Demand response: A win-win solution to climate and energy price crises

Governments around the world share two problems right now: climate change and soaring energy prices. Investment in renewables and in energy efficiency are commonly and rightly touted as a solution to both but a third solution, known as ‘demand response’, gets far less attention.

Citizens want enough electricity to keep the lights on and governments have tried to give them that by supplying enough electricity to meet demand. But people’s demand for electricity is not constant, it goes up and down throughout a day and throughout the year.

In richer countries, many people fire up their air conditioning, switch on their lights and plug in their electric vehicle when they get back from work. After dinner, they turn on their dishwasher and they open the fridge during the advert break for Game of Thrones.

Governments have to provide enough electricity to meet not just the average electricity use but the peak electricity use – half-time in the Superbowl on a boiling hot day. They can make this easier by flattening out the peaks, by getting people to use electricity when demand is low and not when it’s high.

That doesn’t work for every use. Nobody wants to watch television at 3am or run their air conditioning when it’s cold. But people can run their dishwashers and washing machines at night-time. Industrial customers like aluminium smelters can often be flexible with their electricity use too.

That can help avoid power cuts and it can stop desperate grid operators paying extortionate prices for electricity to keep the lights on. When a heatwave hit Europe recently and spiked air conditoning use, the UK’s grid operator paid 5,000% more than usual to import electricity.

What’s all this got to do with climate change?

For the next few decades, electricity will be supplied by a mix of clean electricity and dirty electricity. Grid operators will use the clean electricity when they can and fossil fuel-powered electricity when that doesn’t fully cover demand.

For example, California gets most of its electricity from zero-carbon sources. But, it is building new gas generators which are only to be used when the supply of clean electricity can not meet demand. So the less demand outstrips supply, the less fossil fuels it will use.

More important than that though, according to Brattle Group analyst Ryan Hledik, is that demand response will make electrification and decarbonisation cheaper. If you can charge up your electric vehicle with cheap electricity at night rather than expensive electricity at 6pm then you are more likely to tell your friends to swap their gas-guzzler for an electric vehicle.

In many parts of the developing world, there’s not enough electricity to go around even before electric vehicle and electric heat pumps are rolled-out. So, as countries develop and homes and transport are electrified, demand response is key to keeping the lights on.

How is demand response done?

The simplest way to encourage consumers to shift their electricity use is to offer them discounts on their electricity bill if they do so through ‘time of use rates’. This works like ‘off peak’ fares on public transport or ‘happy hours’ at a bar, encouraging customers who can shift their demand to do so.

Currently, these rates have been targetted at electricity-guzzling businesses rather than households – as this is where demand response can have the most impact for the least amount of outreach work. (CHECK WITH SOURCES)

Hledik says that demand response is most advanced in North America. In the Canadian province of Ontario, for example, electricity costs different amounts at different times of the day. Andrew Dow, from Ontario’s grid operator IESO, said it’s cheaper at night because it’s not being used as much.

Big electricity users pay their electricity bills proportionately to their use in the five highest demand hours of the year. “So these businesses are incentivised to monitor electricity demand throughout the year and, when they see something that could be one of the top five peaks of the year, businesses are incentivised to reduce their use,” Dow explained.

South Africa takes similar measures. Malcom Van Harte works for their grid operator Eskom. He told Climate Home that 22 large industrial electricity customers are incentivised to shift their peaks by ‘time of use’ rates. When electricity is scarce, households get adverts over the television and radio asking people to switch off non essential equipment

A twist on ‘time of use’ is that electricity users are asked to switch off 10-20% of their electricity when demand looks like outstripping supply. If they accept this request, the customer is then exempted from the planned outages which plague South Africa, known as ‘load shedding’.

In the US state of Vermont, an utility called Green Mountain Power is deploying Tesla powerwall batteries to peoples’ homes. Most of the year, the resident gets to use this battery as a backup generator, to absorb excess power from their solar panels or to reduce their bill on a ‘time of use’ rate. But, for the few days a year when Green Mountain Power is desperate for electricity, it can take control of the battery and use its electricity to power the grid. “It’s a win-win situation”, said Hledik.

In the future, electricity users could even be paid to give the electricity from their vehicle’s battery back to the grid at peak times. This is known as ‘vehicle to grid’ power and, Hledik said, is still at the pilot phase. “It’s still very much at a point where the technology and the commercial business case are being tested and proven,” he said, “whereas the simpler ‘time of use’ rate concept is something that’s available at scale.

How will the energy transition affect demand response?

As electricity systems become increasingly based on renewables, daily and seasonal patterns of supply will shift. Fossil fuel power plants can pump out electricity whenever 24/7 and 365, as long as you can keep feeding them fossil fuels. But the sun and wind come and go.

Hledik said that parts of the US with high solar deployment like California and Arizona are already seeing this shift. Previously, grid operators have tried to delay electricity use from the post-work peak of 6pm to more like 8pm.

Now they have more electricity than they need between midday and 2pm when the sun is at its highest. So they’re trying to get dishwashers and washing machines on in the middle of the day rather than in the late evening. Luckily, the sun’s power dips at night which is when demand for electricity is also at its lowest.