The Demand Side Response (DSR) system in the energy industry provides incentives for high-use electricity users to reduce their consumption at peak times or even move their requirements to a low-demand time of day.
According to grid operator, National Grid, DSR is a crucial tool to help ensure a secure, sustainable and affordable kWh electricity system. National Grid pays companies to reduce their energy consumption at times of peak demand, or when the network is under stress.
Why is There a Need For Demand Side Response?
More so-called flexibility in the power system is needed to counter the inflexibility of renewable electricity generation sources.
Energy regulator Ofgem defines flexibility as modifying generation and/or consumption patterns in reaction to an external signal, like a price change, to provide a service within the energy system.
Historically the energy industry has tended to provide flexibility on the supply side. However, providing flexibility on the demand side can support the power systems decarbonisation, while ensuring a reliable and secure electricity supply at minimum cost.
How Does it Benefit Business Energy Users?
Participating in DSR saves on total business energy costs and reduces the carbon footprint of industrial and commercial (I&C) electricity users. Installing half hourly meters at premises to measure electricity consumption is the first step towards managing energy usage.
The Key Benefits of DSR
Below are the five key benefits of participating in DSR.
|1||Additional Income||DSR services let energy consumers tap new revenue streams by managing electricity consumption or sources of idle standby generation to support the grid operator. In some markets, such as Firm Frequency Response and the Capacity Market, businesses are paid for making capacity available to respond to events, generating revenue without actually starting up generators or reducing demand.|
|2||Reduced Energy Bills||By taking part in DSR schemes, energy users reduce overall power consumption, saving on bills. Reducing load at times of high demand on the network, or switching to on-site generation, avoids the highest network charges.|
|3||Improved energy efficiency||Companies need to be able to accurately measure and monitor energy usage to take part in DSR schemes. Valuable insight gained into energy consumption patterns helps improve a business’s overall energy efficiency.|
|4||Enhanced Corporate Social Responsibility (CSR)||Improved energy efficiency and reduced energy consumption lead to reduced carbon emissions, supporting corporate environmental goals, while taking part in DSR schemes helps the UK maintain the security of supply.|
|5||Better Asset Management||Using backup generators, which are idle most of the time, to provide DSR services means these assets must be in good working order. Maintenance and regular use will ensure backup generators are less likely to fail and help prolong working life, while DSR payments can cover maintenance costs.|
How Does DSR Work?
National Grid uses assets and equipment at companies’ premises, such as standby generators, combined heat and power (CHP), heating and air-conditioning systems, refrigeration plants, batteries and industrial pumps, as a virtual power station at times when demand for energy outstrips supply, through intelligent demand management.
Different DSR balancing and other services are available, with varying rates of remuneration based on required response time and duration.
What System Pays The Most?
There are several systems that operate today:
- Income gets linked to the speed of response required. As frequency response services require immediate action in response to frequency fluctuations on the grid, these pay the highest rates.
- Reserve services, which balance supply and demand, do not require an immediate response so offer lower payments.
- DSR participants choose when to make services available to the grid operator. An availability fee is paid for these periods, and for some services. An additional utilisation payment gets paid if participants are called on to reduce demand or start-up standby generators.
The availability of each system and the level of payment available vary by supplier.
Demand Side Response Opportunities
1: Balancing Services
- Firm Frequency Response (FFR): A monthly electronically tendered service through where National Grid procures energy that can respond within either 10 or 30 seconds.
- Enhanced Frequency Response (EFR): A new, faster frequency response product, requiring businesses to provide a full response in less than a second.
- Short Term Operating Reserve (STOR): National Grid procures reserve energy via three tenders a year. A response time of up to 240 minutes is required, however, a response time of less than 20 minutes is preferable.
- STOR Runway: An alternative route into the STOR market, via a growth contract. It is designed to help businesses get off the ground in demand side services.
- Fast Reserve: A monthly tendered market designed to procure large blocks of reserve energy of 50MW to respond within 2 minutes.
- Demand Turn Up: Businesses are paid to increase demand (by shifting demand or reducing onsite generation) when there’s too much energy in the system, typically responding within several hours of a signal.
2: Capacity and Peak Load Management
- Capacity Mechanism: Capacity Mechanism is a catch-all term for the auctions for the Capacity Market that National Grid runs to guarantee capacity for any given year. The Capacity Market is one of the main building blocks in the Electricity Market Reform (EMR) programme.
- Transitional Arrangements: Auctions that are in place to help demand-side providers enter the Capacity Market; working in exactly the same way as the main Capacity Market auction, but for a much shorter term.
- Triad Avoidance: Reducing consumption at periods where peak winter national demand is forecast, to proportionally reduce TNUoS (Transmission Network Use of System) charges.
- Red Zone Management: Shifting consumption to avoid periods of highest distribution network cost (DUoS; Distribution Use of System), referred to as “red zones”.
How Can Businesses Participate in DSR?
Businesses can get involved in providing demand-side services through an aggregator, energy supplier or other third party energy services provider.
To date, very few companies have taken advantage of the financial rewards from participating in DSR, despite strong interest from I&C energy consumers wanting to take part. Many are put off by the complexity of the various balancing services and volume of markets.
Open Energi (1) lists as one of the DSR myths putting companies off is the perceived loss of control of critical processes to DSR providers. However, DSR providers do not tell companies how businesses should be run and work with customers to understand their assets and processes before agreeing the parameters within which they want their assets to participate.
Once a control strategy is in place, each individual asset is then able to decide if it can respond, and the technology will enable it to lock the DSR provider out if it reaches a point where it cannot participate.
The Benefits Of Working With DSR Providers
The UK energy system is in a state of flux. In the SNAPS Review, National Grid is looking to move towards a more transparent system that allows for smaller, innovative businesses to participate in newly developed programmes.
Today, embedded generators are over-rewarded by Transmission Network Use of Systems (TNUoS) charging (a.k.a Triads), which impacts investment decisions for other energy markets.
Ofgem is reviewing network charges, including Distribution Use of System (DUoS). Changes include:
- Reverting the charging base for Half-Hourly demand from gross to net demand.
- The Embedded Export tariff payable to embedded exports will no longer apply.
- The Non-Half-Hourly methodology does not change; however, the value of the tariffs will change based on the revised calculations of Half-Hourly tariffs.
According to KiwiPower (2), the proposed changes will result in a flattening of the rates, as peak charges come down, and non-peak charges increase, so the red, amber and green pricing bands are less disproportionate. They also advise I&C users to adopt and implement a Triad avoidance strategy, until 2022, which is when changes to charges will take effect.
Ultimately, overall changes to the energy system and the charging regime will mean DSR participation could be more attractive for I&C electricity consumers.
Avoiding Triad charges will become harder, so large energy users will be further incentivised to explore the broader benefits of exploiting flexibility within electricity demand to take advantage of other opportunities in the balancing services or wholesale markets, according to GridBeyond.