Report: Demand response is critical to enabling the energy transition and ensuring a reliable grid

Recently released research shows that mounting reliability risks make demand response (DR) increasingly important as the grid transforms. An aging grid dominated by solar and wind power, battered by storms and fires and struggling to supply new needs like EVs and electric heat pumps, needs the flexibility that DR provides.

“Paradigms for the generation and delivery of electricity are evolving away from a centralized network with predictable power flows toward a distributed and dynamic grid, creating many challenges and opportunities for utilities and other entities involved in the electricity value chain,” according to a new report about grid reliability challenges published by Wood Mackenzie and CPower. “At the heart of these changes is how reliability is assured when the grid is most stressed, like when customer demand peaks during heat waves, natural disasters or extreme weather events.”

Based on insights from analysts at Wood Mackenzie, the report shows that DR programs have proven to be an important resource for ensuring reliability amidst grid challenges in the past, but that such support may not always be available. Analysts explain how low capacity pricing and cumbersome rules on DR participation threaten the future of DR programs and the ability to use distributed energy resources (DERs) to help the grid.

If energy users were to stop participating in DR, analysts note, utilities and grid operators would lose their most reliable resource during emergencies as well as a resource that can provide much-needed flexibility year-round.

Such year-round flexibility is imperative because the proliferation of intermittent renewable resources, the retirement of fossil-fuel generators, and the electrification of vehicles, heating and other key energy needs are straining the grid, making it difficult to balance supply and demand.

“As the grid’s needs continue to evolve, particularly with the growth of other types of distributed energy resources (DERs) besides DR, such as solar generation, battery storage, and electric vehicles, DR is an increasingly important part of the resource stack in energy markets,” according to the report from Wood Mackenzie and CPower.

The North American Reliability Corp. recently issued a similar warning about the importance of flexibility in mitigating risks to grid reliability.

“System operators and planners should ensure that sufficiently flexible ramping/balancing capacity is available to meet the needs of changing patterns of variability and new characteristics of system performance. In future decades, growing storage and demand-side flexibility may help mitigate the concerns for flexibility and attention will turn to multi-day energy concerns, but intraday flexibility remains important during this transition,” according to NERC’s 2023 Electric Reliability Organization (ERO) Reliability Risks Priorities Report.

Today’s tech-enabled DR can play a key role in energy, ancillary services and other flexibility markets. But policymakers must eliminate barriers like unsustainably low pricing and unworkable administrative complexities to unlock the full flexibility of DERs, according to Wood Mackenzie and CPower’s report. To do so, the paper’s authors suggest market reforms such as revising compensation methods for DR resources, fixing capacity accreditation and introducing a price floor for DR.

If you would like to learn more about the research and recommendations from Wood Mackenzie and CPower, you can download a copy of the report here: Ensuring Grid Reliability with DERs.

Kenneth Schisler
Ken leads CPower’s regulatory and government affairs team, having previously served in similar roles at both Vicinity Energy and EnerNOC/Enel. He brings nearly three decades of policy leadership on innovation in clean and advanced energy technologies and collaborates with public officials, regulators, power exchange and system operators, academia and industry peers to unleash the potential of demand-side resources.