Demand Response as an Alternative to Generation

An alternative to some generation, especially to peaking units, is to develop mechanisms for end-use demand reduction during peak times. Such programs are often called demand response. Demand response can be emergency demand response (where customers are required to reduce demand only during times when their failure to do so will create reliability issues) or economic demand response (where customers are given economic incentives to reduce demand during times when it is cheaper to reduce demand than to purchase or generate additional units of electric supply). In the 1980's utilities implemented demand programs, typically called demand side management or DSM, whose goal was to reduce the need for costly new generation construction. These programs encouraged customers to implement energy efficiency measures through rebates for more efficient appliances and offered incentives such as discounted curtailable rate schedules which allow the utility to curtail service during times when high demand threatens system reliability. Although many of these programs still exist, there has been a trend lately towards economic demand response (EDR)programs. EDR recognizes that demand response to high prices can have a significant impact on muting price spikes in competitive markets. Thus, utilities and retail marketers have an interest in creating means by which customers can be compensated for reducing demand during high price times-even when reliability is not a factor. Traditional rates that do not pass real-time price signals to customers fail to incite this behavior. EDR programs include:

Real-time pricing--Customers pay hourly prices that reflect same-day or day-ahead
market conditions.

Voluntary load response--Customers are offered a payment for curtailing blocks of load, usually in the day-ahead.

Curtailable capacity call--Customers are paid a capacity payment to give the utility or marketer the right to curtail blocks of load under certain conditions; failure to curtail results in payment of market rates for that block of load.

Automatic load response--Customers are paid a capacity payment to give the utility or marketer the right to remotely and automatically curtail blocks of load.

It is expected that as more competitive markets evolve, economic demand response will become an increasingly common option for meeting peak power requirements.