Smart Energy Management: Empowering consumers to build the grid of the future with demand response

Empowering consumers to build the grid of the future with demand response

Manoj Vivek, General Manager and Technical Solutions Leader, Power and Industrial Automation, QuEST Global

Australia has had a blistering start to 2019. The continent is reeling under a record-breaking heatwave; temperatures are inching unbearably toward 50°Celsius – enough to ignite bush fires, melt the tar on the roads, fry eggs under the heat of the scorching sun and prompt restaurants to hand out free beer to dehydrated citizens. Strained utilities in the southern parts of the country are unleashing massive blackouts to cope with the steep demand for electricity to run air conditioners, leaving thousands stranded without power for several hours.

A country that is no stranger to heatwaves, Australia always braces for seasonal peak demands for electricity. Despite producing nearly three times the energy that it consumes, Australians pay one of the highest electricity rates in the world due to a combination of factors – high energy export rates, flip-flops in political commitment towards inclusion of renewable sources in the energy mix (which led to the premature shutdown of highly polluting coal power plants without a clear strategy for energy transition) and, like elsewhere in the world, oscillating costs of oil.

As the government and utility companies deploy contingency measures to tackle the ongoing power crisis, including paying energy establishments to reduce electricity usage and importing power from nearby states to prevent overstressed grids from collapsing, energy analysts are calling for greater adoption of demand response.

A technology-led, collaborative approach to energy management, demand response involves financially incentivising consumers to reduce their power consumption during peak hours. While the Australian Energy Market Operator has heretofore employed demand response to shore up reserve power to tackle “summer supply emergencies”, energy experts are stressing on the larger potential of demand response that helps achieve multiple benefits – energy saving, lower tariffs and a smarter way to negotiate the demand-supply conundrum.

The way we produce and consume electricity is changing

What does the situation in Australia tell us? Quite simply, it is this – the demand for electricity is constantly on an upswing. Even advanced countries have to grapple with the challenges of providing uninterrupted power supply to fuel growth, maintain smooth functioning of the economy and deliver a higher quality of life to citizens. Such pressures are all the more acute for a developing nation that has to contend with added challenges such as poor quality of electricity, transmission and distribution losses, and electricity theft.  Meanwhile, the supply side is in a state of flux. The simultaneous impact of renewable energy and the technology disruption in the power sector have meant that power, quite literally, is beginning to become decentralised.

For the past 200 years of electricity use, the three pillars of generation, distribution and transmission have remained with the agencies producing the electricity, whether public or private. Not any more. With the entry of technology like the internet of things and the increasing proliferation of alternative sources of energy such as solar and wind, all consumers (industrial, commercial, retail and residential) can play a more significant role in the way electricity is produced and utilised. With the advent of smart grids, which is an essential feature of smart cities, energy users can now become “prosumers”, whereby they can sell unused power back to the grid. However, the full potential of these developments can be achieved only when there is an extensive transformation of the electricity infrastructure, which may take some time to be implemented. This is where demand response comes in. In its most basic form, called emergency demand response, it takes the form of load shedding, wherein utilities systematically curtail or withhold supply during extreme weather conditions to prevent large-scale blackouts or brownouts.

In economic demand response, utilities strategise to avoid higher costs and stress on power plants to produce energy during peak demand times in the day – such as in the evenings or mornings – when consumers are more likely to use most of their appliances. By coaxing consumers to participate in energy management, utilities can effectively allocate the available capacity without imposing the need for expansive changes (some power distributors have infrastructure dating back several decades).

According to a 2017 report by the World Economic Forum, demand response can “shrink customer bills by as much as 40 per cent”, by transferring consumption to a lower price during off-peak hours. For utilities, demand response can help put off or reduce costly investment in central generation, transmission and distribution; in the US, by up to 10 per cent, says the report.

How demand response works – integrating technology with smart business

Utilities can execute demand response either by: Controlling the power load to the consumer

Here, the utilities can keep track of energy usage by various appliances and turn them on and off remotely during peak hours, according to a mutually acceptable, pre-arranged schedule devised with the customer.

Implementing variable pricing

In this method, consumers voluntarily commit to reducing electricity usage during peak hours, taking advantage of pricing schemes. Utilities either offer rebates to curtail consumption during peak hours or discourage high energy consumption by imposing heavier tariffs for peak hour use, known as critical peak usage.

Technology that enables two-way communication of customers and their appliances with the utility is key to implementing both demand response strategies. These may take the form of the following:

  • User interfaces – Utilities route demand response schedules and other communication with consumers through email, text messages, and web or mobile applications. They can also create a customised device installed at consumers’ homes or business that can intimate them about their energy usage, inform them about an upcoming scheduled curtailment of electricity or signal a hike in pricing during peak hours.

In combination with smart appliances that can be turned off and on remotely at the behest of the user, this method of facilitating demand response lays the foundation for seamlessly integrating customers with the smart grid. This is where engineering service companies play a significant role in curating a collaborative demand response system that integrates it with home energy management. These companies can be enlisted by the utilities to create a unique software as a service model for the demand side, where a mobile application to control devices at home is integrated with the cloud to receive alerts on demand response schedules. The app can also provide valuable, real-time insights into energy usage by each device.

  • Load control devices – These are hardware tools such as switches or thermostats that utilities place at the customer location to control heating or cooling appliances remotely.
  • Advanced metering infrastructure – Although late in the data game, the power sector has witnessed a paradigm shift with the rise of advanced metering infrastructure or smart metering technology.

The building block of a smart grid, smart meters generate valuable data on electricity usage and enable two-way communication with the grid. This allows an automatic increase or reduction in electricity supply to address changes in demand intuitively. In advanced countries like the US, where more than half the meters installed are “smart”, utilities are employing smart meters for load control.

Smart grids unlock the full potential of demand response by facilitating early detection of a demand-supply mismatch, improving the efficacy of the demand response programme by updating customers in real time and by providing hard data that enables accurate evaluation of the demand response initiative. Technologies are currently under way to automate the entire demand response process using the smart grid, where the system detects changes in load, and signals and controls all devices on the grid to regulate supply.

  • Integrating demand response into resource planning – If demand response is employed as a primary tool in energy management, utilities must integrate this programme at the resource planning stage itself. This necessitates technology intervention in building the demand response model within the scope of the distribution schedule.

Engineering service companies assume a critical role in helping utilities take the first steps towards economic demand response by creating a “virtual power plant”.

Demand response challenges

For all its potential, utilities are hesitant to implement demand response in a full-fledged manner due to several variables that are seemingly out of their control. For instance, the entire programme hinges on the willingness of consumers to subject themselves to uncomfortable periods when they have to curtail electricity usage during extreme weather or during convenient times in the day to perform their chores.

Additionally, utilities must also design “opt-out” models that allow customers to exit the programme when they feel it is prohibitive to their electricity usage schedule. This creates uncertainty about the exact nature and amount of electricity supply that will be at utilities’ disposal at any given time. Moreover, being a technology-driven model, demand response requires utilities to carefully select, test and implement the IT and communications platform to signal a demand response event to the customer. With the power sector still at a modest state of digital transformation, these technology demands may seem excessive or arduous to some utilities. However, a phased approach to demand response, with meticulously planned financial incentive schemes can offset these issues.


The World Economic Forum terms demand response a “critical resource for a cost-effective transition to a low-carbon electricity system”. Along with public agencies, several private companies and even start-ups have entered this space to create customer-centric models to implement demand response programmes, for both residential and non-residential customers. Encouraging innovation in this space can encourage utilities to find newer sources of revenue and also bring lower-income customers into the transformation fold.