The results of this research have been presented to representatives from a number of major electric utilities throughout the U.S.
impact statement issue
The potential role of demand and price response is expanding beyond their traditional use as supplemental capacity resources. The dispatch of load by a central system entity to maintain system or localized reliability requirements is expanding due to the introduction of Smart Meters that enable a high degree of integration of curtailable loads into system operations.
These same technologies enable consumers and businesses to enroll in dynamic pricing programs that offer lower cost as long as electric loads can be scheduled around high price periods. The value of demand response as an integrated system resource may rise as the amount of intermittent renewable resources rise to provide short-term balancing resources.
As a result, demand and price response is more frequently cited as a reason for making system investments in Smart Grid infrastructure because these investments are seen as enabling factors. Since they enable demand and price response, analysts are inclined to attribute the resulting benefits to the investment as an offset against the cost. However, doing
so requires assigning a value to temporal changes in consumption (kW and kWh) and monetizing derivative benefits such as externalities and macroeconomic impacts.
impact statement response
A conceptual framework was developed to describe how capacity supply is influenced by programs that allow customers to express their demand for reliability. The framework demonstrated that if the demand for reliability is not inelastic--that instead at least some consumers would elect a level that is lower or higher than the universally imposed standard at prevailing supply costs--then the efficiency of electricity markets can be improved by implementing measures that reveal those preferences.
The benefits appear to be equally achievable by having consumers elect the desired level of reliability by nominating a firm supply and providing that level, or by allowing them to bid to supply capacity through demand response. However, an administratively fashioned capacity demand curve improves market performance only if it is in fact truly characteristic of underlying consumer preferences. This likely would be the case only by chance unless it was rigorously constructed for revealed or stated preferences.
The benefits associated with demand response as a capacity resource are reductions in dead-weight losses. In the context of this framework, they were portrayed as areas between supply and demand curves in unspecified price and quantity space. This provides a characterization of the factors that determine the relative size of the benefits under alternative market supply and demand conditions. But this portrayal does not indicate the nominal level of the efficiency improvement that can be associated with demand response, or the actual monetary benefits that would accrue to program participants.
The actual level of benefits is important to know because it serves as a measure against which the costs of implementing market changes should be compared. There may be instances where the gains are too modest to justify the cost, or vice versa. Also, there are number of ways in which market restructuring can be undertaken, and stakeholders should know the net benefits when choosing among them.
The next step in the line of research is to develop an empirical version of the conceptual framework. This involves estimating supply and demand equations that are structurally consistent with the conceptual model but are flexible enough take into account the many factors that distinguish electricity markets.
impact statement summary
A conceptual framework was developed to describe how capacity supply is influenced by programs that allow customers to express their demand for reliability. The framework demonstrated that if the demand for reliability is not inelastic, at least some consumers would elect a level that is lower or higher than the universally imposed standard at prevailing supply costs. The efficiency of electricity markets can then be improved by implementing measures that reveal those preferences.
