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Demand Response Drivers

Identifying correlations between adoption rates and market factors.

Fortnightly Magazine - January 2012

has been slow to penetrate the bulk of the commercial sector, where customers insist on maintaining control over their operations and require attractive terms to participate. As the marketplace evolves through innovative business models and enabling technology, more customers will be interested in an expanding array of DR opportunities, expanding the resource around the world. 25

As economies evolve toward reduced greenhouse gas emissions and low-carbon growth, there’s a need for technology and market solutions that enable this change. Demand response is part of a more flexible electricity system, allowing both supply and demand to interact frequently and at scale. In a carbon-constrained world, this flexibility can shift generation away from greenhouse gas emitting sources and therefore reduce carbon emissions in a meaningful way. 26

Also, in many U.S. states and European nations, significant amounts of renewable, variable energy resources are expected to come online in the next five to 10 years. Grid operators are tasked with identifying cost-effective ways to integrate these variable resources into the market without sacrificing system reliability. DR is being considered as one potential solution. In particular, automated— i.e., technology-based—DR, such as direct load control, has the potential to provide fast response that could participate in ancillary services markets, such as spin or even regulation. 27

Wholesale energy markets also play an increasing role. In addition to the capacity markets that have been central to the development of DR in parts of the United States, wholesale market operators administer energy markets in which participants—traditionally power generators or day-traders—buy and sell power on an hourly or more frequent basis. Some of these markets have opened up for DR resources to participate, and some proposed policies would encourage the inclusion of demand response in energy markets across the country. 28

Likewise, retail competition and metering technologies are fostering the expansion of DR options. As advanced metering infrastructure continues to be deployed to customers across the U.S. and internationally, many retailers will be taking full advantage of the new capability that this infrastructure offers by providing customers with innovative rate designs and technologies that are designed to produce more responsive demand.

Another potentially valuable future use of DR is to encourage efficient charging patterns in regions with high levels of plug-in electric vehicle (PEV) adoption. Left uncontrolled, PEV charging could lead to significant increases in the system peak, as owners return from work in the early evening and plug in their vehicles. A well designed time-of-use rate could encourage charging during lower-priced off-peak hours. Additionally, direct control of the charging devices could be used to address location-specific reliability issues caused by unexpected levels of PEV charging.

Conclusion and Next Steps

Energy price levels, market structure, demand-side policy, generation mix, and reserve margin all appear to have an impact on the market penetration of DR programs. However, none of these relationships represents a strong correlation, suggesting that the reality of DR evolution relies on a combination of these and other drivers. Such factors as demand growth rate and outage frequency also could play a role, but don’t reveal correlations in