Next Generation Demand Response: The secret to scaling quickly and cheaply to all energy customers

By Dave Johnson, Head of Australia, Sense

Demand Response (DR) is not new. Factories and large industrial energy users have been subjected to strict power limits for decades. If they breach their power limits or receive a notice to immediately reduce consumption, they must comply or face hefty fines.

DR plays a hugely important role. The stability of every energy network depends upon keeping all the parts of the whole network within safe operational envelopes. And the ability to increase energy generation quickly is often limited, which leads to challenges and higher energy costs for all users during periods of grid strain.

By reducing electricity consumption during peak demand or increasing during peak generation, DR programs are an essential tool to help grid stability and keep energy costs lower. 

Saving a kW is as powerful as generating a kW – maybe more so!

As the transition to residential electrification and residential clean energy gained traction, it wasn’t long before DR programs moved from heavy industrial users to home energy users. In the first generation, it was behavioural DR. This involved sending text messages out to people’s mobile phones encouraging them to reduce their power usage, for a reward, such as a discount in their next power bill.

However, first generation behavioural DR was imprecise. The messages were generic, offering no personalised or specific guidance. How could users know which appliances were consuming the most power? And, how could they be sure they had turned off enough to qualify for the reward?

Behavioural DR plateau

People became frustrated when they turned off the wrong things in their home, quite literally sat in the dark, and still hadn’t saved enough power to reap the reward on offer. Customers shift about 2-4% of total load using current behavioural DR, which is a good start, but participation plateaus at around 10-15% of customers, which on its own is not enough scale to achieve a significant impact on the grid’s energy load.

Automation and IoT

The next major change in the Australian energy market was the proliferation of rooftop solar panels, and their ability to feed power back to homes and grid. To make sure the grid stays stable during peak solar generation periods, and ensure safety when maintenance is required on the grid, every solar panel installed now requires a shut off switch that can be controlled automatically by the network when necessary. The ability to switch Customer Energy Resources (CERs) such as solar panels off and on remotely, was an opportunity for automation and Internet of Things (IoT) technology to be utilised.

IoT meant that energy retailers, or Virtual Power Plants (VPPs), could set up automated integrations and control customer assets behind the meter – and not just solar panels, but electric vehicles (EVs), storage, and automation-enabled appliances, too.

Automation and IoT was believed to be the catalyst that would allow DR to scale much better, bigger and faster than behavioural DR. 

And over the last two years in particular, retailers have invested significantly in IoT DR programs for managing CER and Distributed Energy Resources (DERs) that allow retailers to turn addressable appliances or energy-using items on or off automatically in response to signals from the network.

IOT DR plateau

Despite IoT’s capabilities, another plateau is happening, this time with residential IoT DR adoption, mainly due to two factors:

Scaling to all customers with IoT dependant propositions will take some time. While adoption is underway, its success relies on a continued healthy rate of adoption of IoT behind the meter over the coming years. The widespread adoption of solar is accelerating with the uptake of EVs, energy storage, electrified heat and hot water, air-conditioning, and IoT appliances projected to expand significantly over the next 3–7 years.

Human factors play a crucial role – IoT based DR requires customer consent and permission to hand over control of their energy assets – something that customers have not generally done with energy providers. Initially, most customers are highly sceptical about giving up control of their costly energy assets and appliances. Without sufficient trust, familiarity, and a sense of positive outcomes, they often resist participation. 

DR is a valuable asset for the energy industry in Australia, but it must scale to reach a critical mass of participation and fully unlock a significant proportion of homes. Scaling DR ahead of IoT is necessary, and it is possible to achieve significant load shifts even before IoT integrations are in place, while preparing customers to opt-in as IoT DR over the coming several years. This is called next generation DR. 

Next-generation Demand Response

Next-generation DR has several important capabilities that overcome the plateaus and scaling challenges experienced today in Australia. 

To scale next-generation DR to all customers ahead of IoT integrations, requires activation over-the-air (OTA), enabling rapid deployment to all customers at the marginal cost and speed of software. 

Customers must be able to access accurate, real time device-level power usage information directly from their mobile phones. Their expectations are the same as when they can see their banking information or social media updates today. Seeing devices using and producing power, in the moment, is empowering for customers. This information, paired with targeted nudges and offers, encourages participation in DR, unlocking a level of behavioural DR engagement previously unseen in Australia.

From a customer perspective, both behavioural and IoT DR are part of the same energy efficiency participation journey, and both forms of DR face consumer trust challenges. Next-generation DR addresses this by building trust, confidence, and familiarity through personalised device-level insights tailored to each specific home. This increases user interactions with energy usage, and they are incentivised with personalised and relevant  nudges.

As trust, confidence and familiarity grows, it forms a new foundation for introducing and encouraging automated, scheduled delegated control via IoT-integrated systems. Rather than treating IoT DR as a completely separate user proposition, from a customer’s perspective, IoT DR is an extension of the tools at the customer’s disposal to enhance their DR participation and rewards once the customer has built sufficient familiarity, trust, and positive expectancy. 

Because this type of software is engaging and personalised, offering device-level energy data and a clear path for users to achieve rewards, it greatly increases participation rates. Sense conducted a study in the US and found that participation rates were 3x higher than traditional methods, enabling a 300% greater load shift compared to users without device-level information. The foundational layer of this solution is having a real-time picture of devices, showing users which are on and which are off.

This kind of next generation DR can make a real impact in Australia. It spreads more easily and cost-effectively to all customers, offering lower implementation costs and faster deployment compared to IoT solutions. Plus, it creates positive communication with customers, who can engage and be rewarded.

These positive interactions are transformative for energy retailers – not just because they help meet important KPIs but because they build customer trust. With trust established through next generation DR  consumers are more likely to consent when retailers look to control IoT-addressable appliances, or EVs.

Energy retailers and Distributed Network Service Providers (DNSPs) now have the tools to scale DR across their customer base. By leveraging device-level data provided by software like Sense, they can build customer trust by sending customised alerts with personalised rewards. Once trust is developed, they can then implement IoT control with greater effectiveness and lower risk for the customer.