The Chance for Demand Response to Thrive in California All Hinges on One Vote

By: Michael Panfil, attorney for EDF’s US Climate and Energy Program, and Jamie Fine, senior economist for EDF’s Clean Energy Program

Vote CheckDemand response encourages customers to shift their energy use to times of day when there is less demand on the power grid or when more renewable energy is abundant.  It is an invaluable component of the smart grid that improves air quality, enhances electric grid reliability, and helps utilities, homes, and businesses financially benefit from conserving electricity.

Yesterday, a diverse group of organizations submitted an important and far-reaching settlement agreement on the future of demand response in California to the California Public Utilities Commission (Commission) for its approval. The settling parties – including EDF, California investor-owned utilities, California Independent System Operator (CAISO), consumer groups, and others – recommend, for the first time, a path to properly value, realize, and account for demand response. If approved, these changes have the potential to increase the role of demand response in meeting California’s energy demands, reducing hazardous air pollution, and more efficiently operating the state’s electrical grid.

Demand response without the settlement

Right now, demand response sits in stark contrast to what California expects from the resource and pales in scope to programs in other states and regions. The resource was expected to account for five percent of peak (high) demand by 2007. However, in 2014, the state has yet to reach even four percent. Although disappointing, this lackluster percentage isn’t entirely surprising. There are roadblocks inhibiting demand response – current challenges that the settlement, if approved, would help to address.

One of these challenges is that the true value of demand response has never been fully identified, meaning the actual benefits that the resource can provide have never been comprehensively determined. Further, different types of demand response have been treated differently, with some types receiving attention and pathways for use while others are left on the back burner. Additionally, CAISO, which operates and manages California’s electrical grid, only ‘sees’ a small minority of demand response, meaning it cannot take advantage of most of the demand response that currently exists.

This settlement, if adopted, will help unlock demand response as a resource. By fairly and accurately identifying, motivating, and communicating the benefits that demand response provides to the electricity grid, the Commission could finally close the gap between what demand response currently does provide and what it actually could provide.

What the settlement accomplishes

Source: Fortnightly

Source: Fortnightly

First, the settlement calls for a working group process, to be completed by May 1, 2015, where all types of demand response would be identified, as well as how they could play a part in California’s electrical grid and what benefits they could provide.

Second, the settlement contemplates a mechanism to motivate demand response providers to deliver more of this valuable grid resource. Currently, providers do not see the value of the services they are delivering, so they have no reason to bring more high-quality demand response to California. This settlement recommends a change: demand response providers that can reliably provide to the electrical grid should be given a reason to do so.

Third, the settlement calls for benefits provided by demand response to be communicated to other Commission actions. Importantly, this communication will help account for the resource in more comprehensive forecasting. Going forward, new investments – such as costly and environmentally-harmful power plants, transmission, or distribution – could potentially be reduced or deferred while California customers, utilities, and clean tech companies reap the reward for reducing electricity demand without emitting harmful pollution.

The result: a cleaner, more efficient, and less costly electrical grid.

What happens next

California’s Energy Action Plan, developed by the state, lists demand response as a first-choice resource – along with energy efficiency and renewable energy – because of their low-cost, low-emissions nature. Plus, the Commission recently reiterated that demand response is “an increasingly important element of California’s resource strategy.” And, although the majority of parties have agreed to this settlement, the Commission must still vote to accept it before it becomes effective.

It’s time for the Commission to act. When the vote on this settlement approaches in upcoming months, EDF encourages the commissioners to vote “yes” and unleash demand response to help realize the full potential of California’s clean energy economy. 

This commentary originally appeared on our California Dream 2.0 blog.

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