Demand Response for Renewables Integration: Making a Smart Grid for Tomorrow

In September 2017, Arizona Public Service proposed a new product, reverse demand response (DR), that aims to balance system load with excess renewable generation. This is the latest example of using DR for renewables integration (DRRI).

Small amounts of intermittent renewable generation, like solar and wind power, have almost no measurable effect on overall system stability. Yet, anticipating the degree to which generation goes up and down rapidly—called ramp events—is critical to supporting grid stability in a cost-effective manner when penetration exceeds 10-15 percent. Maintaining the balance in supply and demand is an important way to increase the reliability of the electricity grid.

One method to sustain this balance is to use DRRI solutions, which increase or decrease customer loads based on renewables output. There are many DR options offered by utilities and grid operators for both residential and commercial and industrial customers, but only some of them can supply flexible resources to meet specific renewable balancing needs.  

There are two aspects of using DRRI. One deals with system-level balancing, where aggregated DR loads are used to respond to changes on the bulk power system—the changes are due to either large-scale renewable resources or the aggregated impacts of small renewables on the grid. The majority of the programs focusing on renewables fall into this category, as utilities and grid operators look for flexible resources of all types, including DR.

In other cases, DR may be utilized to balance renewables at an individual facility or campus. In theory, this could be a residential or business site, but the main application is on the business side, where a building might have a large rooftop solar PV installation. When that solar array is not producing energy, onsite DR could be used to manage the load to avoid creating peak demands or respond to dynamic pricing signals. On the residential side, rooftop solar balancing is more likely to be done with energy storage than pure DR.

Several factors point to an increasing focus on DRRI, which will address direct and indirect effects of renewables on the grid and end-use customers:

  • Increased penetration of renewable energy: An increasing share of renewable energy resources in the energy supply mix affects many regions around the world due to policy, technology, and economic factors.
  • DR as an ancillary service: Ancillary services maintain the supply-demand balance within a short timeframe. The main value of these services is the technical capability to provide reliable, fast-responding resources for purposes like addressing intermittent renewables output.
  • Dynamic pricing: Time-varying rates represent a way to address the effects of intermittent renewables through indirect financial incentives to customers. Historically, time-of-use rates have included higher rates during mid-afternoon peak load periods and lower rates the rest of the day. However, such schedules may not address grid needs due to solar- and wind-generating characteristics and could be adjusted accordingly with DRRI solutions.

Some forces still work against the application of DRRI, including technical, regulatory, and financial risks and burdens, such as:

  • Uncertain customer adoption: Many customers are familiar with DR solutions that enable day-ahead notice to be given for a few events a year to address emergency/reliability services. However, only a subset of customers may be able to sustain more frequent events with shorter notice—and an even smaller subset may have the necessary communication and technical infrastructure in place. Existing DR programs may need to be repurposed or expanded to meet the needs of fast DR.
  • Load availability: Some loads that are good candidates for fast DR are not available year-round or during periods when there may be overgeneration of renewable energy. Loads may need to be available year-round or risk penalties or market disqualification.
  • Regulatory barriers: Regulatory barriers exist in some regions that can make it difficult for DR to provide ancillary services, including minimum load requirements for participation. In addition, regulations may restrict the incentives available for participating in DR programs.

Utilities and vendors should keep the following recommendations in mind to enhance DRRI effectiveness:

  • Think in terms of value to the customer rather than just utility value. Consider appropriate customer technology assistance or financial incentives before rolling out new programs.
  • Make sure that market rules do not discriminate against certain types of resources. Rules can be adjusted to allow for comparable treatment while ensuring reliability and economic efficiency.
  • Look at flexibility from a portfolio point of view with DR working in conjunction with energy storage, EVs, and other possible resources. Different resource types should not compete.
  • Consider what new technologies or customer strategies are needed to address renewables integration requirements from DR. Demonstrate an ability to innovate and keep customer concerns front of mind.
  • Offer a portfolio of flexible options or partner with other providers as necessary. In this growing field, there should be room for as much cooperation as competition.

In the Navigant Research report Demand Response for Renewables Integration, global DRRI revenue is projected to reach $132.1 million in 2017. By 2026, global DRRI revenue is expected to reach a total of around $1.3 billion. The largest region of adoption is expected to be Europe, reaching $494.5 million in 2026, with North America close behind at $393.7 million.

DR will not be the only method to deal with renewables integration, but it will certainly play a significant role.

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Brett Feldman is a principal research analyst with Navigant Research, contributing to the Utility Transformations program. With 20 years of experience in the utility sector, Feldman focuses on demand-side management programs and their implications for the global power industry.

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