Customer-side electricity demand reduction could stem rising power prices.
With electricity prices rising like floodwaters in California and other states, limited generation capacity has garnered the most attention as the culprit. Many see constructing new power plants as the sole solution for bringing prices down. However, convincing customers to reduce their electricity demand in exchange for cash could provide tremendous price relief in open power markets.
For a recent E source study, extensive surveys were conducted with more than 750 commercial and industrial end-users across the United States. The results indicate that these customers are quite willing to reduce demand if the price is right, if mechanisms are in place for communicating those prices, and if they have a means of controlling their electric loads. Larger customers said that they could offer almost 20 percent of their load as negawatts-temporary reductions in electricity demand.
Because most electricity use is considered essential and rising wholesale prices don't immediately affect end-users, prices can go sky-high when power supplies get tight. But if demand were to drop in response to high prices, by even as little as 5 percent, overall power costs would be much lower. Although there is a disconnect between price and demand in the marketplace today, a significant subset of customers appears to be ready to participate in a dynamic pricing market. Unfortunately, most of them don't yet have the communication and control tools that would make such load management possible. They also haven't been offered a pricing product they like. For example, the E source study confirmed that customers want flexibility in deciding whether to participate in load reductions daily or even hourly. Just making curtailment programs more flexible could increase participation tremendously.
So how many negawatts are available? According to the E source survey, midsize-to-large commercial and industrial customers might be willing to reduce demand by 18 percent if offered a market price of $1 per kilowatt-hour (one of the tested price points) for reduced electricity usage. At this price, which has been seen frequently in California and many other markets, about 55,000 megawatts (MW) could be made available across the United States-about 4,800 MW in California alone. The energy industry can't expect to capture all of this "market potential," but with the right product, pricing scheme, and marketing, it's likely that energy companies would be able to relieve price pressure on the whole system.
The trick will be developing the infrastructure for capturing as much of this dynamic demand capability as possible. Certainly, recent price spikes have spurred innovation. Tools for this "second generation" of load management are different than in the mid-1980s heyday of load management. The Internet makes it possible to communicate critical pricing information in real time much more cheaply and reliably than a decade ago. In addition, remote monitoring and control capabilities-supported by advanced software and communications tools-make it possible to effectively operate buildings all over the nation from a central site. Imagine the load reduction possible from a team of savvy energy managers monitoring huge office buildings in 10 cities, all from a