1. IEA-DSM Task XXI: Standardisation of Energy Savings Calculations
Subtask II: Demand Response
M&V methods
Madrid, May 2010

2. Index Introduction Demand Response and Energy Efficiency
Demand response products
Measuring DR energy savings
Annex: Demand Response benefits

3. 1. Introduction Background
One of the objectives of Subtask II is to develop a methodology to nominate and describe the Demand Response products. For this purpose, as a complement to the energy efficiency template there is a specific template for demand response product:
In order to evaluate the use and penetration of demand response initiatives among the participant countries, the Operating Agent in collaboration with Red Electrica of Spain has prepared a template for gathering information about demand response used in each country
This template also asks about the methods of estimating energy savings obtained from demand response products, and how load impact and other benefits are estimated
The final goal of this consultation is to put in common the different points of view and state-of-the-art of demand response products in each participant country
The Demand Response template can be found attached to this document, which should be fulfilled by each one of the participants in Task XXI
This document provides demand response background information (definitions, products and M&V methods) as an assistance guide to the fulfill the specific demand response template 3

4. Index Introduction Demand Response and Energy Efficiency
Demand response products
Measuring DR energy savings
Annex: Demand Response benefits

5. 2. Demand Response and final consumer Energy Efficiency Relationship between both (I)
Final consumers energy efficiency refers to using less energy to provide the same or improved level of service to the energy final energy consumer.
Demand response entails customers changing their normal consumption patterns in response to changes, oriented to diminish energy consumption at critical periods aiming at improving energy efficiency of the whole electric system. 1 2 3 4
Movement of demand from peak to off peak
Demand reduction on the Electrical System peak hours
Demand reduction
High demand on/off peak
Demand Response
Industrial Demand management: Interruption Service
Automated management of electrical loads
Improvements in the efficiency of products and processes
Increasing public awareness of energy efficiency
Time of use tariff
Demand participation in electricity markets
Pumping
Future storage technologies
Electric vehicles
There are significant differences in how they are measured, what organizations offer them, how they are delivered to customers, and how they are rewarded in the marketplace 5
Source: REE

6. 2. Demand Response and final consumer Energy Efficiency Relationship between both (I)
While final users energy efficiency are used for long term planing, demand response options can be deployed at all timescales of electricity system management, and can be coordinated with the pricing and commitment mechanisms appropriate for the timescale of their commitment or dispatch
<15 min
If utility resource planners and system operators have a good sense of how their customers respond to changes in the price of electricity, price-based demand response options may be incorporated into system planning at different time scale 6
Source: Measurement, Verification, and Forecasting Protocols for Demand Response Resources. NARUC-FERC Demand Response Collaborative

7. Index Introduction Demand Response and Energy Efficiency
Demand response products
Measuring DR energy savings
Annex: Demand Response benefits

8. 3. Demand Response products DR Definition
Demand response can be defined(1) as changes in electric usage by end‐use customers 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 time of high wholesale market prices or when system reliability is jeopardized
Example of Time of use rates
Impact of price reduction in electricity demand
Supply
Price increase
Demand reduction
Price of electricity supply
Quantity of electricity
Source: Demand Response Measurement & Verification
Source: Benefits of Demand Response in Electricity Markets. US Department of Energy
The final goal of demand response products is to influence customers to reduce energy consumption in response to particular conditions within the electricity system 8
(1) U.S Department of Energy (DOE)
Source: Harry Vreuls, Experts meeting Task 21 April 29/30 March 2010

9. Incentive-based Programs
3. Demand Response products Classification of Demand Response products
According to how load changes are brought about, demand response resources can be classified into two general groups:
Incentive-based Programs
Time-based rates
These programs give customers load reduction incentives that are separate from, or additional to, their retail electricity rate, which may be fixed (based on average costs) or time-varying. The load reductions are needed and requested either when the grid operator thinks reliability conditions are compromised or when prices are too high
Electricity prices fluctuate (to varying degrees) in accordance with underlying costs of electricity production; customer load modifications are entirely voluntary
Definition
Direct Load Control (DLC)
Interruptible/curtailable rated (I/C)
Demand bidding/Buy-back programs (DB)
Emergency Demand Response Programs (EDRP)
Capacity Programs (CAP)
Ancillary Services markets program (A/S)
Time-of-use (TOU)
Critical peak pricing (CPP)
Real-time pricing (RTP)
Products
These are some of the most common demand response products, but additionally each operator can introduce other initiatives in order to control loads 9
Source: Coordination of Energy Efficiency and Demand Response, A Resource Of The National Action Plan For Energy Efficiency. U.S. Department of Energy

10. 3. Demand Response products Description
Some of the most common incentive-based and price-based DR products are:
Time-of-use (TOU) Rate: A rate with different unit prices for usage during different blocks of time, usually defined for a 24 hour day. Daily pricing blocks might include an on-peak, partial-peak, and off-peak price for non-holiday weekdays, with the on-peak price as the highest price, and the off-peak price as the lowest price
Real Time Pricing (RTP): A retail rate in which the price for electricity typically fluctuates hourly reflecting changes in the wholesale price of electricity. RTP prices are typically known to customers on a day-ahead or hour-ahead basis
Critical Peak Pricing (CPP): hybrid of the TOU and RTP design. The basic rate structure is TOU. However, provision is made for replacing the normal peak price with a much higher CPP event price under specified trigger conditions (e.g., when system reliability is compromised or supply prices are very high)
Demand bidding/buyback programs (DB): close to dynamic pricing, the utility pays an incentive to reduce electric load when notified of a demand response event day. Customer submit load reduction bids for a DBP event, which can be called on a day-ahead or day-of basis. For any event, customer may elect to submit or not submit a bid
Direct load control (DLC) and Automation: allows the utility some degree of control over certain equipment, for example switching-off non critical loads or modifying devices’ parameters (i.e. increasing the temperature in centralized AC generators) in order to reduce electric load in the net
Emergency demand response programs (ERDP): customers receive incentive payments for load reductions when needed to ensure reliability
Interruptible/curtailable (I/C): customers receive a discounted rate for agreeing to reduce load on request
Ancillary services market programs: customers receive payments from a grid operator for committing to restrict load when needed to support operation of the electric grid (i.e., auxiliary services)
Capacity market programs (CAP): customers offer load curtailments as system capacity to replace conventional generation or delivery resources. Customers typically receive day-of notice of events and face penalties for failure to curtail when called upon to do so. Incentives usually consist of up-front reservation payments
DR products are oriented to change consumers’ habits, either promoting their active participation or allowing the utility to control some of their energy consumption 10
Source: Coordination of Energy Efficiency and Demand Response, A Resource Of The National Action Plan For Energy Efficiency. U.S. Department of Energy
Source: IEA-DSM Tasks

11. Index Introduction Demand Response and Energy Efficiency
Demand response products
Measuring DR energy savings
Annex: Demand Response benefits

12. 4. Measuring DR energy savings
Measurement and verification
Measurement and Verification (M&V) refers to the application of appropriate statistical and load research techniques to measure and verify the load reduction impact resulting from the utilization of a demand response program:
Energy savings can be defined as:
Customer’s Load Response = Baseline Usage – Actual Load
Actual load is known and measured directly from interval meters
Key challenge is estimating the baseline: a method of estimating the electricity that would have been consumed by a Customer or Demand Resource in the absence of a Demand Response Event. It may be calculated using interval metering and/or statistical sampling techniques
Desirable features in a customer baseline calculation method should be:
Simple – easy to use, understand, calculate
Lack of bias – no systematic tendency to over or under-state reductions
Minimize opportunity for gaming
Ability to handle weather-sensitive customer loads fairly
With minimal cost of implementation
Source: Demand Response Measurement & Verification. Association of Edison Illumination Companies (AEIC)
Both baseline energy definition and actual load depend on a lot of external factors and key issues that must be considered, including also a certain degree of uncertainty 12
Source: Coordination of Energy Efficiency and Demand Response, A Resource Of The National Action Plan For Energy Efficiency. U.S. Department of Energy
Source: EVO

13. 4. Measuring DR energy savings
Key considerations for baseline estimation
When producing estimates of the change in energy use resulting from a DR program over some historical period, some key issues must be considered for baseline estimation:
Time periods: in addition to impacts that occurred during an event period, for example in a AC curtail, event, spillover impacts such as pre-cooling and snap back cooling might also occur in the hours immediately preceding or following the event period
Uncertainty: uncertainty can be controlled by selecting appropriate sample sizes, careful attention to sampling strategy, model specification and other means, but it can not be eliminated completely. The “but for” load, referred to as the reference load, must be estimated and there will be uncertainty in the estimate regardless of what approach is used
Source: Source: New York Independent System Operator
Output format: impact estimates can be developed using a variety of methodologies. The recommendation is to report impact estimates considering the hourly reference load, observed load, load impact, temperature and some degree of uncertainty to adjust load impact
Day types: DR impacts will vary across event days based on a variety of factors, including variation in usage patterns, event characteristics , event participation, and other factors. Detailed descriptions of these influencing factors on each event day must be provided along with the impact estimates
Statistical measures: the evaluation for event-based programs concerns the calculation and reporting of statistical measures designed to reveal the level of precision and presence or absence of bias in the method used to estimate impacts. It should be considered that these requirements differ between day matching and regression based methods
The estimation, consideration or even omission of this key issues must be defined prior to establish the baseline energy and variables to be measured during the DR event 13
Source: Proposals for load impact estimation and cost effectiveness evaluation of southern California Edison company, san Diego gas & electric company, and Pacific gas and electric company

14. 4. Measuring DR energy savings
Energy savings calculation: impact estimation
Energy savings can be estimated as the difference between baseline energy and load energy measured when is requested to reduce demand, which is referred to as a Demand Response event. Basically, there are two different ways for estimate these savings:
Baseline energy
A) Individual Measurement
Energy consumption with DR
Load reduction of a single consumer comparing its actual energy use during the DR event period with the amount of energy the customer would have consumed absent a signal to reduce, and translating this single impact to the net
Individual electricity usage
Time
Deployment instruction
Normal operation
B) Mass Market Measurement
Valley filling
Peak hours
Where individual measurement of customer impact is too expensive or time consuming. Impact estimation is achieved by aggregating all participating customers and comparing the resultant load shapes against similar non‐participating customers. However, as mass market programs are constantly evolving with customers frequently entering and exiting programs, determining who is being measured and its status in every DR event must be carefully considered
Peaks reduction
Market electricity usage 14
Source: everis

15. 1. Individual Measurement 2. Mass Market Measurement
4. Measuring DR energy savings
A) Individual Measurement
Load reduction of a single consumer comparing its actual energy use during the DR event period with the amount of energy the customer would have consumed absent a signal to reduce, and translating this single impact to the net
2. Mass Market Measurement
Where individual measurement of customer impact is too expensive or time consuming. Impact estimation is achieved by aggregating all participating customers and comparing the resultant load shapes against similar non‐participating customers. However, as mass market programs are constantly evolving with customers frequently entering and exiting programs, determining who is being measured and its status in every DR event must be carefully considered
For individual measurement, energy savings are estimated comparing customer baseline energy (CBL) for each single participant with their real energy consumption
Individual baseline energy calculation becomes a critical piece of these particular programs:
If the baseline for a customer is calculated too high, the electric utility will pay incentives in excess of the customer response
In contrast, if the baseline is too low, less or no load reduction will be recorded which can lead to customer non‐participation in future DR events
To avoid this, the most common solution is the application of the principle of prudence, assuming the less favorable situation
Source: Source: New York Independent System Operator
Two common methodologies can be used for CBL energy calculation:
Day matching: taking a short historical time period and attempting to match what the usage for an event day would have been based on the usage during the historical period chosen. Different approaches can be considered: previous day, average daily, proxy day, etc.
Regression methods: creating a model to represent the customer’s load shape on an event day. The development of the baseline could be accomplished in two ways:
including only non‐event day data for an individual customer
using a pooled data series that distinguishes between event and non‐event days
Baseline energy calculation is the most difficult estimation for individual measurement, when this is too expensive or time consuming, mass market approach becomes more suitable 15
Source: everis

16. 1. Individual Measurement 2. Mass Market Measurement
4. Measuring DR energy savings
B) Mass market measurement
Load reduction of a single consumer comparing its actual energy use during the DR event period with the amount of energy the customer would have consumed absent a signal to reduce, and translating this single impact to the net
2. Mass Market Measurement
Where individual measurement of customer impact is too expensive or time consuming. Impact estimation is achieved by aggregating all participating customers and comparing the resultant load shapes against similar non‐participating customers. However, as mass market programs are constantly evolving with customers frequently entering and exiting programs, determining who is being measured and its status in every DR event must be carefully considered
In mass market measurement, impact estimation is achieved by aggregating all participating customers and comparing the resultant load shapes against similar non‐participating customers
Demand response program
Offered to
Mass market target
Participant market
Non participant market
accept
decline
Impact estimation of a mass market DR program is similar to the process for measuring individual customer impacts. A profile representing the customer baseline (CBL) is developed and compared to a profile that has been developed to represent all participating market customers (the “Actual Use”). The difference between the CBL and Actual Use profiles represents the impact of the DR program offer.
Example of contrast between DR participants and baseline
Mass market CBLs are typically developed using one of two options:
using a control group to develop a load shape for non‐participating customers in the target market
developing a CBL via estimations based on the participant market’s response to DR events
Energy savings are estimated in the same way as individual measurement, that is comparing the energy load shape before and after the DR event 16
Source: everis

17. Peak of demand estimation Program participation
4. Measuring DR energy savings
Standards, protocols and practices for estimating DR benefits
Policymakers and industry participants are currently working to develop standardized tests applicable and appropriate for the evaluation and cost-effectiveness screening of demand response resources:
Standard Practice Manual (SPM) tests: some are widely used among state regulatory commissions and utilities in the US to evaluate and screen energy efficiency programs
Application: a number of states and utilities have also used these tests for cost-effectiveness screening of load management programs and, recently, there have been some efforts to modify the SPM tests to enhance their usefulness for evaluating demand response resources in the context of competitive wholesale markets
However, there is general consensus that a more comprehensive evaluation framework is needed to fully capture the benefits of demand response
Some of the challenges in developing standardized tests appropriate for demand response are revealed by comparing energy efficiency and demand response resources:
Peak of demand estimation
while it is relatively straightforward to identify and estimate the peak demand and energy reduction impacts of energy efficiency, this is much more difficult for most demand response options 1
Program participation
most demand response options are relatively new; the ability to predict program participation rates and assess how specific program designs and dynamic pricing affect customer behavior is still rudimentary 2
Uncertainty
many forms of demand response turn on behaviors that are price- or incentive-driven, and may change in response to changing market circumstances. Uncertainties in estimating demand response impacts mean that demand response benefit and cost estimates are equally uncertain 3
Although there are currently some initial projects(1) about how to measure the DR impact on the electrical network, there is the need of a comprehensive study in order to develop specific standards to assess the impact of DR in the transport system 17
1 US department of energy has conducted some research about DR evaluation and its relationship with Energy Efficiency within the national action plan for energy efficiency

18. Index Introduction Demand Response and Energy Efficiency
Demand response products
Measuring DR energy savings
Gathering information about DR programs
Annex: Demand Response benefits

19. 6. Annexes: Demand Response benefits
Main benefits
Additionally to energy savings, other benefits of demand response can be classified in terms of whether they accrue directly to participants or to some or all groups of electricity consumers:
1. Participants
2. System costs
3. Reliability
Participant bill savings: electricity bill savings and incentive payments earned by customers that adjust load in response to current supply costs or other incentives
Bills savings for other customers: lower wholesale market prices that result from demand response translate into reduced supply costs to retailers and eventually make their way to almost all retail customers as bill savings.
Reliability benefits: reductions in the probability and consequences of forced outages that impose financial costs and inconvenience on customers
Demand response also provides other benefits that are not easily quantifiable or traceable, but can have a significant impact on electricity market operation, such as:
Power plants: less energy loads also avoid power plants to operate at maximum power, considering the amount of energy generated is bigger than the consumed due to losses in the transmission system
Electrical distribution networks: buildings and equipment that use less energy impose smaller power loads
Environmental Impacts: for every unit of electricity not generated, the nation reduces its consumption of energy resources, air pollutant emissions, water use, and associated land uses.
System security: system operators are provided with more flexible resources to meet contingencies
Market performance: demand response acts as a deterrent to the exercise of market power by generators
Renewable energies: matching between renewable energy production and energy demanded becomes easier, switching load peaks to peaks of renewable generation and so increasing the percentage of renewable on the system
Improved choice: customers have more options for managing their electricity costs 19
Source: Benefits of Demand Response in Electricity Markets. US department of Energy

20. 6. Annexes: Demand Response benefits
Quantifying the benefits
Quantifying the potential nation-wide benefits of demand response is a difficult undertaking requiring the following key information and assumptions:
Demand Response Options: there are different types of time-varying rates and demand response programs currently offered, or potentially available
Customer Participation: the likelihood that customers will choose to take part in the offered programs may differ considerably from one DR event to another, even for the same DR product
Customer Response: it is necessary to document and quantify participants’ current energy usage patterns, and also determine how participants adjust that usage in response to changes in prices or incentive payments
Financial Benefits: methods to quantify the short- and long-term resource savings of load response under varying market structures must be developed
Other Benefits: any additional benefits provided by demand response resources (e.g., improved reliability) should be also identified and somehow quantified
Costs: costs associated with achieving demand response must me establish and valuated prior to the program
Most of the DR benefits are initially estimated in a qualitative way; however, the standard method to facilitate the process of quantifying them is not yet developed 20
Source: Benefits of Demand Response in Electricity Markets. US department of Energy