Demand response: Socialist conspiracy or saviour of the Free World?

By George Smeeton, ECIU Head of Communications

Mention ‘demand response’ to your friends down the pub, and the chances are you’ll get a blank look.

Unsurprisingly, perhaps. To the extent that it is mentioned in the media, demand response is usually described in outraged terms as companies being ‘forced’ to switch off because of insufficient supplies of electricity.

There is a certain logic to this; after all, why shouldn’t hard-working families and businesses be able to use electricity when they need it? Make the link to environmental rules forcing older, polluting fossil-fuel plants to close and increasing use of variable renewable energy, and a familiar ‘greens-are-driving-us-to-hell-in-a-handcart’ narrative starts to develop.

This logic is based, however, on a misunderstanding of the benefits of demand response, of how the National Grid operates, and of the potential it offers to power systems with a mix of generation technologies including variable renewable energy.

Saving electricity

But firstly, what is it? Demand response is one of a range of demand-side measures that are used to balance electricity grids, which include other tools such as energy efficiency schemes. Together they cut the overall demand for electricity, reducing the generating capacity needed.

Energy efficiency measures, such as the increasing use of efficient appliances, permanently reduce demand; average energy use has steadily declined in the UK in recent years, despite increased use of electrical appliances.

Demand response operates slightly differently, by reducing overall demand for short periods of time. Supply and demand for electricity fairly obviously vary over time; in the UK, for example, demand is low during the night, rises during the day and peaks in the early evening.

By identifying users that don’t need to use power at times of peak demand – industrial refrigeration is a good example – these can be incentivised to switch off non-essential processes for short periods of time, thereby reducing the overall need for electricity at peaks.

Conversely, users like this can also benefit from running certain processes at times when demand is low, thereby benefiting from cheaper power, including when there is an excess of supply – increased use of renewable forms of energy, for example, tend to boost supplies of lower cost electricity which might otherwise be wasted.

Overall, this enables grid operators, like the UK’s National Grid, to balance supply and demand for electricity more efficiently: demand-side measures like this therefore cut the total generation capacity needed, save money (they tend to be cheaper that building new generation capacity) and cut energy waste.

Big in the States

Perhaps surprisingly, given the view in the UK media that demand response is a scandal akin to rationing energy, demand response has been enthusiastically adopted in the United States – not a country noted by-and-large for either a frugal approach to energy use or an over-zealous approach to regulating its companies.

According to the Energy Information Administration (EIA), around 9.3 million US customers participated in demand response programmes in 2014. The majority of these, 93%, were in the residential sector, the principle of demand response being equally applicable to residential as to industrial consumers.

The effectiveness of demand response measures in the US were brought home in early 2014, when a ‘polar vortex’ saw temperatures across the country plunge to record lows. The freezing conditions naturally increased energy demand but also hit generating capacity; the largest US grid operator, PJM Interconnection, lost nearly 20% of its generation capacity, mostly fossil-fuel power generators.

Demand response, however, rode to the rescue, ensuring that the lights stayed on and blackouts were avoided, in an extreme test of the real-world effectiveness of the measures.

Because of the potential it offers to help balance grids, save money and reduce energy waste, demand response has been growing steadily in the States, and a US Supreme Court ruling in January boosted its prospects still further.

The court essentially overturned a lower court’s decision, allowing demand response providers to compete on a level playing field with generation. Consequently, demand response is set to become as much a part of the US energy landscape as nodding donkeys in the Lone Star State (demand response is even making inroads in Texas, in the face of opposition from incumbent electricity generators).

Just not British

Fashions in America frequently cross the Atlantic, so is the UK set for a demand response boom? Well, there are some encouraging signs that this might be happening; offshore wind farm operator DONG Energy recently announced that it is moving into demand management, offering a Renewable Balancing Reserve service to business customers.

Likewise, Edinburgh-based demand response provider Flexitricity this month launched a scheme that allows industrial users to make use of excess wind-generated electricity, an extension of their current demand response offering.

Schemes like this have a huge potential to introduce flexibility into the grid, making it easier for operators to cope with fluctuating demand and rising amounts of variable renewable energy, as well as cutting energy waste and saving users money.

But you would be wrong to think they are getting an easy ride. Unlike in the US, the UK’s capacity market, a measure set up by the Government to keep the lights on at the lowest possible cost, currently discriminates against demand response. This has prompted independent energy supplier Tempus Energy to mount a legal challenge against it in the European Court.

The results of this challenge remain to be seen; but a bigger problem may be the mindset that trying to save energy is just not how we do things in this country, where an Englishman’s home is his castle and he should be able to waste as much energy as he likes.

Which brings us back to media coverage.