Establish the Value of Demand Response

In October 2005, the Demand Response Research Center (DRRC) awarded contracts to Energy and Environmental Economics, Inc. (E3) and Summit Blue Consulting for Phase 1 of a two-phase research effort to “Establish the Value of Demand Response.” Both firms will perform the same set of tasks and essentially compete to see which firm moves on to the Phase 2 methodology development effort. This research project will establish a new, more comprehensive framework to evaluate demand response (DR). It will also identify and develop a more inclusive and robust DR valuation methodology.

Since the late 1970s, the value of demand response (DR) in California has been determined by a Standard Practice Methodology (SPM). The multi-part SPM uses a gas- fired peaker proxy and present value analysis of DR costs and benefits to evaluate the value of program- and rate-induced load impacts. Although originally designed to establish generation equivalence for DR, the SPM has for the last 25 years been the accepted methodology for evaluating all utility and regulatory DR initiatives.

There is now a general consensus that the existing SPM evaluation framework improperly captures and reflects the appropriate DR value. The SPM only addresses static, readily quantifiable energy costs and benefits. Customer, environmental, societal, risk, information, opportunity and other difficult-to-quantify costs and benefits are excluded entirely.

At the conceptual level, this DRRC research effort will initiate a comprehensive evaluation to better understand the value DR contributes to the utility, customer, and broader interconnected electric network. Looking beyond traditional perspectives this research effort is expected to address these difficult-to-quantify costs and benefits. Establishing metrics or other measures to value the components of DR, and developing methodologies to support utility and regulatory decision processes is included in this research effort. Finally, this research is expected to take a new look at the customer perspective of DR, where DR is integrated on a policy and standards level with efficiency and conservation as part of the basic customer service package, rather than a series of independent reliability and price-responsive programs.

A more comprehensive discussion of the issues and objectives for this project can be found in an issue paper included in the Research Opportunity Notice used as the basis for the competitive proposal process. A copy of this issue paper, titled “Establish the Value of Demand Response: Develop an Integrated Efficiency/Demand Response Framework” can be found on the DRRC web site.

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