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It’s time to democratise demand response

Demand Response (DR) is a method to cut or shift electrical demand. Traditionally, this has been done in a top-down centralised fashion, but there is a better, customer-centric, way to do this writes Imran Azim.

In the US, over the last four years, the major electricity authorities have been running demand response (DR) programs. During peak demand periods in the evening, contracted participants in the DR scheme must, under the terms of their agreement, allow their asset or assets to be turned off by the central controller of the utility. This asset is typically an air conditioning unit and it is directly connected by some kind of internet connectivity and protocol to the centralised control system at the utility.

Similarly, during peak Distributed Energy Resource (DER) output, the same control system will seek to turn on the air conditioning in all participating households.

Electric Vehicle (EV) charging/discharging would also be under the same kind of regime, because their use is generally not time sensitive.

The incentive for joining the scheme is typically a credit that appears on your monthly bill. The credit usually has a participation fee and actual demand reduction fee that amounts to $1-$2/kWh of energy saved when compared against a baseline. The credit is calculated based on how much a participant reduces his/her electricity use, compared to his/her normal or ‘baseline’ usage. This amounts to around a five per cent saving on electricity bills every year.

The aim is to optimise the DERs against the existing load and stabilise the grid. Such schemes have seen an increased uptake over the last few years, but there has also been a worrying number of dropouts too.

Exact data is difficult to find here, but it is thought that many participating in the scheme are not willing to have their evenings become a little warmer and less comfortable than they are otherwise accustomed to.

The Demand Response Customer Insights Report (2018) published by ARENA captures a participant who was left nonplussed experiencing the DR trail. The participant quotes, “Our house gets unbearably hot in summer, it’s shocking. I pay our bills each quarter, I don’t really know much about how much energy we use each day. [D]uring the last event I turned the air conditioner down and watched TV, I don’t know what difference that made [to the grid].”

One of the criticisms levelled at the scheme is that the decisions made for the DR scheme are done when the weather is temperate. However these decisions often are not optimal when the DR event is often triggered in the middle of summer.

A selection made months before cannot easily be changed or overridden, and that inflexibility can be irksome. The uncertainty around a household’s energy usage is potentially one of the reasons why the dropout rate is so significant.. One participant in the DR trial emphasised, “I can’t turn off my aircon because my kids are homeschooled and they can’t do their homework if it’s too hot”.

Seen as an information problem, the situation becomes a bit clearer.

If demand outstrips supply, then the grid requires consumers to reduce their electricity usage. In this example, illustrated below, Consumer A is willing to reduce their energy consumption through the centralised contract. Whereas, Consumer B retains its usual energy demand. The reasons why Consumer B wants to continue its current energy consumption, is unknown to the centralised contract. This lack of information leads to an unsatisfactory outcome for all parties because demand continues to outstrip supply.

Let’s look at the situation schematically:

Figure: Demand Response and consumers

In the diagram on the right hand side, there is effectively a negotiation between Consumers A and B to establish who would be willing to part with their electricity, along with the amount and time. Because the negotiation happens in an optimised marketplace, with new rules and regulations in real-time, it reflects the real preferences rather than those imagined many months before.

Of course this scheme shouldn’t come as a surprise to many. It’s none other than the peer-to-peer (P2P) principle applied to demand response, or put another way it’s P2P negawatts, the trading of minus kilowatt-hours.

Despite its attractions, the concept has yet to be taken up by any major utility. But many commentators think it’s only a matter of time before they do.

“In light of recent developments, negawatt trading is starting to be seen as a reality. For example, in Japan, a number of industries have participated in the Yokohama Smart City Project (Honda et al., 2017) to demonstrate the effectiveness of negawatt hour trading in the future” says Dr Wayes Tushar from The University of Queensland in one of the articles stressing the prospects of negawatt trading in the 21st century (Tushar et al., 2020).

Ultimately it’s about choices. What psychology often shows us is that if you offer people a choice, you can build a coalition of the willing and make a project like DR more sustainable. If, on the other hand, you attempt to push them into something without enough buy-in, no matter how worthy or beneficial it may sound, you will encounter resistance and fail at achieving your goal.

DR is no-doubt one of the better ways to manage the grid than just building more generators. But there is an even better way to do this by decentralising participants’ responses. Maybe it’s moments like this that bring home that democratisation of power has to be more than just a slogan. It needs to be lived.

Author: Imran Azim is a Transactive Energy Analyst at Powerledger who is in the process of completing his PhD at the University of Queensland.


Demand Response Customer Insights Report 2018, The Australian Renewable Energy Agency (ARENA), <https://arena.gov.au/assets/2018/08/demand-response-consumer-insights-report.pdf>.

Honda, K. Kusakiyo, K. Matsuzawa, S. Kosakada, M. Miyazaki, Y. 2017, ‘Experiences of demand response in Yokohama demonstration project’, CIRED — Open Access Proceedings Journal, vol. 2017, no. 1, pp1759–1762, <https://digital-library.theiet.org/content/journals/10.1049/oap-cired.2017.0789>

Tushar, W., Saha, T.K., Yuen, C. et al. 2020, ‘Challenges and prospects for negawatt trading in light of recent technological developments’, Nat Energy, vol. 5, no. 11, pp834–841, <https://doi.org/10.1038/s41560-020-0671-0>



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