By Abbas Chagani, Manager, Demand Response

Historically, Demand Response (DR) and Energy Efficiency programs have caused some confusion for electricity users. Broadly speaking, both programs are similar in that they offer benefits to the electricity user and can be part of an effective Energy Management plan. Yet, this is where the similarities end since the programs are designed to operate under different circumstances with different electricity reduction goals. DR and Energy Efficiency programs are not interchangeable but, if their respective advantages and limitations are properly understood, they can compliment one another, which will allow a more successful overall Energy Management program. We are going to look at both programs in this article and attempt to smooth out previous misunderstandings between them. By doing this we will be able to explain how Demand Response and Energy Efficiency can both be most useful when used in correct circumstances.

Operating goals

Demand Response is defined as “actions taken by electricity end-users that result in short-term reductions in peak electricity demand”. In a competitive energy market, such as Ontario and Alberta, DR typically occurs in response to a price signal from the electricity hourly market, or a trigger initiated by the electricity grid operator. The goal of a DR program is ultimately as a short-term measure that allows electricity users to manage the risk of volatile electricity prices.

By comparison, Energy Efficiency is defined as “programs that are aimed at reducing the energy used by specific end-use devices and systems, typically without affecting the services provided”.¹ Energy Efficiency measures attempt to use less energy in the long-term to achieve the same benefit, or to use the same amount of energy to achieve a greater output.

Actions

DR actions typically vary between one and four hours. Reductions are made to electricity loads, such as HVAC and lighting equipment, or a portion of a manufacturing plant, according to a pre-planned load-shed procedure. Another alternative to load shedding is onsite generation to displace load drawn from the electricity power grid.

Energy Efficiency measures can include:

• Retrofits
• Building Automation
• Re-commissioning
• HVAC improvements
• Variable frequency drives

These are all longer-term actions.

• Capital expenditure and payback cycle:
  Demand Response programs are attractive since they require relatively little capital expenditure and they have a short payback cycle. In contrast, Energy Efficiency measures can be capital intensive and the payback cycle is usually longer, even where generous incentives are offered to organizations that implement energy efficiency programs.


• Price Risks:
  DR programs also offer a minimal price risk: when prices are low, there are no DR opportunities but customers still benefit from a low electricity bill. Energy Efficiency programs are more risky in this sense because if energy price expectations do not materialize, financial saving will be reduced and the payback cycle is lengthened.


• Sustainability and Total Energy Use in the facility:
  However, Energy Efficiency programs are advantageous in that they have a long-term effect on the sustainability of the facility and will reduce total energy use. As well as leading to long-term financial savings simply because the facility is spending less on energy, using less energy will mean reduced greenhouse gas emissions and environmental sustainability. This last fact will become increasingly important in terms of economic sustainability as local and national governments begin implementing carbon caps and taxes. The short-term nature of DR programs, by comparison, means that they have little effect on the total amount of energy used in the building over a longer period of time.


• Electricity versus Other Energy Sources:
  While DR programs are limited to electricity users, Energy Efficiency programs can be extended to any application in the facility that uses energy, regardless of whether it uses Natural Gas, Propane, Water or another energy source.

Visual comparison

Below, Figure 1 shows the effect of energy efficiency on a typical facility’s electricity load. The effect is a load reduction for all hours of the day. Although the reduction does not always have the effect described, the philosophy is to establish a net reduction across all hours.

Figure 1: Effects of Energy Efficiency

Demand Response, as shown below in figure 2, is reducing electricity usage when prices are high. In hours 11, 14 and 17 the electricity prices spiked and the facility reacted by reducing its load in those hours. Energy Efficiency can be used in conjunction with Demand Response to obtain the greatest impact and savings.

Figure 2: Effects of Demand Response

Building an Energy Management plan with DR and Energy Efficiency

As we mentioned at the beginning of the article, while DR and Energy Efficiency programs are not the same, the electricity user is not confined to choosing either one program or the other. For example, the quick payback benefits of DR programs can be used to fund longer-term Energy Efficiency programs, such as a building retrofit, which will ultimately reduce the facility’s energy consumption over a long period of time. Used under the correct circumstances, DR and Energy Efficiency actions are very effective at achieving their respective goals.

¹United States Department of Energy
http://www.eia.doe.gov/glossary/glossary_e.htm