Benefits (& Costs) to Consider when Thinking About Demand Response

With rising transmission, distribution and capacity charges making a significant impact on future energy costs, many organizations are looking at demand response programs to help improve their bottom line. Demand response gives companies the opportunity to receive financial incentives if they reduce or shift energy use during peak load times. Demand curtailment measures can include simple things like turning off lights and raising air conditioning temperatures, or they can be sophisticated such as real time adjustments to production processes. It’s important to consider the benefits and costs demand response has on your organization given your specific circumstances.

Three Key Benefits of a Demand Response Program

  1. Perhaps the biggest benefit to your organization is the financial one. Reducing energy demand as part of demand response earns you revenue incentives to offset energy costs. System operators and utilities will provide financial incentives when you reduce or shift your demand. There are many different types of demand response programs, some voluntary and some requiring a firm commitment when called upon, with different incentive amounts.
  2. Reducing demand improves the reliability of the grid. Less demand means less stress on energy transition and distribution systems, which makes them less likely to fail.
  3. Reducing electricity when demand is highest often results in lower wholesale prices. As demand for power decreases, less efficient and often more expensive forms of electricity generation are not needed, which helps keep energy costs in check.

Three Important Costs of Demand Response Programs

  1. If your organization cannot reduce electricity when called upon, you could incur penalties. Some providers make customers pay penalties for under performing during demand response dispatches.
  2. It may not be practical to implement a demand response program if it puts undo stress on your operations. Health care facilities, large data centers and retail facilities, for example, need to be very sensitive to integrity and safety when evaluating whether demand response is feasible.
  3. Demand response strategies often need to be active for specified lengths of time from minutes to hours. You may want to include only energy reduction measures your operations can tolerate during that time. In some cases, you may be making a decision that will impact your ability to conduct business as usual.  It’s critical to understand the economic tradeoffs to make the right decision on demand response participation.

Interested in finding out if a demand response program is a good fit for your organization? Contact a Usource energy advisor today to help evaluate whether demand response is a good option for reducing your electric costs.


About the Author

Scott MacDonald is Usource's Managing Director. Scott has 25 years of experience in the energy industry and is a recognized expert in energy economics and consulting. He has a MS from MIT and a BA in economics from the University of New Hampshire.

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