Demand Response Strategies to Offset Capacity Costs

Capacity costs have skyrocketed in just two years and the trend is expected to continue. For many businesses, these charges can make up a significant portion of the total electric bill. Demand response is one of the most effective strategies to offset PJM capacity costs, earn revenue, and strengthen your role in grid reliability. In this guide, we’ll demystify demand response, explain how it can play an important role in rescuing out of control energy budgets, and the simple steps you can take to get started.

What is Demand Response?

Demand Response is a program that provides businesses an opportunity to reduce or shift a portion of their electric load during periods of grid stress. These reduction opportunities are also known as events. Absent a seasonal reduction event, PJM holds a reduction test. In either scenario, enrolled businesses receive payments for successfully reducing or shifting down to a predetermined load. For grid operator, PJM, demand response is an important part of assuring grid reliability, preempting instability during periods of peak demand.

Demand Response, A Closer Look

PJM Demand Response programs fall into two general types, emergency and economic.

• Pre-Emergency/Emergency -  a commitment to reduce load or only consume electricity up to a certain level when PJM needs assistance to maintain reliability under supply shortage or expected emergency conditions. This is a mandatory commitment to which penalties will be applied for noncompliance. Must be available to respond to PJM’s request to reduce load during any day from June through May of following year, where each request may be unlimited in duration.
  
  
• Economic - a voluntary commitment to reduce load when the grid is under stress, demand is high and prices spike. When a company curtails consumption, it’s treated like a "virtual power plant." Offsetting demand has the same effect as generating extra electricity. For this, PJM compensates participants at the same market rate paid to generators. To put it simply, instead of just buying electricity, businesses in PJM can also sell back their “non-use” of electricity at times when the grid needs relief.

Demand Response - Where to Begin

1. Conduct an initial load curtailment assessment. Determine how much load you can safely and realistically shed or shift during a called event. This will make the next step more productive, but if you aren’t certain, don’t worry. A good energy manager can help you sort that out. In general, though, begin by conducting an inventory of nonessential load (e.g., lighting, HVAC, certain machinery). Estimate how much load can be safely reduced without disrupting core operations.
   
   
2. Work with an energy manager to enroll in a demand response program. Before selecting a service provider, you may wish to evaluate their track record. Ask them about their broader energy experience and time spent in the industry, how they communicate events and tests, their customer's success rate, and how payments are calculated and delivered. Additionally, assess their support capabilities. Do they conduct baseline calculations, review test events, and provide feedback on your proposed curtailment plan? The ideal provider should deliver proactive leadership, seamless onboarding, and rigorous review to ensure success without operational headaches.
   
   
3. Collaborate with your provider to understand your current load, ideal targets for curtailment, and with those results develop an action plan to curtail/offload the agreed upon load. Test it. Communicate it to staff and run test scenarios. 
   
   
4. Sign up for demand response and peak demand alerts.
   
   
5. Monitor and verify performance. Work with your provider to monitor performance during events, verify curtailment results, and maximize program incentives. 
   Track KPIs such as:
   - Curtailment percentage (actual vs. committed).
   - Response time to dispatch.
   - Test compliance rate.
   - Payment.
   
   These metrics can guide future performance, encourage improvements where needed, and promote continued organizational adoption. 
   

Why You Should Enroll Your Business in Demand Response

Demand Response opens a new revenue stream with minimal risk. Your business can monetize load reductions otherwise advisable on high demand days, turning operational adjustments into profit opportunities. With no capital investment required and experienced guidance from your provider, remand response is an effective way to offset skyrocketing capacity costs.

Enrolling in demand response also reinforces your company’s commitment to corporate responsibility. Not only do you benefit financially, but you also play a vital role in grid reliability. During critical summer peaks, your participation can help avert outages, showing partners and communities that you prioritize operational integrity and community impact.

Finally, the flexible nature of demand response allows you to participate on your own terms, making it an intelligent, strategic choice.

Demand Response is a powerful, low-risk strategy for businesses to generate income, enhance resilience, and contribute to grid health. By understanding how PJM’s programs work, preparing operationally, vetting providers carefully, and executing strategic steps, your business can fully leverage the value and impact of demand response participation.

It's easier than you think. Assess your potential for demand response with our readiness checklist.