Demand response offers opportunity to manufacturers

Unlike other commodities, electricity must be consumed almost immediately after it is created. As such, electricity needs to be in a constant balance between supply (generation) and demand (consumption). This dynamic forces the electric industry to be on standby with enough generation capabilities to handle an amount slightly greater than the maximum amount that all consumers at once could dema...


Unlike other commodities, electricity must be consumed almost immediately after it is created. As such, electricity needs to be in a constant balance between supply (generation) and demand (consumption). This dynamic forces the electric industry to be on standby with enough generation capabilities to handle an amount slightly greater than the maximum amount that all consumers at once could demand at any given time %%MDASSML%% accounting for grid losses and catastrophes. But consumer consumption of electricity is never static; it's always going up or down %%MDASSML%% depending on a variety of factors such as seasons, or simply the time of day.

To better manage these resources there is Demand Response . Put simply, Demand Response is the mechanism by which electric consumers reduce demand in response to changing supply conditions, such as price fluctuations, demand charges or a direct request to reduce demand when the power grid reaches critical levels.

Demand Response has been a fast-growing sector of the electricity business since its debut in 2000 because market data show that a 5% demand reduction during periods of extreme demand can reduce market prices by as much as 50%. On top of that, all that's needed for a basic DR program is a simple interval meter coupled with Web-based software and a communications link to either the Independent System Operator (ISO) or local utility.

Plenty of options available

There are really two categories of Demand Response programs: the traditional utility load reduction program, which tells the consumer how much they would be compensated for participating via such vehicles as a rate discount; and the more recent ISO program, where consumers are paid based on the real-time market price.

There are also differences in how the two programs are used. With the traditional load reduction program, the DR resource was usually only called upon during the most extreme grid conditions. With the newer ISO programs, Demand Response is integrated into normal market operations, and the consumer can provide services on a daily basis if they choose to do so.

The markets offer similar DR programs can be categorized into three basic types: reliability, economic and pricing-based. With reliability programs, the participant tends to receive some sort of reservation payment for the ability to respond to a load reduction request from another party. During these events, participants are expected, but not always obligated, to reduce electricity consumption or transfer load to a qualifying on-site generator for a short period.

Economic programs involve energy users bidding their load-reduction capability into the wholesale electricity market. These programs are generally voluntary from the perspective that the user either decides to bid or not to bid, and the payment is usually made in some relation to the hourly energy market for their load reductions if their bid is accepted.

Pricing-based programs are focused on commodity pricing that has incentives for consumers to use power based on market conditions, usually to reduce demand when prices are relatively high. This would include tariff structures such as critical peak pricing and real-time pricing.

Automated programs grow in popularity

It is possible for the participant to opt for an automated or automatic response, which can be set up in their energy management system. In most cases, an automated demand response signal is sent to control systems located at the consumers facility (e.g. building automation system or lighting control system), which initiates a pre-defined load reduction strategy.

The incentive to setting up an automated program can come in a variety of forms such as cash, lower electric rates and credits toward energy efficiency equipment. Most consumers find out quickly that automatic participation provides a better payback via improved participation levels, and therefore greater financial benefit, but it also makes the process easier. There is no walking around the plant physically making adjustments when a reduction request is received.

Participants may or may not have the option of overriding the automatic response, depending on the specific program they are enrolled in. There is no standard; it's a choice the participant must make based on what is best for their facility.

Participation can mean green in more ways than one

For managers of manufacturing facilities, participation in a DR program offers several benefits. The biggest benefit is that with the advent of DR, plant managers now have the ability to view energy management as an asset that can be managed, instead of an expense. The revenue generated can be used to pay for capital expenses such as equipment upgrades, although the value depends on location, speed and willingness to participate. These factors can mean the difference between $200,000/year versus $20,000/year.

Also, it helps a facility become more green by providing a means toward better environmental stewardship. Plans are in the works so that these types of power reductions could be able to offset the carbon requirements of a facility.

An automated DR signal initiates a pre-defined load reduction strategy.

Author Information

Pete Scarpelli is a business development manager at Schneider Electric.

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