When it comes to electricity usage and costs, a large portion of these costs comes from a small portion of hours out of the year. As a result of this, private companies, utilities, and electricity grid operators as well are utilizing solutions to the substantial electricity costs that occur. Demand response is one way in particular that has been proven successful in helping to ease the infrequent costs.
In this article, we’ll cover what demand response is in Ontario and how it can reduce stress on the grid while generating revenue instead of costing more.
What is demand response, and how does it work?
Demand response is a way to reduce the stress on the grid and high electricity prices. By curtailing or reducing the demand for electricity during certain time periods, demand responses/programs are able to cut prices by reducing the need to run high-cost generators. Instead of supply or power plants, as an example, turning on in response to higher demands, it is the demand turning off in response to higher prices and stress on the system.
In other words, it works by reducing the stress on the grid and curtailing high electricity prices. The electricity grid becomes most stressed when there is high demand for electricity, which requires a higher supply of electricity, which both stresses the grid and results in higher prices for all energy users. There are two ways to combat this for consumers and the grid – either building more power plants to provide a greater supply of electricity or simply reducing demand for electricity on the system at times when it would otherwise stress the overall grid.
How does demand response work in Ontario?
Directly from IESO themselves, any step that an individual or businesses take to shift their electricity use to different times of the day is a form of demand response. Common examples of this include reducing the speed and power of equipment, rescheduling production to a different time of the day, or waiting for low-demand periods to charge electric vehicles or using large equipment, and more along those lines. While this doesn’t involve using electricity in the usual sense, it does reduce overall demand, which lowers the amount of electricity the grid needs to produce. Many businesses offer their demand response capability to the IESO or their local hydro company in exchange for a reduction on their electricity bills.
Who is eligible for demand response in Ontario?
Consumers across Ontario can earn revenue while reducing their emissions and helping the Ontario grid during times of stress. To participate and be eligible is to curtail your load (reduce electricity demand) during short periods throughout the year. There are different retailers across Ontario that offer demand response with them as well, to help benefit you as the consumer and the electricity grid as a whole, which we have listed below, the ones that we could find proper information on. Check with your local retailer to see about demand response, as there are many within Ontario.
Retailers with Demand Response programs in Ontario
There are a few companies that have demand response programs in Ontario. Here are the ones we could find:
CPower is a leading name with demand response programs available for the Ontario market. Participants in the program commit a certain amount of electricity that they are able to curtail when the grid is stressed. When dispatched by IESO, participants reduce their electricity consumption and receive payment for the energy they didn’t use. Those interested will pick a fixed level of consumption and commit to consuming no more than that amount of electricity during an event called by PJM. Your company/yourself gets paid for its ability to curtail energy to restore more power back to the grid.
They can be reached directly on their website for any inquiries.
Enel X (previously known as EnerNOC) is another energy solution company that can help with demand response working groups. Enel helps hundreds of organizations across Ontario earn money, save on energy costs, and mitigate carbon emissions with demand response. As a valued partner of IESO, their deep well of market expertise provides the tools and guidance organizations need to maximize their demand response earning potential.
How does the Active Demand Response Program work?
With Demand Response, customers commit to a specific curtailment amount (500 kW as an example). It is worth noting that customers must meet their full contracted curtailment to receive the financial benefit. For example, if you were to commit to 500 kW but only curtail 450 kW, you wouldn’t receive payment.
The key advantages of this are:
- The program offers more predictability than Class A Global Adjustment.
- Only two scheduled capacity events per year, customers receive advance notice of these events, no need to predict when peaks will occur.
- Additional emergency events may arise (which can coincide with ICI peak alerts), offering opportunities to earn above the contracted $171, 300/MW rate.
Another key difference with this is that customers are paid directly, rather than showing as savings on your utility invoice.
There are also ideal candidate profiles that would benefit most from this, as it works best for larger customers who can establish a reliable curtailment baseline.
Pros and cons of Demand Response
The pros and cons of Demand Response are fairly straightforward:
Pros
The standout and main pro for Demand Response is the financial rewards for participating. Large consumers (Class A) can significantly reduce their GA (Global Adjustment) charges, up to 50% or more, by lowering consumption during peak times. Residents can also benefit depending on their retailer and through programs that work with adjusting smart thermometers during peak hours and more.
Improved grid stability and reliability is another major pro, especially during the summer months, where reducing the load helps to prevent brownouts, blackouts, and equipment failures, acting as a crucial resource response.
Environmental benefits. Demand Response can help with Ontario shifting usage away from natural gas generation, and by reducing reliance on these, particularly during high-demand, high-carbon periods, it helps to lower emissions as well during these responses.
Increased flexibility for industrial users. Programs such as the ICI and Demand Response allow businesses to manage energy costs as we’ve been mentioning throughout the article.
Cons
No program or option is foolproof, however, and there are some cons, such as:
Operational disruptions or inconveniences. For large industrial users, cutting power or lowering use can interrupt production processes. It requires careful planning and management of onsite operation. For any residential users, this may mean slightly warmer homes in the summer or cooler in the winter.
Penalty risks. Failing to meet the agreed upon load reductions, more rigid DR programs can result in financial penalties, though there are third parties available as well that offer to shield users from these risks.
Potentials for cost redistribution. It is imperative to ensure that whatever Demand Response program you are looking into, some may shift the costs onto customers who are unable to participate or change usage patterns.
Demand response vs Industrial Conservation Initiative (ICI): Which program to choose?
Demand Response is different from the ICI program that is currently available in Ontario. The main differences between these are as follows:
ICI (Industrial Conservation Initiative)
- For medium to large-scale customers to shift usage away from peak hours.
- ICI is a more complicated and lucrative version of the Direct Response program. ICI operates under similar principles as the DR program, motivating electricity consumers to lower consumption during peak demand times when the grid is most stressed, but it does not provide the luxury of knowing exactly when to lower your consumption.
- Instead, the ICI program operates over a one-year period between May of one year and April of the next year, requiring an electricity consumer to lower their energy consumption when there may be a province-wide electricity peak grid happening.
- When the one-year period is over, multiple province-wide electricity peak events will have happened (usually in the summer months), and your electricity bill will be based on how your organization performed during only the top five peak hours.
- ICI does not require you to reduce consumption for a prolonged period of time; instead only evaluates an organization’s performance based on its consumption during the one-hour period of the peak day.
Direct Response is a more streamlined approach than ICI:
- The DR program allows for larger electricity consumers to earn revenue through reducing consumption during peak demand events that are clearly defined by the IESO. When participants receive notifications of a DR event, they are to reduce their consumption during the exact time slot the IESO identifies, which can last up to a maximum of four hours.
- The notifications from IESO are typically sent a day before, or in the early morning on the day of the DR event, allowing multiple hours for participants to prepare to reduce their consumption.
- As an example, IESO could send out a notification of an upcoming DR event on June 4th, with the event happening on the 5th, between exactly 5 pm and 9 pm, requiring participants to lower electricity consumption on the grid for the consecutive hours.
What is a peak event?
A peak event in the context of Direct Response is the same as the previously mentioned Demand Response event. They are used interchangeably in wording. These are pre-designated temporary periods when the IESO asks electricity consumers who are participating in Direct Response programs to reduce their power consumption to relieve strain on the provincial grid. These events typically happen most in the summer months, during extreme weather, such as hot summer days when air conditioning is at peak use or heating during peak winter hours, as examples.
Comparing energy options in Ontario
EnergyRates.ca can help your industrial and large-scale business with more than just Direct Response and ICI program information. Our professional team can help with electricity and natural gas consultations, as well as sustainability solutions for companies. For more information, fill out the form above or contact us.
