FERC’s new rule on compensation for demand resources tips the market balance toward negawatts. Arguably the commission’s economic analysis is flawed, and the rule represents a covert policy...
Demand Response: The Green Effect
How demand response programs contribute to energy efficiency and environmental quality.
Demand response (DR) is rapidly gaining ground in the electricity industry and among its regulators, but its establishment may not be going as smoothly or robustly as it could. This is in part because of different views as to where DR fits into the electricity industry. Is it about reliability? Prices? Or is it all about load control?
DR is about all of those things, but it also is about other important policy and business areas that do not jump to mind for most people when they think about DR—energy efficiency and the environment.
Some of the lack of association of DR with these areas may be caused by a lack of information, but there also may be a presumption among some key audiences that there is no relationship between DR and these areas— or if there is one, it is negative.
Record-breaking temperatures and demand, sharper system peaks, expiration of price caps, and rapid technological advances all have contributed to the growth of DR. As global climate change heightens the profiles of energy efficiency and renewable energy, two questions stand out:
• Does DR increase or decrease overall electricity usage, or just shift it to another time with no impact on energy efficiency?
• What is, or can be, DR’s effect on emissions and other environmental impacts?
To understand these inter-related issues we look at theory, modeling, and empirical evidence, some of which is as-yet unpublished and some of which goes back three decades. We find that in nearly all cases, DR decreases overall usage—several percent on average—and DR improves energy efficiency; the evidence refutes the perception that DR only shifts, rather than decreases, consumption. We also find that DR and its enabling technologies can lead to an increase in energy-efficient behavior by customers and can help support the growth of renewable energy. As for the environment, DR’s impact is situation specific. It is likely to be positive but could be mixed or negative in certain situations depending on the effect on emissions. Finally, we offer suggestions to improve the relationship between DR and both energy efficiency and the environment such that multiple desirable goals have a better chance of being achieved.
In a 2005 Public Utilities Fortnightly article, 1 we (King and Delurey) referred to DR and energy efficiency as “siblings,” citing their common lineage as demand-side measures to provide new choices for customers to manage and lower their bills. Efficiency and DR, like so many siblings, have an intertwined and permanent relationship, often collaborating and working together toward their individual goals, while at other times competing for money and attention, proceeding independently or even at