b. Demand response
Demand response is the oldest form of demand-side flexibility recognized as such. Developed in the 1970’s as an emergency measure to avoid blackouts, demand response was originally limited to large companies manually reducing their electricity use. Today, the process has largely been automated for commercial and industrial customers, and residential demand response programs are becoming increasingly common and accepted. Evidence of this is the inclusion of aggregated demand response resources in capacity mechanisms.
The granularity of demand response continues to increase: after the shift from industrial to commercial and later to residential demand response, mechanisms are being developed for the operation of demand response at the appliance level. The large-scale introduction of smart metering has been instrumental in activating the demand response potential of market participants.(1) Datong Zhou, Maximilian Balandat and Claire Tomlin, ‘A Bayesian perspective on residential demand response using smart meter data’ (54th Annual Allerton conference on communication, control, and computing, Monticello, 2016).
Demand response is closely linked to the issue of peak demand, where demand is temporarily so high that the supply side cannot match it. The imbalance might be due to practical concerns (there is physically not enough generation capacity) or financial concerns (there is in theory enough capacity, but it is cheaper to pay consumers to reduce demand than to engage the reserve capacity). Usually, the use of the specific amount of electricity is not abandoned altogether, but is instead moved to another time, when there are no peak demand concerns. For these reasons, demand response is qualified as a short-term event.
While demand response measures commonly react to the adequacy of an external energy supply, in today’s energy system this is not a necessity. For example, demand response measures can be used within a single household, in order to balance the domestic consumption of energy with the supply from the solar panels on the roof. It flows from this that demand response measures do not require a connection to the electricity grid, but can instead also be used in a microgrid and off-grid context.(2) For example: Benny Talbot, ‘Off-grid Demand Response’ (Knoydart Foundation 2016) <https://www.localenergy.scot/media/98365/Knoydart-Final-Report.pdf> accessed 17 November 2017.