Demand Response as a Long-Term Investment: Why Utilities Should Focus on Flexibility, Not Just Capacity

By Dan Roscoe, CEO of Roswall Development

As our power systems become more complex and renewable energy sources like wind and solar take center stage, utilities are beginning to realize that demand response isn’t just a tool for emergencies—it's a foundational investment for a resilient and adaptable grid.

Traditionally, demand response programs were built around one goal: managing peak load to avoid blackouts during high-demand periods. While this purpose is critical, the true value of demand response extends far beyond these immediate interventions. With a strategic, long-term perspective, demand response can provide utilities with a continuous supply of flexibility to meet evolving energy needs, integrate renewable sources, and bolster grid resilience.

The Traditional View of Demand Response: Managing Peak Load

For decades, demand response has been a tried-and-true strategy for managing peak load, reducing strain on the grid during moments of high demand. This approach has proven effective in situations where energy use spikes—such as during heat waves when air conditioners are running full tilt, or in emergencies like the 2020 rolling blackouts in California. By incentivizing customers to reduce energy use or shift it to off-peak hours, utilities can stabilize the grid, avoid costly emergency power, and stave off blackouts.

While peak load management is essential, focusing solely on this aspect can lead utilities to overlook the broader potential of demand response. In reality, demand response offers much more than capacity management. By reframing it as a long-term investment, utilities can unlock a range of ongoing benefits that align with the goals of a modern, renewable-focused energy system.

Shifting to a Long-Term Perspective: Flexibility and Ongoing Benefits

Flexibility for the Grid

One of the most significant advantages of demand response, when viewed from a long-term perspective, is its flexibility. Rather than serving as a reactive measure, demand response can shift energy loads throughout the day to smooth out demand fluctuations, helping utilities balance loads more efficiently. This ongoing adaptability reduces the strain on infrastructure, extends the lifespan of equipment, and supports a more resilient, efficient energy system.

Flexibility also makes it easier for utilities to manage resources effectively, using less energy during peak times and shifting consumption to periods when renewable energy is abundant. This smoother demand curve prevents excessive wear and tear on infrastructure, reducing maintenance costs and creating a more sustainable grid. By embracing demand response as a flexible resource, utilities can optimize resources in ways that are impossible with traditional, short-term approaches.

Integrating Renewable Energy

Demand response is also invaluable in supporting the integration of renewable energy sources. Unlike fossil-fuel power plants, renewables like wind and solar are intermittent. Demand response can adapt to these fluctuations in real-time, helping utilities match consumption with the availability of renewable energy. This approach reduces reliance on fossil-fuel-powered peaking plants, which are often costly and carbon-intensive.

Grids in regions with high renewable penetration, such as Denmark and California, rely heavily on demand response to ensure stable energy supplies. By shifting demand in line with renewable output, these grids can maintain stability while maximizing the use of green energy. This capability is essential as more regions adopt renewable mandates, and it positions demand response as a cornerstone of sustainable grid management.

Environmental and Economic Benefits of Long-Term Demand Response Investment

Reducing Emissions

By integrating demand response with renewable energy and reducing reliance on fossil-fuel-based peaking plants, utilities can significantly cut greenhouse gas emissions. Regular use of demand response programs allows utilities to keep more energy demand within renewable capacity, minimizing the need for dirtier, backup power sources. For example, utilities that routinely engage demand response have been able to cut emissions by reducing the activation of fossil-fuel plants, leading to measurable improvements in their carbon footprint.

Operational Cost Savings

A long-term investment in demand response also yields substantial operational cost savings. As utilities avoid relying on expensive, inefficient power plants, they reduce operational costs associated with producing and distributing energy. MCE’s FLEXmarket program, for instance, helps businesses save operational costs by optimizing demand-response resources. By prioritizing demand response, utilities can avoid the high costs associated with peak power plants while promoting a more affordable, sustainable energy supply.

Enhancing Grid Resilience and Reducing Future Costs

Strengthening the Grid

Demand response plays a pivotal role in strengthening the grid, especially in the face of extreme weather events and unexpected equipment failures. By stabilizing grid frequency and reducing demand during moments of disruption, demand response can help utilities maintain power supplies during critical times. During a cold snap in Sweden, demand response helped stabilize the electricity grid by lowering load to match the limited supply, preventing widespread outages.

Reducing Infrastructure Stress

Managing energy loads through demand response not only strengthens the grid but also reduces strain on aging infrastructure. By adjusting demand instead of adding more power, utilities can ease congestion, reduce stress on the grid, and avoid expensive upgrades. Programs like Con Edison’s demand-response initiatives in New York City are prime examples: they have not only helped manage peak demand but have also alleviated the need for a 1 billion dollar substation infrastructure expansion.

Why Utilities Should Prioritize Long-Term Demand Response Investments

Adapting to Future Energy Needs

As electrification expands with the rise of electric vehicles, heat pumps, and other technologies, the demand for electricity will continue to grow. This shift will place unprecedented pressure on the grid, especially as more sectors aim to electrify in response to climate change. Demand response will be essential in managing this higher energy consumption and avoiding grid overload.

The ability to adapt to these future needs will become even more critical as utilities grapple with the dual challenges of increasing demand and the variability of renewable energy. A strategic approach to demand response allows utilities to evolve alongside these changes, preparing them for the challenges of tomorrow while remaining resilient and responsive.

A Strategic, Resilient Investment

Ultimately, demand response, when seen as a long-term investment, empowers utilities to remain agile in the face of an ever-changing energy landscape. From the growing adoption of renewables to the impacts of climate change, demand response provides a proactive solution to the challenges of modern energy management. By prioritizing flexibility, utilities can build a system that is not only more sustainable but also capable of adapting to whatever the future holds.

Demand response is no longer just a short-term measure for managing peaks. It's a vital, long-term investment that enables flexibility, reduces costs, and strengthens grid resilience. As utilities look to the future, they should rethink demand response as a strategic asset, central to a sustainable and adaptable energy strategy. By investing in demand response today, utilities are not only building a more robust grid—they’re securing a smarter, more flexible future for everyone.