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What is Demand Response? 5 Easy-to-Understand Answers

March 9, 2017

Here at Enel X we’ve been in the demand response (DR) business for over a decade, helping businesses earn money in exchange for reducing energy when the grid needs it the most. Having spent this much time pioneering the DR business and introducing it to markets all over the world, it’s easy for us to forget that it’s still a new concept for many. So with that in mind, we tapped some of our best and brightest Enel X employees to provide their best answer to the question, "what is demand response?" The rules were simple—explain DR in your own words, and keep answers to fewer than 200 words. (One of the downfalls of working with really, really smart people is that if you ask a question like "what is demand response?", you’re likely to get a 1,000- to 5,000-word, detailed explanation that includes a history of the energy markets, the evolution of "interruptible tariffs," acronyms like PJM, and phrases like "peak load management.")


Below, I’ve reprinted my five favorite answers that explain how demand response works.



1. Demand Response is like Airbnb

"Demand response is the Airbnb for energy. Like home owners monetizing spare capacity, demand response allows you to monetize your energy flexibility. If you can be flexible on when your production lines run or when your freezers can be coasting, we will reward you for it. Do you fly often? Demand response is also like being paid to stay in a hotel when your flight has been over-booked. The airline would rather pay your hotel room than charter a new plane. Similarly, the grid operator would rather pay you to use less rather than build a new power plant. If you are flexible, everybody wins."


— Guillame van Eeckhnout, Business Development Manager, Enel X



2. Demand Response is a Virtual Power Plant

"Demand response in its most traditional form turns energy users into virtual power plants by adjusting their energy consumption during specific times to relieve stress on the grid. Instead of turning on/up another traditional supply source like a peaking power plant, a utility or grid operator can use demand response to "turn off/down" electricity demand, thus negating the need for additional supply. Through this mechanism, businesses and consumers contribute to the stability of the grid and are compensated for doing so, effectively being paid for NOT using electricity. Other applications of demand response include adjusting demand based on price signals, or increasing demand during time of excess supply, usually the result of a wind or hydro surplus."


— Ann Cole, Senior Manager of Commercial Operations, Enel X



3. Demand Response = Load Relief

"Demand response is the modification of energy usage to achieve specific outcomes on the electrical grid at varying levels. This could include relieving load on a local distribution transformer, avoiding high marginal prices, or reducing net system load in response to a power plant failure. This load relief could come from shutting off machinery, adjusting a thermostat setting, turning on a generator, or switching on a battery. Ultimately, it boils down to a single action: commanding energy users to change their usage activity."


— Robert McGarry, Manager of Global Labs, Engineering, Enel X



4. Demand Response is a Win-Win

"Demand response is a service offered by many electric grid operators to balance supply and demand on the grid. When people are using more energy (demand) than the grid is generating (supply), we experience blackouts, rolling blackouts, and brownouts. Grid operators typically need to build enough power plants to make sure they can meet the very highest levels of energy demand, even if that’s only for a couple hours throughout the year. But power plants are expensive, and sometimes they’re dirty. Demand response asks large power users to use less during those peak hours—and participants get paid for doing it. We avoid blackouts by using less (reducing demand) instead of building more (increasing supply). Grid operators spend less on demand response than they would on a power plant, and participants enjoy a new revenue stream. It’s win-win."


— David Lipson, Senior Account Manager, Enel X



5. Demand Response is a Balancing Act

"Because electricity can’t be stored cheaply and efficiently (yet!), supply and demand must always remain in a delicate balance. Too much supply = power plants sitting idle, costing consumers millions. Too little supply = brownouts and blackouts. Demand response pays people for using less energy from the grid, typically for short amounts of time (anywhere from a few minutes to a few hours). During these periods, businesses reduce usage or switch to onsite distributed generation resources, which helps to keep supply and demand in balance and avoids the need to buy expensive peaking power from the wholesale market or turn on another expensive fossil fuel-fired power plant. Historically, demand response was an emergency resource designed to prevent blackouts, but it is increasingly used to correct short-term imbalances on the grid or in response to economic signals. For example, pairing demand response to compensate for wind or solar power when weather conditions change allows us to have a cleaner, cheaper, more flexible, more resilient grid. Similarly, businesses are increasingly using demand response technologies to avoid using power when it costs the most."


— Melissa Depanian, Senior Marketing Manager, Enel X