Policy analysts are right to demand a reform of the total resource cost test. The evidence that it understates the benefits of energy efficiency, the main claim against it, is convincing.
California: Mandating Demand Response
California’s load-management experience argues for formal DR standards
Despite a plethora of studies and experiments showing the benefits of demand response, it remains a novelty product both in restructured and regulated markets. For example, the state of California set a goal of reducing its peak demand by 5 percent this summer through price-responsive demand response (DR) programs. The actual result came in at 2.2 percent. The state now is considering mandatory DR standards based on its early trials with load-management standards in the late 1970s and its long-standing success with codes and standards for promoting energy efficiency.
DR can play a vital role in the nation’s mix of electricity resources. It can allow utilities to reduce power consumption during high-cost peak-demand times, and defer building expensive new peaking capacity that would be used for a couple of hundred hours a year. In addition, DR can prevent brownouts and blackouts during emergency situations. It promotes system reliability by providing the grid operator with tools to manage demand during critical days. Coupled with advanced metering infrastructure (AMI), it can improve the level of service provided to electricity customers.
DR comes in two types: Price-responsive DR uses price to address an imbalance between the demand and supply of electricity caused by conditions in the power market, and reliability-responsive DR can be dispatched directly to meet system-reliability problems.
Several states have a long-standing tradition of implementing reliability-responsive DR through, for example, curtailable and interruptible rates and direct load control of central air conditioners. However, no state has much experience with price-responsive DR. For many years, the primary barrier to its wider adoption was the lack of cost-effective metering technologies. Rapid advances in solid-state electronics largely have eliminated this concern. The barriers that remain are related to customer willingness to adopt price-responsive DR, and the willingness of utilities and regulators to offer such programs to customers. It may be possible to overcome these barriers through a combination of innovative rate design and government standards.
California DR Potential
Projections of the potential reduction in peak demand that can be achieved through price-responsive DR programs depend on the amount of coincident demand reduced per customer and on the number of participating customers. In addition to the potential benefits of reliability-responsive DR programs, 1 price-responsive DR offers three levels of effects on power loads: technical potential, economic potential, and market potential.
• Technical potential measures the outcome if all customers used the best-available DR technology. For example, in the residential class, this is the “gateway system,” which allows homeowners automatically to manage electricity consumption at several points of end-use, including air conditioning, space and water heating and swimming-pool pumps. Across all customer classes we estimate the technical