Demand Response

Demand response (DR) programs encourage building owners and managers to reduce their energy use during peak hours in return for payment and/or other economic incentives.
Photo credit: Martin Nikolaj Beck via Flickr

Utilities across North America run programs that offer to pay commercial, industrial (and residential) customers for reducing energy use during peak demand.  The customer can shift demand to off-peak times, install renewable energy or energy storage, and/or set up automated controls that respond to the utility’s signal when curtailment is needed.

Utilities are motivated to create these programs because reducing the peak energy demand on the whole means that they can decrease or maintain their capacity, rather than having to generate more power or build more infrastructure just to meet the highest possible demand.  Typically, the times of highest electricity demand are during the summer months, when demand for air-conditioning is greatest.  Utilities build enough capacity to supply customers during this time (without a blackout), but this buffer capacity often goes unused for the rest of the year.  As building more capacity is expensive and wasteful for utilities, motivating consumers to reduce the demand during peak times via incentivized DR programs is often a better economic strategy.

Building owners and operators are motivated to participate in the program because of the potential revenue or savings generated.  Plus, the utilities often provide customers with a better understanding of their energy use and an opportunity to reduce their greenhouse gas emissions.

Overall, demand response is a triple win: a win for the utility, a win for the consumer, and a win for the environment (by reducing energy generation from fossil fuels).

Types of Demand Response Programs

There are three main types of demand response programs:

1) Price Response

This program is based on the pricing of electricity - Prices are higher during peak demand and lower during off-peak hours.  The DR program provider alerts a client when prices go above a certain limit (set by the consumer).  The client can choose whether or not to shed their load during that time.  The client will receive a payment for shedding their loads during peak times, and those who are the most reliable or reduce the biggest loads will receive the most business from the utility.

2) Load Response

Load Response programs are based on the potential for a blackout or brownout during times of peak demand.  In this case, the utility pays the client for a commitment to reduce energy usage during a “demand response event”, or a time of emergency energy curtailment to prevent a blackout or brownout.  The client is paid monthly, quarterly, or a dollar amount per kilowatt just for committing to reduce their demand during such an event even if the emergency event does not occur.  However Load Response clients MUST reduce their usage if and when an even it is called, perhaps with the help of an on-site generator.

3) Peak Load Shifting

Peak load shifting is an arrangement in which utilities charge lower rates for periods of low demand and higher rates for periods of high demand.  Often times, clients will store energy on-site during off-peak hours and use it during peak hours to save money.

The Demand Response Market

Overall, Pike Research expects the global demand response market to grow from $1.4 billion in 2010 to $8.2 billion in 2020.

Compared to industrial and commercial markets, the residential market for DR programs is much smaller with limited growth.  Pike Research estimates that by 2018, 16.4% of consumers with access to programs from their utilities will participate, which accounts for 23 million people.  This is small compared to the industrial and commercial markets. 

The residential market is limited because of a number of challenges.  First, it is less efficient (no pun intended) for utilities to market their demand response programs to residential customers individually than to commercial customers, who may be more receptive to the economic benefits and driven by the potential for incremental revenue.  The second major problem stems from the fact that many consumers are not aware of, or have an understanding, of demand response.  Studies have also shown that American consumers are unfamiliar with smart meters, and some are not interested in them because they think it breaches their privacy.  Ultimately, consumer DR programs require significant educational outreach and utilities must put a great deal of effort into marketing and education to successfully launch a DR program.

Demand Response and LEED

While demand response was not included in the LEED 2009 rating systems, it was introduced as a pilot credit in July 2010.  A LEED pilot credit is essentially a test run of a credit before it is balloted and introduced to the rating system.  Project teams can earn an Innovation in Design for implementing a pilot credit and giving feedback.

Through pilot testing, the demand response program credit has evolved into its current form in the draft for LEED v4.  This new version of the rating system will be balloted in summer 2013, and is expected to finish beta testing in November of this year.

In LEED v4, Demand Response is expected to be included in some of the BD+C and Existing Buildings rating systems:

  • New Construction
  • Core and Shell
  • Schools (New Construction)
  • Retail (New Construction)
  • Healthcare
  • Existing Buildings

Before the launch of LEED v4, project teams may use the DR credit found in the LEED v4 draft for a LEED 2009 project, however, it will just count as one Innovation in Design point because it’s still considered a pilot credit.  In v4, it will count as 1 point, but in Energy and Atmosphere.

The demand response credits in these rating systems are similar.  Each have two cases with different requirements:

Case 1: Existing Demand Response Program Available

Install a system with fully-automated, real time demand response.  Enroll in a minimum 1-year contract (but with the intent of renewing for multiple years) with a qualified DR Program provider for at least 10% of the estimated peak electricity demand (determined from EA Credit: Optimize Energy Performance), or a minimum of 20kW, whichever is greater.  Develop a plan for reducing peak energy use per the contract and complete one full test of the plan.   The DR process should be included in the building commissioning.

Case 2: Demand Response Program Not Yet Available

Install infrastructure that is suited for a future demand response program when it is available.  This includes the installation of an interval recording meter.  Develop a plan to reduce the building’s peak electricity use (determined by EA Credit: Optimize Energy Performance) by at least 10% or a minimum of 20kW, whichever is greater and conduct one full test of the plan.  Include the DR process in the scope of work for the CxA.  Contact the local utility to discuss interest in a future DR program.


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