As an energy manager of an industrial or manufacturing facility, one of the challenges that probably keeps you up at night is reducing your facility’s utility bill. After all, how do you reduce consumption and avoid peak charges when so many of your operations are mission-critical? That’s where energy storage and demand response programs come in.
While demand response programs were developed to help balance the electrical grid at peak times and avoid blackouts and brownouts, they have many trickle-down benefits for facilities and the greater community. By enrolling in a demand response program, facilities can realize significant bill savings for reducing their energy demand during these periods of peak stress on the grid. In some cases, they can even earn revenue through grid services.
Essentially, demand response programs monetize your facility’s ability to be flexible with its energy usage. In this blog post, we take a deep dive into the world of demand response programs, how they work, and which programs are available.
Demand response 101: Understanding the basics
Balancing the electrical grid is no small task. The grid is being stretched to the max to meet our insatiable need for energy for everything from cooling and AI to EVs. Add to that the intermittency of renewables, and you have a perfect storm. Demand response programs help utilities meet this demand without relying on fossil fuel-fired peaker plants. What does all this mean for you?
Demand response (DR) is an energy flexibility program that maintains grid reliability and security while helping lower electricity prices. At peak times, such as during a heat wave when the need for cooling spikes, demand may surpass a utility’s generation capacity. In this case, a utility will either be forced to rely on peaker plants or ask demand response participants to lower their demand, mitigating any possible grid issues. And that’s where your facility can play a key role.
During a DR event, a facility will reduce or eliminate unnecessary energy loads (load shed). However, this isn’t always possible, and in those cases, load shifting might be a more effective strategy. This refers to shifting when the peak load occurs to reduce the demand costs and balance the grid. There’s also a sophisticated form of load shedding known as automated demand response, which automatically sheds loads based on pre-programmed policies between the utility and its customers. Often, batteries are used for load shifting and load shedding as they enable a facility to lower peak demand.
When choosing a demand response program, you might come across the term demand-side management (DSM). While they are similar, there are some noteworthy differences. The key distinction is the aim of the program. With DSM, the focus is on reducing energy demand over the long term. This would include things like switching to energy-efficient light bulbs or rebates for customers who purchase ENERGY STAR-certified appliances. Demand response, on the other hand, reduces or shifts demand in response to real-time grid events, helping address fluctuations as they happen.
Demand Response in ActionLactalis Canada Inc., a subsidiary of the world’s #1 dairy group, Lactalis Group, was looking for a solution to reduce their demand charge costs. Like many manufacturing and industrial sites, the rising costs of energy paired with momentary power fluctuations were impacting production levels, schedules and the bottom line. With three sites live so far, the batteries reduce energy costs through peak shaving and demand response, with a focus on reducing Global Adjustment charges. The batteries are operated in accordance with Peak Power’s industry-leading grid event forecasting capabilities. Impact:
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Why facilities choose to become demand response resources
Participating in a DR program is not only an opportunity to tap into a new revenue stream but also turns energy consumers into prosumers who can play an active role in shaping our energy future. By helping balance the grid, these facilities are contributing to a cleaner tomorrow.
Other benefits of participating in a demand response program:
- Lower energy costs due to curtailing energy usage at peak times
- Generate revenue from your ability to reduce energy consumption during peak times
- Contribute to your local community by helping avoid blackouts and brownouts
- Protect operations by preparing your equipment for blackouts when you receive a DR warning
- Reduce emissions by helping utilities avoid peaker plants
There are demand response programs across the US and Canada. While they all have similar benefits, California, Massachusetts, and Ontario have the most favourable markets for generating revenue from demand response. These regions offer a range of demand response programs with robust incentives and support mechanisms that make enrolling in a demand response program worthwhile.
Making sense of demand response programs
Demand response programs vary greatly from state to state. Things to consider include the rates of payment, required response time, and whether there are any penalties.
A few of the most popular demand response programs include:
- Capacity – These are the most common type of demand response program. It usually has a longer response time than other programs.
- Economic – These demand response events are in response to pricing spikes. The aim is to stabilize the near-term energy price level.
- Ancillary – These are fast-response programs to balance the grid in the event of a power outage, extreme weather events, or insufficient generation.
- Utility – These are utility-level programs that grid operators use to balance the grid. They can be combined with grid-level programs.
Choosing a demand response program that’s right for you
When choosing a demand response program, there’s a lot to consider, and the decision can quickly become overwhelming. It’s important to consider a range of factors, like whether you have specific revenue generation goals and which operations can be temporarily shut down.
Once you’ve made these decisions and have a better idea of what you’re looking for, it’s important to explore the different demand response programs. Below, we break down the main demand response programs in California, Massachusetts, and Ontario.
| Program name | Location & Provider | Description | Eligibility | Benefits |
California |
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| Proxy Demand Response | California, CAISO | A way for companies to sell their electricity savings directly to CAISO’s wholesale market without going through an intermediary. |
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Financial incentives based on aggregated load reduction participation in energy markets. |
| Reliability Demand Response Resource (RDRR) | California, CAISO | Enlists large energy users to reduce their electricity usage during times of emergency. |
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Financial incentives based on aggregated load reduction participation in energy markets. |
Massachusetts |
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| Clean Peak Energy Standard | Massachusetts, Department of Energy Resources | Rewards renewable generation and energy storage systems that contribute to grid resiliency via demand response. |
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Over ten years, a CPS will save ratepayers $710 million net and reduce CO2 emissions by 560 thousand metric tons. |
| ConnectedSolutions | Massachusetts, utility-level | A utility-level program that offers incentives for reducing energy consumption during peak demand events, managed by Eversource, National Grid, Unitil. | Must have an account with National Grid, Eversource, or Unitil. You can participate with renewable-only, renewable + storage, and storage-only systems. | For Cape Light Compact Customers, Eversource, and Unitil customers, add $65/kW-summer (total $100/ kW-summer) to the Targeted Dispatch incentive when curtailing/discharging with electrochemical battery storage such as a lithiumion or redux battery. |
Ontario |
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| The Industrial Conservation Initiative | Ontario | A demand response incentive for medium and large-sized facilities. This program rewards participants who shift usage away from peak hours. | Must have an average monthly peak demand greater than 500 kW during an annual base period from May 1 to April 30. | Save up to 1/3 off your bill. |
| Demand Response Auction | Ontario | An IESO-administered program where participants commit to reducing electricity consumption during peak periods. | Large commercial, industrial, and institutional consumers with the ability to reduce load on short notice. | Participants are paid based on their capacity to reduce demand. |
Learn about more energy incentives and programs on our resources page >
Questions to ask before choosing a demand response program
While there are a range of demand response programs out there, the key is to find one that suits your needs and objectives. A good place to start is by asking the right questions. This will help you assess a program’s suitability.
- What are the eligibility criteria for participating? Different DR programs are available for different customers, including residential, commercial, industrial, manufacturing, and agricultural. It’s important to check the eligibility requirements of a particular program to see if you qualify.
- What is the minimum load reduction or participation threshold required? Most demand response programs have a minimum load reduction requirement to ensure participants contribute significantly to grid stability during peak demand.
- Are there penalties or consequences for non-compliance? Some programs include penalties for failing to reduce electricity demand by the agreed-upon amount.
- How much control will you have over your energy usage during demand response events? Some programs offer flexibility in how and when you reduce your energy usage, while others may have strict guidelines.
- How might participation in this program impact your day-to-day operations? Reducing energy usage during demand response events can affect your facility’s productivity, especially if energy-intensive processes are involved.
- Are there specific technical requirements or equipment needed to participate? Demand response programs may require specific technologies or equipment, such as smart meters or energy management systems, to monitor and manage energy usage during demand response events.
- What are the financial incentives? Financial incentives are a key motivator for participating in demand response programs. These can include direct payments, bill credits, or reduced energy rates.
- What is the duration of the program, and what are the terms of commitment? Knowing the duration of the program and the terms of your commitment is important for long-term planning.
- Are there any regulatory requirements? Some demand response programs may have regulatory implications, especially if they are tied to government policies or incentives.
- How will integrating a battery affect your facility’s participation in demand response programs? Integrating a battery will enhance your facility’s flexibility by enabling you to store energy for peak times, respond quickly to demand signals, and reduce reliance on the grid, thereby increasing your potential savings and program eligibility.
Final thoughts
While the world of demand response programs can be daunting at first, it’s worth exploring. Because with a little effort, you’re bound to find a program that suits your facility.
Whatever your objectives, demand response programs are a powerful way to contribute to a stable grid and cleaner energy future, especially when you have the right technology. It’s truly a win-win. Reach out, and our energy experts will help you find the ideal program for your facility.
If you’re seeking ways to optimize your current energy strategies, talk to us about our end-to-end battery energy storage solution or our peak event notification service.
