foster more DR and DSM, onsite generation, and all the grid-enhancing technologies available. That’s how we can bridge the gap between load, generation, and T&D in the challenging era that is already here. Doing this successfully will require significant long-term integrated grid planning to identify the new frameworks that will govern our transformed future grid, and to identify the right locations and methods of operations for each of these applications. We must start now to communicate, design, and put our heads together. The unpleasant alternative is reactively shedding load through forced outages — an unmanaged path resulting in electricity that is less reliable and less affordable, and a grid that’s less resilient.