Uncovering the benefits of demand-response

The utility industry in Europe is clearly on the verge of massive demand response adoption. However, unless stakeholders have a clear understanding of the potential benefits, the change may prove difficult.

Advances in smart metering technology are creating opportunities for utilities to roll out more demand response initiatives, and perhaps combine them with existing energy efficiency programs. DR is not a new idea and has become a critical component of the smart grid, supporting the grid reliability, ensuring that supply can meet demand, redistributing consumption from peak to off-peak times, and addressing reserves, capacity, and real-time balancing.

Among all stakeholders in the energy value chain, that can benefit from demand response mechanisms, utilities are at the heart of the value created by those, which is generated and shared among all energy stakeholders – grid operators (TSO, DSOs), balancing responsible parties, aggregators, retailers and end-consumers themselves.

Across Latin America and the Caribbean (LAC), DR programs for industrial and commercial sectors have been implemented whilst in the residential domain, demand response mechanisms are still insipient. Nonetheless, digitalization’s radical transformations to the electricity sector create new opportunities to better include citizens in decision-making.

While demand response has gained traction in the electricity industry in some countries, widespread uptake remains slow due to uncertainties, whether economic, technological, societal, regulatory or even security. It is not certain, for instance, to what extent demand response is a viable alternative to investment in conventional peak capacity or grid reinforcement, or whether affordable storage would develop so fast as to make demand response quickly obsolete. Moreover, the utility industry may not be able to support a financial roll out to fund new technologies without the help of government incentive programs. The older equipment such as electromechanical electricity meters need to be replaced by new smart meters and other smart technologies. Additionally, lack of policies, standards and required ICT infrastructure call for the need of faster development to realize demand response in many countries.

Another important aspect of DR mechanisms and programs is (cyber)security. Following the green transition, and with the increasing penetration and ubiquity of distributed energy resources, PHOENIX project intends to tackle a variety of inherent DR cybersecurity aspects that must be addressed to enable the security, safety and critical reliability of the DR and pertaining energy and power infrastructure. DR solutions are usually interconnected via public channels, i.e., the internet, and if these channels are not protected effectively, there might be a direct impact to the operations of the power system (EPES). Failure to adequately address such constraints and risks, may potentially impede, and delay the adoption of DR whilst conceivably introducing catastrophic effects on the critical infrastructure.

Additionally, as end-consumers are active part of demand response mechanisms, one of the most important challenges in the implementation is educating the customer about the benefits and implementation issues. Any investment made in such a situation may be a subject to the risk of obsolescence. A cost benefit analysis considering these issues and also including an estimation of the cost of the equipment, the customer will deploy to automate response, has to be made to reduce the investment risk. A proper rate should be designed not only to ensure that the investment made in the new technology is recovered in fair amount of time, but also to be acceptable to every customer class. To sum up, in order to unlock the full potential of demand response and its benefits, household willingness to shift and the margin they have to adjust their consumption, need to be considered. Understanding barriers, such as the effect of household incomes on adoption rates, is of key importance to take the next step towards improving demand response adoption.