Demand response – back to basics

I frequently find myself explaining what Flexitricity does, and I’ve come to expect one of two distinct responses. Many people are already comfortable with the term “demand response”. But many more will stare at me blankly as if I’d just asked them to recite the laws of Rugby Union.

It’s possible that those who aren’t familiar with the term don’t need to be, but I rarely get the impression that’s the case. Rather, many businesses are unaware of the savings or revenue that demand response can provide. Others are perplexed by the many confusing messages in the market just now. So let’s get back to basics…

Demand response is a simple concept. Many people will remember Economy 7 tariffs, where households that could shift their energy usage to night-time benefited from lower night-time rates. The tariff was a price signal to the customer that encouraged a change in consumption – a simple example of demand response.

Modern demand response is much wider than that. The response can be turning down, up, off or on any electrical load, like air conditioning, lighting or electrical heating. Alternatively, on-site generation can be used and deliver similar responses according to the price signal or service needs.

So far, so (relatively) simple. But electricity tariffs for industrial and commercial (I&C) electricity users are far more complex than for households. There are more price signals to respond to, including distribution and transmission charges, and peak electricity commodity prices. For generators, there are arrangements with electricity suppliers known as Power Purchase Agreements or PPAs, which create payments for excess electricity. PPAs generally mirror electricity supply contracts, covering electricity commodity, distribution, transmission and so on – for each cost for consuming, there is a corresponding payment for generating.

Additionally, arrangements with National Grid and the Distribution Network Operators (DNOs) create revenue for helping them keep the lights on. National Grid calls these balancing services. They are needed to match supply of electricity with demand in real time, especially when power stations fail or demand rises sharply.

Most balancing services involve turning down load or turning up generation. A business participating in these will earn in three main ways: savings on electricity costs by reducing electricity consumption, revenue from a PPA for exporting electricity from the site, and revenue from the balancing service itself.

In balancing services, both avoided consumption and the export of any extra generated energy count as delivered energy. Most balancing services pay businesses for being available as well as for delivering energy when requested.

If a site is using on-site generation instead of directly turning down load, it will also have fuel costs to consider. These costs help to determine whether the generator should be used regularly – aiming for many or all of the peaks – or whether a more targeted strategy is required.

The real complexity is in choosing the optimal approach, designing the right technical solution, and managing the service contracts to ensure the value flows. The particular balancing services that are right for a site depend on how quickly the asset can respond, how long it can respond for, and any operational limits. Flexitricity will appraise any electrical load and on-site generation, and will work out how to deliver optimal value for the site’s owner. We will then implement a solution that delivers, while ensuring that the site’s core business operations take priority at all times.

The keys to demand response are understanding the flexibility at a site, respecting any limitations, getting the engineering right, and taking responsibility for financial performance thereafter. That requires care, attention and integrity. That’s what Flexitricity brings.