The Benefits of Demand Response Programs

The concept of demand response exists as a conscious reaction to excessive energy use within recent decades. As electrical consumers participating in demand response programs reduce their average number of exhausted kilowatts, they will experience financial savings as well as contributing to environmental friendliness. In relation to the supply/demand ratio, this concept is meant to cut the demand of electricity, thereby increasing the availability of the electrical supply.

Demonstration of the Bonneville Power Administration's DR project.

Demand response programs can be broken down into 2 primary classifications – Incentive Based Programs and Price Based Programs. The former offers financial benefits for participants, while the latter employs the use of preset prices aimed at inspiring a decrease in energy use in order to experience savings. These two programs are further defined based on different forms of consumer participation:

 

Demand Response Programs:

I)              Incentive Based Programs (IBP)

A. Classical:

1)    direct control – automatically shut down

2)    curtailable programs – determined by set values

B. Market Based:

1)    demand bidding – customers compete for  lowest reduction

2)    emergency DR – customers paid during emergencies

3)    ancillary services – customers paid to be on bidding standby

II)            Price Based Programs (PBP)

* rates based on peak period usage and the following conditions:

A. time of use

B. critical peak pricing

C. extreme day pricing

D. extreme day critical peak pricing

E. real time pricing

 

Electrical customers who choose to take part in one of these energy-saving programs will experience numerous benefits, aside from the aforementioned monetary payback. According to a study conducted by McKinsey & Company in 2001, an estimated “$10-15 billion in annual benefits can be achieved from participation of all customers in dynamic pricing programs on a wide scale across the US” (R. Walawalkar et al. 1553) Participants may also be privy to safety and convenience of a demand response program as they have been proven to prevent power outages. However, for those who are conscious and concerned with the effects of climate change as a result from overwhelming amounts of expelled energy throughout the past couple decades, the long-term benefits of demand response programs speak for the importance of this development; some of the primary environmental benefits “include better land utilization as a result of avoided/deferred new electricity infrastructure… air and water quality improvement… and reduction of natural resources depletion” (Albadi, El-Saadany 1991).

The costs required to take part in one of these programs are significantly less financially devastating than the results of continuance with excessive energy use; as long as customers abide by the conditions of their chosen program, the only financial cost they will experience is the initial setup of the required demand response technology, which includes “smart thermostats, peak load controls, energy management systems, and onsite generation units” (Albadi, El-Saadany 1992). Although the perception of these installation factors may be expensive and overwhelming, the estimated savings as a result of demand response outweighs the starting cost. Within the next decade, the United States Federal Energy Regulatory Commission (FERC) predicts a nationwide savings of over $60 billion “if demand response is incorporated into RTO market design and operations” (R. Walawalkar et al. 1554).

Thanks to the increased availability of demand response programs, electrical consumers now have the opportunity to save in a financial and personal sense as well as conserve energy in a world where it is wrongly viewed as endless and inconsequential. As Virginia Representative Rick Boucher notes in his 2003 report, the technology required in demand response programs allows participants to better visualize the effects of their electrical needs: “By enabling consumers to access accurate data on their usage of electricity and its costs, the use of advanced meters would empower consumers to make more informed and accurate decisions regarding their usage” (Boucher). If the FERC achieves its goal of nationwide exposure to demand response benefits, perhaps the results of cutting back on electricity use will assist the environment in the fight against the threatening effects of climate change.

Sources:

Albadi, M. H., El-Saadany, E.F. “A summary of demand response in electricity markets.” Elsevier: Electric Power Systems Research 78 (2007): 1989-1996. Web. 4 Feb. 2012.

Bonneville Power Administration. How Demand Response Works. 2010. www.bpa.gov. Web. 4 Feb. 2012.

Boucher, Rick. “Smart meters mean smarter consumers.” The Hill: Special Energy Section. 2003. Web. 4 Feb. 2012.

Chevva, Konda Reddy, Fernands, Stephen, Thakur, Netra, Walawalkar, Rahul. “Evolution and current status of demand response (DR) in electricity markets: Insights from PJM and NYISO.” Elsevier: Energy 35 (2009): 1553-1560. Web. 4 Feb. 2012.

Leave a Reply

Your email address will not be published. Required fields are marked *