Potential Benefits and Current Limits in the Development of Demand Response

Potential Benefits and Current Limits in the Development of Demand Response

Clementina Bruno (University of Piemonte Orientale, Italy & HERMES Research Centre, Italy)
DOI: 10.4018/978-1-5225-7359-3.ch017
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This chapter, after defining demand response (DR) and its potential benefits, illustrates a set of challenges to DR development. A brief review of recent contributions on DR is provided, illustrating that such challenges can come from different sources. Regulatory, technical, or socio-economic challenges are considered and discussed. Finally, inter-disciplinary research is suggested as solution to overcome challenges, and some examples of future research directions with respect to economics and social science are provided.
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The literature provides a wide set of definitions of DR. Quite common across these definitions is the focus on end-users and on the modification in their electricity utilization patterns (see, for instance, the list provided in Eid et al., 2016). For example, in the FERC (Federal Energy Regulatory Commission) website1 DR is defined as

Changes in electric usage by demand-side resources from their normal consumption patterns in response to changes in the price of electricity over time, or to incentive payments designed to induce lower electricity use at times of high wholesale market prices or when system reliability is jeopardized.

There are several typologies of DR mechanisms, which can be classified following different criteria (Vardakas et al., 2015). Here we propose the most common classification.

  • Time-based retail rates (Cappers et al., 2012), also called rate-based or price-based programs (Siano, 2014), or implicit DR (SEDC - Smart Energy Demand Coalition, 2015), provide incentive to end-users to modify their consumption as response to price variations. Price fluctuations are designed to reflect the dynamics of the wholesale market price or the grid tariff, and ultimately, of the cost of the electric service. Prices can be predetermined but different for given time periods or move dynamically depending on the system and market contingencies.

  • Incentive-based retail programs (Cappers et. al, 2012), also defined as event-based programs (Siano, 2014), reliability-based (Shen et al., 2014) or explicit DR schemes (SEDC, 2015) reward consumers through a payment or a bill credit for a reduction in their consumption. Such mechanisms are activated by the entity managing DR services (users can contract directly with the utility or with an aggregator) in response to particular events affecting the electric system, e.g. network congestion2.

Key Terms in this Chapter

Peak-Load: Within the electric system, it is the point of highest demand in a certain time period. We can have daily peaks, seasonal peaks, etc.

Price-Based DR: DR mechanisms that rely on consumption modifications induced by price variations.

Enabling Technologies: With respect to DR, this term indicates those technologies (e.g. equipment, appliances) that allow an effective implementation of DR programs. Examples could be smart meters, allowing communication between users and utilities, or home appliances that automatically react to price or non-price signals by modifying electricity consumption.

Off-Peak: Points of lower demand (with respect to the peak-load) in a certain time period.

Demand Response (DR): Source of flexibility for the electricity system relying on modifications in users’ consumption.

Peak-Shifting: Refers to the possibility of moving demand from peak to off-peak times. This is one of the desirable effects of DR.

Incentive-Based DR: DR mechanisms that rely on consumption modifications induced by non-price signals, for which the involved users receive compensations.

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