Demand Response 101

By Karan Gupta, EDF Climate Corps Fellow

Demand response has been called the “killer application for the smart grid” by John Wellinghoff, former Chairman of the Federal Energy Regulatory Commission. But what is it? In short, demand response is the ability of energy users to change their demand for power during periods of severe supply constraints and/or extreme spot market prices for electricity.

Though individual behavior can be erratic, aggregate energy use tends to follow predictable patterns, largely determined by the weather and time of day. These patterns are known as load profiles, and they are forecasted in advance so that the power supply always meets demand. When demand outstrips supply, rolling blackouts may occur. Because electricity cannot currently be stored cost-effectively and at scale, supply must not exceed demand, either.

Why Operating at Peak Loads is Difficult

In Chicago, PJM Interconnection is the Regional Transmission Organization, which is the entity responsible for operating the electric grid. The graphic below depicts a hypothetical load profile for the PJM service area on a hot summer day.

graph_smallThe red line shows the business-as-usual case, where demand peaks in the mid-afternoon as people turn on their air conditioning units. The dashed, blue line shows base load generation capacity, which is the maximum amount of power that can be provided by the plants that operate around the clock. When demand exceeds this threshold, other, fast-response resources (commonly known as “peaker plants”) must be brought online. The capital cost of constructing these peaker plants is similar to that for base load plants, but because they only operate sporadically, they generate a fraction of the revenue. Besides not being cost-effective, peaker plants, which often tend to be coal, are among the dirtiest generation facilities. Taken together, it comes as no surprise that utilities would want to shave peak loads and avoid constructing and operating peaker plants.

Types of Demand Response

There are three major forms of demand response, each with its own type of incentive. In the capacity market, participants bid in reduction capacity the same way that generating facilities bid in generation capacity. Because decreased demand and increased supply essentially have the same effect on grid operations, demand response participants are paid for avoided energy use during peak events. These “energy” payments are in addition to “standby” payments for simply being willing to reduce their load.

Similar to the capacity market, there is an economic market which allows energy users to voluntarily reduce usage in response to high, real-time energy prices. There are no standby payments, but the opportunity for energy payments is technically unlimited.

Finally, there are ancillary services, which require fine-tuning to manage micro-fluctuations. Participation in this market is limited, given the complexity of technology required to rapidly adjust equipment loads by small percentages in real-time, but the payments can be substantial. Payments are based on how much a participant is willing to allow their demand to drift.

Implementation at 77 West Wacker

Demand response has been at the core of my work this summer as an Environmental Defense Fund Climate Corps fellow (previously). My host company, Jones Lang LaSalle, is the property manager for 77 West Wacker Drive, a 50-story office building in downtown Chicago. Here, I am focusing on maximizing the benefits of demand response which have already been implemented through multiple technologies.

The two primary technologies that have enabled demand response capability at 77 West Wacker are the building automation system (BAS) and variable frequency drives (VFDs). The building automation system allows for monitoring and control of the various equipment from a central command center. This control is necessary to quickly enact demand response protocols while guarding the health, safety and comfort of the building occupants.

In the past, motor-driven equipment such as fans and pumps would either run at full load or not at all, and when at full load, they would be modulated by dampers or fans. A common analogy is using the brakes to control the speed of a car while pushing the accelerator to the limit. VFDs basically provide throttle control and allow for the modulation of such equipment.

The next step in fully implementing demand response at 77 West Wacker is enrolling into ancillary services. While BAS and VFDs are a strong first step, further hardware and software investments will be necessary to make frequency regulation possible.

To some extent, real-time control will have to be relinquished to the system operator, but the primary objective will still be to maintain tenant satisfaction. Automated scripts that guide operational parameters within predefined limits will occasionally have to override signals to ramp loads up or down. Cracking the code for successful implementation will hopefully release a new wave of revenue for property managers around the country while enhancing grid reliability.

Revenue Opportunities for Demand Response Participation

Currently, 77 West Wacker is enrolled in the PJM demand response capacity market through a curtailment service provider. There are standby payments for curtailment commitments, meaning that the building is paid for simply making itself available to reduce demand when called upon to do so. In addition to these standby payments, the building is paid for actual abatement as real demand falls below baseline demand during emergency events.

The building also participates in voluntary price-based demand response, whereby curtailment is performed in non-emergency events to take advantage of opportunities when real-time energy prices exceed the fixed rate that the building pays for energy. The software platform provided by the curtailment service provider allows engineers to view the building’s baseline demand, real-time action alerts and forecasts for weather and energy prices. When the grid is stressed due to extreme weather or system lapses, the engineers receive notification, usually the day of, to enact demand response protocols.

While extreme weather may or may not result in an emergency event, it almost always presents earnings opportunities through economic demand response. For this reason, the team here is proactive and monitors weather forecasts throughout the Midwest and East Coast, and has usually already taken action by the time emergency notification is received. In the summer, the primary form of action is load shifting by pre-cooling the building during early morning off-peak hours and reducing cooling demand during peak hours.

Every time you flip on a light switch, power must be available for that light. By using demand response, a building management team can help keep those power levels steady and reduce energy costs.



GuptaKaran Gupta is a high performance building consultant with experience in the residential and commercial sectors. He specializes in building retrofits, energy conservation measures, active energy management, demand response and building energy modeling. Gupta is also a graduate student at the Nicholas School of the Environment at Duke University, pursuing a master’s degree in Environmental Management with a concentration in energy. Gupta was a 2014 EDF Climate Corps fellow with Jones Lang LaSalle Chicago this summer, where he collaborated with building management, engineers and third parties to identify opportunities for energy reduction by approximately 7% at 77 West Wacker Drive.

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