What is demand response?
Demand for energy ebbs and flows throughout the days, weeks and year. In Minnesota for instance, there is a high demand for heat in the mornings in the winter and a high demand for cooling in the afternoons in the summer. Power companies must balance grid stability and customer satisfaction during these peak times, as electricity becomes more and more entwined with our daily lives. Handling this increase in demand can be done by increasing energy production or by asking consumers to conserve energy during these peak times. Programs that offer incentives to customers who decrease their energy consumption during peak times are called demand response programs.
What is the goal of demand response?
The ultimate goal of demand response is to reduce energy usage during peak times through energy efficiency measures or by actively decreasing energy usage. Companies reward such actions with various economic incentives from rebates to lowered bills.
Two primary consequences occur when demand response programs aren’t utilized. To meet peak demand spikes, secondary power plants are activated which increases greenhouse gas emissions. Consequently, the price of electricity increases during peak demand hours to fund the operation of these additional plants.
The demand response economy in Minnesota
In Minnesota, Xcel Energy has launched a Flex Pricing pilot program that guides 10,000 Minnesotans through the demand response process. For this program, Xcel offers three different energy prices depending on the time of day and the time of year that a customer is using energy. During the peak hours between 3 pm and 8 pm, the cost of electricity can be as high as 22.6 cents per kWh in the summer months. This cost drops significantly, however, to 2.8 cents per kWh from midnight to 6 am, year-round.
In northern Minnesota, 50,000 consumers are part of Northern Municipal Power Agency’s (NMPA) demand response program. Upon joining the program, commercial, industrial and residential consumers agree to allow NMPA to switch off dual fuel heating systems, water heaters and other commercial loads during peak usage times. When these systems are turned off, consumers are rewarded with a discounted price of electricity, and the grid can more efficiently manage the existing production of electricity, without needing to generate more.
The role of renewable sources in demand response
While customers save money, reducing peak demand times opens the door for developments in the clean energy industry. Renewable energy sources are variable in nature, meaning that wind turbines and solar panels, for example, rely on the wind to blow and the sun to shine. With the variability of clean energy technology, immediate response to a spike in energy demand is a recurring challenge.
One possible solution to this problem is continuing to develop energy storage technology and accessibility. With more widely accessible energy storage options, some of the variability of renewable sources is eliminated. Improving storage would also allow greater reliance on existing clean energy infrastructure and a reduction in carbon emissions, as there would be no need to build new power plants.
Taking advantage of existing infrastructure is already a possibility today, according to a study published by the Great Plains Institute. Transitioning to an increased energy usage at night would take advantage of preexisting wind technologies, as wind production typically increases overnight. With higher rates of production, wind energy would be able to fulfill a higher degree of demand at night than it currently does during the day. Demand would then shift to wind power, which would stimulate job growth within the clean energy industry.
Demand in the Minnesota landscape
In 2021, according to the US Energy Information Administration, Minnesota had the 17th highest price of residential electricity in the nation, with a cost of 14.03 cents per kWh. In terms of total energy produced, Minnesota falls to a ranking of 32, at 511 trillion British thermal units (Btu). Increasing energy production across the state would increase the supply of available energy and level these rankings, but this solution would be costly and release more emissions.
Instead, alleviating pressure on the state’s energy grids offers a more timely and cost-efficient remedy. Reducing immediate spikes in energy demand flattens the overall load distribution, which makes existing energy more readily and widely available to consumers. Flattening peak usage times also eliminates the need for more generation plants, allowing for these funds to be redistributed to other areas within the energy sector. Developing new tech with these funds would further improve energy efficiency and, ultimately, further lower the cost of energy for consumers.