The economics of commercial demand response for spinning reserve

Abstract

Demand response (DR) for spinning reserve may be appropriate for customers whose operational constraints preclude participation in energy and capacity DR programs. We investigate the private business case of an aggregator providing spinning reserve in California across customer end uses and business segments. Revenues are calculated using end use level hourly load profiles. With average annual revenue of $$\sim $$ $35/kW, steady end uses (e.g., lighting) are more than twice as profitable as seasonal end uses (e.g., cooling) because spinning reserve is needed year-round. Business segments with longer operating hours, such as groceries or lodging, have more revenue potential. Total costs for participation would need to be under $250/kW for many end uses and business segments to have payback periods less than 5 years, which is plausible given equipment cost data from California’s Automated Demand Response programs. Avoided carbon emission damages from using DR instead of fossil fuel generation for spinning reserve could justify incentives for DR resources.