Demand Response and Storage

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Demand response and storage are tools that enhance power system flexibility by better aligning variable renewable energy (RE) supply with electricity demand patterns:

  • Storage shifts the timing of supply
  • Demand response shifts the timing of demand.

Examples of storage technologies include fly wheels, compressed air energy storage, batteries, and pumped-hydro storage, among others. Demand response typically involves a voluntary and compensated programs that enable a power system to encourage or directly control load reduction as needed to maintain grid stability.

The role of demand response and storage becomes increasingly important and cost-effective at very high penetrations of wind and solar. To date, integration studies have found that the grid can accommodate about 30% of annual electricity demand from variable generation largely with flexibility options that increase the instantaneous penetration of variable RE (for example, System Operations, Forecasting, Balancing Area Coordination, Flexible Generation). At penetrations beyond 30%, integrating variable RE to the grid becomes more challenging due to the limited alignment between wind and solar generation and electricity demand, as well as the inflexibility of conventional generators to ramp up and down to balance the system. Without a sufficiently flexible grid, thermal plants cannot reduce output and wind and solar will need to be curtailed. As curtailment increases, variable RE offsets less fossil generation, decreasing its value. Demand response and storage are enabling technologies that can reduce curtailment and facilitate higher penetrations of variable RE on the grid.

Power system operators can weigh the benefits of demand response and storage against implementation costs. Many storage technologies are still costly and somewhat inefficient—only 70-85% of stored energy is recoverable. Demand response programs do not incur such an efficiency penalty. However, demand response programs do have significant implementation costs, for example, to attract participants and manage their electricity demand. In many cases, demand response is most effective when combined with advanced metering Infrastructure (AMI), which can provide detailed end-use load information and continuous remote communications. 

Due to the challenges in quantifying the point at which storage or demand response becomes the least-cost flexibility option, evaluating the role of these interventions in a power system with high variable RE requires continued analysis, improved data, and new techniques.

Example Interventions

The following are potential mechanisms to encourage demand response and storage.

  • Explore approaches to revenue regulation and decoupling of energy sales revenue from sales volume. Decoupling helps to address utility revenue loss concerns associated with end-use efficiency improvements through demand response.
  • Introduce ratemaking practices—such as time-varying electricity pricing—that encourage cost-effective demand response, even in communities without significant deployment of smart meters.
  • Enable demand response to compete on par with supply-side alternatives in utility resource planning and acquisition through mechanisms such as demand-side bidding into electricity markets.
  • Ensure network support for demand response through advanced metering and controls (for example, those implemented in many areas of the United States).
  • Incorporate consideration of storage into grid integration studies to determine the cost-effectiveness of storage relative to other flexibility options at a variety of variable RE penetrations.
  • Conduct integrated resource planning to identify locations for feasible and effective implementation of demand response and storage measures.

Reading List and Case Studies

Energy Storage Requirements for Achieving 50% Solar Photovoltaic Energy Penetration in California

National Renewable Energy Laboratory, 2016

This report estimates the storage required to enable PV penetration up to 50% in California (with renewable penetration over 66%), and quantifies the complex relationships among storage, PV penetration, grid flexibility, and PV costs due to increased curtailment. The authors find that storage needs depend strongly on the amount of other flexibility resources deployed. With very low-cost PV (three cents per kilowatt-hour) and a highly flexible electric power system, about 19 gigawatts of energy storage could enable 50% PV penetration with a marginal net PV levelized cost of energy (LCOE) comparable to the variable costs of future combined-cycle gas generators under carbon constraints.  

2013 Assessment of Demand Response and Advanced Metering: Staff Report

Federal Energy Regulatory Commission, October 2013

This is the 8th annual report from the United States Department of Energy’s Federal Energy Regulatory Commission (FERC) on demand response and advanced metering in the United States, based on publicly available information and interviews with market participants and industry partners. The assessment reviews penetration rates of advanced metering and communications technologies; existing demand response and time-based rate programs; annual resource contributions from demand resources; the potential for demand response as a quantifiable, reliable resource for regional planning; steps that have been taken in regional transmission planning and operations to ensure demand resources are provided equitable treatment as a quantifiable, reliable resource; and regulatory barriers to improved customer participation in demand response programs.

Market and Policy Barriers to Energy Storage Deployment

Sandia National Laboratory, September 2013

This report details the barriers that restrict the deployment of energy storage technologies in the United States. The findings are based on interviews with stakeholders and review of regulatory filings in four regions roughly representative of the country. The report suggests that while high capital costs remain a barrier to energy storage, deployment is also impacted by regulatory, market (economic), utility and developer business model, cross-cutting, and technology barriers. The report also presents a discussion of possible solutions to address these barriers and a review of initiatives around the country at the federal, regional and state levels. [Also, read an earlier discussion of barriers to storage deployment].

Pacific Gas & Electric Company (PG&E) SmartRate: Product Design Converges on Customer Experience

Association for Demand Response & Smart Grid, September 2013

This case study is based on interviews with PG&E (a California utility) and explores the institutional circumstances surrounding the implementation of PG&E’s SmartRate™ dynamic rate program. The case study focuses on implementation and procedural challenges, reactions and perceptions of stakeholders involved, and lessons learned. The case study is not intended to evaluate the program but offers insight into the internal workings, attitudes, and relationships of a utility successfully implementing a demand response program.

Rate Design Where Advanced Metering Infrastructure Has Not Been Fully Deployed

Regulatory Assistance Project, April 2013

This paper focuses on foundational rate design principles that are typically associated with conventional meters. Despite growing deployment of smart meters, most electricity customers are served by conventional meters. The wide variety of pricing practices discussed in this paper highlight global case studies that have exhibited the ability to enable system operators to send price signals that alter retail customer behavior, affect needed capital improvements, and influence a utility’s capital investments.

Market and Policy Barriers for Demand Response Providing Ancillary Services in U.S. Markets

Lawrence Berkeley National Laboratory, March 2013

This report provides a comprehensive examination of market and policy barriers that hinder the use of demand response resources to provide bulk power system services (including ancillary services) in U.S. energy markets. The report introduces a typology that identifies barriers (e.g., bulk power system service definitions, revenue availability) according the relevant power system entities (e.g., balancing area authorities, investor-owned utilities, end-use consumers) that are responsible for and/or affected by the barrier. It also identifies actions required to overcome each barrier. In order to illustrate the differences in and approaches to addressing barriers among various wholesale and retail market designs, four regions are explored as case studies: Colorado, Texas, Wisconsin, and New Jersey.

 Market and Policy Barriers for Demand Response Providing Ancillary Services in U.S. MarketsEnergy storage resources have the capability to provide a variety of ancillary services to the grid. This table provides descriptions and identifies performance requirements of ancillary services and key characteristics important for energy storage resources. (Click image to see full size.)

Effective Mechanisms to Increase the Use of Demand Side Resources

Regulatory Assistance Project, January 2013

This report provides policymakers with a detailed look at a fourteen regulatory, policy, market-based, and load-targeting mechanisms that are emerging as effective practices for increasing the use of demand side resources. Based on research in several countries, the highlighted mechanisms—some aimed at vertically-integrated power sectors, some at liberalized market systems, and some at both—are designed to break down the economic and institutional barriers to investment in clean energy resources on the customer’s side of the meter. Specific suggestions include mandating time-varying pricing structure, encouraging implementation of demand side management technologies through incentives and mandates, and enabling financing mechanisms and markets for development of these systems, all as a part of guiding the transformation toward improved demand side management in the power system.

Mechanisms for Increasing the Use of Demand-Side ResourcesFour categories of mechanisms are defined for increasing deployment of demand side resources. (Click image to see full size.)

Mass Market Demand Response and Variable Generation Integration Issues: A Scoping Study

Lawrence Berkeley National Laboratory, October 2011

This report examines how demand side resources could be used to facilitate the integration of wind and solar resources into the bulk power system, identifies barriers that currently limit the use of demand response, and suggests factors that can assist decision makers in assessing alternative strategies for integrating wind and solar resources in the bulk power system. The study examines the role of the widespread deployment of Advanced Metering Infrastructure and smart grid systems to mass-market customers in managing the integration of variable RE, primarily in the context of United States power systems. It also assesses how market and regulatory practices can be modified to better enable demand response technologies to facilitate variable RE integration. 

Coordination of Energy Efficiency and Demand Response (National Action Plan for Energy Efficiency 2010)

National Action Plan for Energy Efficiency, January 2010

This paper summarizes existing research on the relationship between energy efficiency and demand response. Energy efficiency measures and rate design can impact investments towards demand response measures (and vice versa). Using information gathered through interviews with program administrators, customers, and service providers, this paper suggests four ways to coordinate energy efficiency and demand response programs (combining program offerings, coordinating program marketing and education, enabling market-driven coordinated services, and developing building codes and appliance standards) and also discusses barriers and opportunities to facilitate coordination. 

Regulatory and Policy Examples

Demand Response and Energy Efficiency Roadmap: Maximizing Preferred Resources

California Independent System Operator, December 2013

The California Independent System Operator (ISO) is working with other stakeholders (including the California Public Utilities Commission and the California Energy Commission) to create a market for demand response and energy efficiency and to harmonize these resources with transmission planning and system operations. This Roadmap outlines activities and milestones for four interdependent paths (demand reshaping, operations, resource sufficiency, and monitoring) necessary to bring greater demand response and energy efficiency capacity to the system through 2020.

FERC Order 784: Third-Party Provision of Ancillary Services; Accounting and Financial Reporting for New Electric Storage Technologies

Federal Energy Regulatory Commission, July 2013

FERC Order 784 is a final rule from the United States Department of Energy’s Federal Energy Regulatory Commission (FERC) that outlines revisions to its regulations to foster competition and transparency in ancillary services markets. The revision affects market-based rate regulations, ancillary services requirements under the pro forma open-access transmission tariff (OATT), and accounting and reporting requirements. The changes proposed also modify the accounting regulations to increase transparency for energy storage facilities. 

FERC Order 719: Policy on Demand Response

Federal Energy Regulatory Commission, October 2008

FERC Order 719 is a final rule from the United States Department of Energy’s Federal Energy Regulatory Commission (FERC) that details the amendments in the Federal Power Act regulations to improve the operation of organized wholesale markets in the areas of demand response, long-term power contracting, market monitoring policies, and responsiveness of regional transmission operators (RTOs) and independent transmission operators (ISOs). The order includes rules initially created in the US to enable bidding of demand response into electricity markets (RTOs’ and ISOs’ markets) as well as to permit aggregated bidding of demand response resources in organized energy markets.

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