An Intro to Demand Response Programs and Their Top Advantages for Businesses

Spring is just around the corner, and summer is quick on its heels. Soon, you'll be cranking up the air conditioner in your office in an attempt to keep employees cool and comfortable. 

The only issue? When every local business takes the same approach at the same time, it can put a major strain on the electric grid. To avoid service interruptions and help regulate their energy use, many executives are turning to demand response programs.

Unsure how these programs work or how they can benefit your business? Read on. Today, we're sharing all the basics you need to know, along with how to get started!

What Are Demand Response Programs?

In short, demand response programs encourage consumers (residential homeowners and business owners) to conserve energy during peak, high-demand times.

Doing so can help take the strain off the grid and ensure that everyone can enjoy the comforts of their HVAC system without fear of interruption. 

During times when the demand for electricity threatens to outpace the supply, utility companies will use these programs to help restore balance. A few of the conditions that might necessitate this action include:

  • Extreme temperatures
  • Periods of scheduled maintenance
  • Unexpected power line damages

In most cases, demand response programs are built around two tactics that utility companies use to encourage usage control. Let's take a look at each one in greater detail.

Time-Based Rate Programs

Under this program, customers pay varying electricity rates that differ according to a few factors, including:

  • Days
  • Times of the year
  • Events (e.g. days with abnormally high loads)

A few of the different forms of time-based rate programs include:

  • Time-of-use pricing
  • Real-time pricing
  • Variable peak pricing
  • Critical peak pricing
  • Critical peak rebates

Let's review each one in greater detail.

Time-of-Use Pricing (TOU)

This type of pricing adjustment applies to energy use over a set span of hours.

For instance, "on-peak" might be from noon to 6:00 p.m. on a summer weekday, whereas "off-peak" refers to all other hours during the summer months. In this case, the price for each period will be pre-determined and invariable.

Real-Time Pricing (RTP)

With real-time pricing, electricity rates don't apply to broad periods. Rather, they apply to usage on an hour-by-hour basis.

Variable Peak Pricing (VPP)

Variable peak pricing borrows from both TOU and RTP programs. 

Here, utilities will define in advance different electrical rates based on periods of time. For instance, the on-peak and off-peak hours described in TOU would still apply here.

The difference? The price established for the on-peak period (e.g. noon to 6:00 p.m. on summer weekdays) will vary depending on the utility and local market conditions. 

Critical Peak Pricing (CPP)

Critical peak pricing occurs when a utility observes or expects that wholesale market prices will spike, or when a power system experiences an emergency. 

If either of these situations occurs, the utility might designate certain time periods as "critical events". For instance, this might be from 2:00 p.m. to 4:00 p.m. on a summer weekday. In turn, electricity pricing during these peak periods raises significantly. 

There are two variations that exist for this type of rate design:

  1. The time and duration of the price increase are predetermined by anticipated events.
  2. The time and duration of the price increase will vary, dependent on the grid's load reduction needs.

Critical Peak Rebates (CPR)

Like CPP, critical peak rebates occur when utilities observe or expect that wholesale market prices will spike, or when a power system experiences an emergency. 

In either case, "critical events" are still called and the price for electricity during these periods remains the same as in PP.

The only difference? Under CPR, utilities will refund customers at a single, preset value if they reduce their energy consumption beyond what they were expected to consume. 

Direct Load Control Programs

Another type of demand response initiative, direct load control (DLC) programs allow power companies to cycle their air conditioning systems and water heaters on and off during periods of peak demand.

When customers agree to this setup, utilities will reward them with financial incentives and reductions on their electric bills. This can be performed on the residential or commercial level.

If your business is a light commercial power user, DLC programs can offer great savings with minimal inconvenience. In most cases, DLC-controlled equipment is controlled fewer than 10 times per year. 

Advantages of Program Participation

Participating in demand response programs doesn't require a major commitment or effort on the part of the typical business owner. In fact, the benefits far outweigh the drawbacks.

Let's take a look at a few you can expect to reap.

Financial Incentives

Participating in a demand response program naturally reduces your overall energy demand. 

Not only will you save money by simply consuming less electricity during certain peak hours, but you can also earn financial incentives to apply to future energy costs!

Lower Wholesale Prices

Though it isn't always the case, reducing electricity during peak times of demand often leads to lower wholesale prices.

How does this work? Diminishing demand reduces the need for costly, inefficient forms of electricity generation. This helps regulate energy costs, which means money back in your pocket.

Improved Grid Reliability

When the electric grid is reliable, everyone wins. Demand response programs take extra stress away from transition and distribution systems. This means they're less likely to fail when you need them the most.

Need Demand Response Management?

Are you part of a Texas-based Electric Reliability Council of Texas (ERCOT) demand response program? If not, are you interested in joining one?

If so, you know that the process can be rewarding, but complicated. That's why we're here to help.

Our team works directly with the ERCOT to provide demand response programs to a variety of local commercial and industrial end-users. We'll help your business save money, conserve energy, and improve grid reliability, all at once.

Request a quote today and let's connect!

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