Valuation of Demand Response
Demand Response Valuation Framework
While there is general agreement that demand response (DR) is a valued component in a utility resource plan, there is a lack of consensus regarding how to value DR. Establishing the value of DR is a prerequisite to determining how much and what types of DR should be implemented, to which customers DR should be targeted, and a key determinant that drives the development of economically viable DR consumer technology. Most approaches for quantifying the value of DR focus on changes in utility system revenue requirements based on resource plans with and without DR. This “utility centric” approach does not assign any value to DR impacts that lower energy and capacity prices, improve reliability, lower system and network operating costs, produce better air quality, and provide improved customer choice and control. Proper valuation of these benefits requires a different basis for monetization. The review concludes that no single methodology today adequately captures the wide range of benefits and value potentially attributed to DR. To provide a more comprehensive valuation approach, current methods such as the Standard Practice Method (SPM) will most likely have to be supplemented with one or more alternative benefit-valuation approaches.
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Establish the Value of Demand Response (RON02)
The objective of these two research projects, conducted under the DRRC’s “ RON 01 – Establish the Value of Demand Response” was to develop a “comprehensive DR conceptual evaluation framework.” The Energy and Environmental Economics, Inc. (E3) team reviewed approaches for demand response (DR) valuation applied in California and other states, and recommended an approach for developing a comprehensive DR valuation methodology. The review identified no complete DR valuation framework that can be applied directly in California, and recommended the current standard practice for cost/benefit analysis of energy efficiency be modified to capture the attributes of DR. The team identified a minimum of six gaps in the existing standard practice that need to be addressed to appropriately value demand response. The Summit Blue team developed a framework for developing and describing approaches, processes, and procedures for making good decisions regarding the role of DR in regional California electric markets. The framework that was developed uses as its organizing focus the investment decision in DR, i.e., what information is needed to make good decisions regarding the appropriate investment in DR to lower overall system costs and achieve market-wide objectives. This method is also designed to be able to address different stakeholder objectives. The project report develops a “problem statement” for the valuation of DR, and an assessment of needs and objectives that should be met by a comprehensive valuation framework. The report presents an approach to developing a comprehensive valuation framework that consists of four Task Work Areas: 1) Price effects from DR portfolios; 2) Transmission investment avoided/deferred costs; 3) Distribution investment deferred costs; and 4) Market effects focusing on hard to quantify benefits.
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