According to year-end 2011 findings published by the Federal Energy Regulatory Commission (FERC), in the United States the aggregate impact of demand response (DR) is estimated at 58 GW, or 7.6 percent, of the peak demand—up 42 percent from two years ago. FERC views the potential for further cost-effective DR to reach as much as 20 percent of the system peak.
Moreover, regardless of the form of DR that a utility might seek to pursue, the reasons for doing so are fairly consistent: there is consensus in the electric industry that DR can create both system and societal benefits by reducing the need for traditional generation sources. In fact, EPA restrictions on traditional power supplies and the onerous challenges of siting new power plants in most U.S. locations have collectively called into question the future viability of nuclear, coal, and renewable sources. The alternative of DR has become increasingly attractive to utilities when DR gains equal footing in among other integrated resource planning options. The decision to participate in a DR program, however, is driven primarily by economics—or, put more simply, when benefits of the DR program are greater than the costs.
Addressing regulatory barriers and limitations.
One of the primary obstacles for DR is the set of regulatory limitations created at both the federal and state levels. We would argue that the potential contributions that DR can make to the nation’s energy portfolio have been severely constricted by a number of regulatory barriers that continue to impede the growth of DR in the state (retail) market. The end result of these regulatory dynamics is that, despite the extensive documentation supporting the benefits of DR, the vast majority of utilities across the United States do not have what could be called robust DR program offerings available to their customers. Furthermore, they have not designed long-term resource portfolios in which demand-side resources have equal or comparable footing with more traditional resources. The reasons for this lack of growth in the DR market can be directly linked to regulatory barriers, which can originate from specific market rules or the unique features of a market or program design, as well as from the retail or wholesale levels.
Six regulatory barriers have the greatest negative impact on DR programs:
Every utility pursuing DR should consider certain regulatory strategies as it navigates through the unique requirements of its own state PUC jurisdiction:
Finally, along with full-cost recovery, it is a good idea to negotiate a performance-based approach for DR with the state PUC, which would include additional bonuses paid to the utility for meeting established DR program performance targets.