A Guide to Demand Side Response (DSR)

As the way we produce energy changes, new challenges present themselves. Britain now produces almost 42% of its energy from renewable sources, which raises questions about the vagaries of demand. If the power we need comes from the weather, what happens if the sun doesn’t shine or the wind doesn’t blow? 

The answer is Demand Side Response, or DSR. This may be loosely defined as the processes by which businesses increase, decrease, or move electricity consumption in response to a signal to prevent overstressing the national grid itself. The reliability of the grid is critical to this country's financial well-being, and businesses can benefit from incentives to get involved. 

What is Demand Side Response?

Stability is everything in the energy supply. But this creates particular challenges when it comes to renewable energy. Both wind and solar-generated energy are dependent on the weather, and while it is possible to store energy for future use in batteries, this remains an expensive and imperfect solution for now. 

Demand side response is a coordinated response to this. Businesses involved increase, decrease, or shift their electricity use in response to a signal from the supplier, which helps balance the national grid by balancing supply and demand. 

In return, Businesses involved receive strong financial incentives, lower their bills, reduce their carbon footprint, and play an important role in the transition to a low-carbon energy system. Participating in DSR makes perfect sense for any business that is serious about being environmentally responsible. 

How Does Demand Side Response Work?

Demand Side Response programs typically focus on reducing electricity consumption during peak demand periods or in response to weather conditions that stress the grid, such as hot summer days or cold winter times, by increasing demand for cooling or heating.

The goal is to reduce electricity demand to prevent outages and damage to the grid infrastructure or to avoid having to bring idle generation resources online, particularly if those resources are coal-burning generators. However, with the growth in renewable energy sources, utilities are exploring demand flexibility to increase consumption when solar or wind energy is abundant.

When the grid operator anticipates that energy demand will exceed energy supply, they declare a DR event, sending a message to businesses involved directly asking them to reduce their energy demand during specified hours. 

Alternatively, a utility can designate peak times when customers are asked to reduce energy use. Typically, peak hours are in the late afternoon and early evening (4 pm to 9 pm) when people get home from work, cool or heat their homes, use appliances, and charge electric vehicles (EVs).

Incentives for reducing energy use can take many forms. Suppliers may pay customers directly or through billing credits for kilowatt hours saved. Or they may employ time-of-use (TOU) pricing, charging sometimes significantly higher prices for electricity consumed during peak hours, to incentivise customers to defer energy use to off-peak hours.

Technology plays a significant role in this. Businesses can, for example, participate in response programmes by using internet-connected thermostats, water heaters, EV chargers, or other devices that can be adjusted automatically to reduce energy consumption during peak hours. For example, an office could be pre-cooled or preheated before peak hours, and the thermostat turned up or down during peak times. Alternatively, a utility or an aggregator can determine the lowest cost time to charge an EV or the time with the least impact on the grid. 

Benefits of Demand Side Response

There are obvious benefits to becoming involved in Demand Side Response. Some programmes offer significant financial savings for doing so, but the benefits aren’t limited to your business alone. Enhanced grid reliability and stability is good for all of us, while a better-balanced national grid also brings environmental benefits through reduced emissions. 

Key Players in the DSR Market

To become involved in DSR, you may enter into a contract with your energy supplier or with another party, most likely the local Distribution Network Operator (DNO) or an ‘aggregator’. An aggregator contracts with the individual demand site – your premises – and with other consumers for their DSR, consolidates (or aggregates) their response and sells the net effect to another party in the energy market. In return, the aggregator gets a percentage of the value created by reducing peak demand (or other services). 

Demand Side Response and the National Grid

Demand Side Response must integrate seamlessly with our national energy systems, including the national grid, to maximise operational efficiency. The government has made its case in the Policy Paper Transitioning to a Net Zero Energy System: Smart Systems and Flexibility Plan 2021. 

Most DSR is currently provided by larger industrial and commercial users. Through the Electricity System Operators' programme known as Power Responsive, businesses can make money, save on bills, and lower carbon by shifting energy use in real-time. This could, for example, include temporarily switching off fridges in supermarkets or amending manufacturing processes to use electricity in non-peak times.

The future outlook for DSR in National Grids is favourable to the point of necessity. It is relatively easy to balance our energy use because this country still produces much natural gas to achieve this. But if we are to achieve net zero by 2035, that supply will have to be significantly curtailed. 

Demand Side Response in the Capacity Market

The UK government introduced the Capacity Market (CM) to manage the security of electricity supply and safeguard against the possibility of future blackouts. CM participants are paid to ensure they’re available to respond when there is a high risk of a System Stress Event. This happens very rarely, but it plays an important role in ensuring a consistent electricity supply. 

Initiatives already being used include possible amendments to the eligibility criteria for multi-year capacity agreements, better enabling of low-carbon technologies with long build times, such as Pumped Hydro Storage, to access the Capacity Market, and strengthening incentives for capacity to deliver when needed and improve delivery assurance. 

Demand Side response is critical to our move towards a more sustainable energy future. It ensures the reliability of the supply while rewarding those who participate; your business can financially benefit from being involved. The big energy companies and the government are all on board, so if you’re thinking of switching your supplier to one that will reward you for your commitment to DSR, now could be the perfect time.