Pike Research released a report early this year entitled “Demand Response for Industrial Markets.”  The report examines the crucial role the industrial sector plays in successful demand response (DR) markets. DR providers and utilities are targeting the commercial and industrial (C&I) sector specifically to assist in balancing demand on the electric grid in times of stress.  But, is this the best strategy for demand response?  Or should DR change focus to the residential sector, which, according to EIA data, consumes more electricity in total?

The answer seems to be: stick with the industrial sector.

The report from Pike Research predicts that the growth of demand response will be considerable over the next few years.   Globally, peak load curtailment currently amounts to about 26,849MW.  By 2019, Pike estimates that number will grow to 62,084MW.  That will equal a payment growth from $1.8 billion in 2013, to $4.3 billion by 2019.

The concept of residential demand response has also been gaining popularity recently.  Smart meters and automation technology have made it more viable for utilities to control residential load, but recent data illustrates that even with new technology, residential DR won’t provide the peak load reduction the grid needs.  Pike explains that the Federal Energy Regulatory Commission (FERC) does not differentiate between C&I loads and residential curtailment.  Recent US data suggests that the C&I sector contributes about 78% of the potential peak reduction, while only 22% would come from residential customers.  In addition, the financial incentive for C&I facilities to participate in DR is far more lucrative than for residences.  In some cases, industrial facilities that completely shut down operations for DR events make more money from the DR payment than they would from normal production profit.  The cost-benefits are different for every facility, but in some cases the benefits from demand response far outweigh the temporary inconvenience of electricity reduction.

Another problem with residential demand response as a resource for grid reliability is engagement of consumers.  Financial incentives and risk of equipment damage due to voltage fluctuations actively engage business owners and facility mangers in the C&I sector, but there is little incentive to offer residential customers.  Savings on monthly electric bills may not be enough to entice consumers to change electric use patterns.

Concerns are growing over new technology too.  Smart meters are a hot topic of controversy among homeowners in many states because of concerns over privacy, security, and even possible health issues.   With residential DR, there are also many more consumers to educate and convince to alter electric use than there are in the C&I sector.  It is easier to convince a small number of facilities to curtail a large amount of load, than it is to convince a large number of consumers to curtail smaller amounts of electric use.  Education efforts will also need to be much more widespread, and that takes time and money.

Instead of attempting to develop residential demand response, grid operators could invest in technologies.  Energy storage and distributed generation, for instance, show promise as far as helping balance the grid.  Technology such as this can assist in managing peak demand, and will no doubt grow over the next few years as demand response becomes increasingly important in the commercial and industrial sector.

For more information on how demand response can help your business and lower your energy bills, please click here.