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Efficiency and Demand Response: Twins, Siblings, or Cousins?

Analyzing the conservation effects of demand response programs.

Fortnightly Magazine - March 2005

electricity during hours of peak usage. Examples include time-of-use rates, critical peak prices, and real-time pricing.

While a main purpose of dynamic pricing is to reduce peak demand, these programs typically result in a small reduction in total electricity consumption as well. There are three reasons a reduction can be expected. First, higher peak or critical peak prices induce load reductions during peak hours, not all of which is shifted to other times. Some reductions are uses that are shifted to other time periods, such as laundry for a residence or a production process for a business. In these cases, the usage is "recovered" at other times. Other reductions, such as lower lighting, are not recovered, as there is no reason for it. Second, dynamic pricing programs cause participants to have a higher awareness of how they use energy, which, in turn, results in lower consumption. Third, these programs usually increase the amount of usage information, or feedback, received by the customer, also lowering consumption. More information on feedback effects is provided below.

The authors reviewed the literature based on hundreds of studies and pilot programs of dynamic pricing in the past 30 years, throughout North America and Europe. While most of these have focused on the effect of such pricing in reducing peak demand, 24 were identified that included analyses of the effect on total consumption. While numerous programs involved commercial customers, including 43 real-time pricing programs now operating in the United States, 3 only one program reported the effect on total consumption. The other 23 results are from residential programs. These results are summarized in Table 1, and include an average reduction in total usage of four percent.

Conservation Effects of Reliability Programs

Reliability programs are designed to be available during the top 100 peak hours of the year. They are dispatched by utilities or grid operators to avoid or meet system emergencies. They typically include interruptible and curtailable programs for commercial customers and direct utility control of residential air conditioners. Demand bidding programs are another popular form of reliability program. At least 63 such programs for commercial customers were in operation in 2004. 4

Since these programs are in operation for less than one percent of the hours in a year, and their focus is reduction in demand, not energy, there has been little analysis of the conservation effect of these programs. There is very limited information available. However, the available information suggests a very slight conservation effect, because the amount of usage curtailed during events is less than the amount of usage. A recent analysis of California programs found that only 22 percent of participants in two commercial-customer programs had increased off-peak payback usage to offset or "pay back" their peak reductions ():

The reason is that some uses are curtailed without need or reason for later replacement: the California analysis reported that 29 percent of participants reduced lighting levels and 28 percent reduced air-conditioning levels (in businesses, air conditioning typically shuts down or is greatly reduced by the end of the peak period, as employees depart from