To manage prices and battle local weather change, U.S. states are developing with modern methods to flexibly handle demand for power use. New analysis from ACEEE and Power Innovation finds that not less than 13 states have created efficiency incentive mechanisms (PIM) to encourage utilities to ship power financial savings at particular instances to optimize the nation’s energy grid. This strategy reduces emissions and permits utilities to include extra renewable energy into the grid.

Demand discount: key to decreasing prices and emissions

Power effectivity and demand response are important instruments to drive down the price and greenhouse gasoline (GHG) emissions of electrical energy techniques affordably and quickly. These companies can scale back demand at particular instances to optimize the facility grid, which we name “strategic demand discount” (SDR). SDR reduces the price to serve electrical energy prospects by displacing the necessity for companies historically supplied by provide choices, together with substations, wires and energy vegetation.

Regardless of clear proof of SDR’s worth, utilities are simply starting to combine it into their grid planning, investments and operations (potential research for demand flexibility and power effectivity present huge untapped potential). One cause is that utility enterprise fashions don’t encourage SDR, as a result of they rely upon rising capital funding to drive shareholder returns. As a result of SDR is usually cheaper than conventional supply-side options, it may forestall funding in sources that shareholders rely upon for continued progress. One other problem is the lowered electrical energy gross sales that end result from power effectivity, one choice for delivering SDR.  

An rising answer: performance-based regulation

One rising answer is performance-based regulation (PBR), a income mannequin that rewards utility efficiency in assembly coverage priorities, comparable to price containment and GHG reductions. PBR is on the rise, with coverage efforts in additional than 19 states and the District of Columbia, together with not too long ago launched efforts in Minnesota and Colorado. PBR has a number of coverage instruments, together with efficiency incentive mechanisms that reward utilities for power effectivity investments that meet particular, measurable targets.

ACEEE has proven that PIMs could be an efficient software for motivating utilities to spend money on power effectivity. This new analysis takes a broader take a look at how this software can drive SDR at essential instances for the grid.

Strategic demand discount PIMs on the rise

Our analysis discovered that 13 states (proven in map beneath) have PIMs for electrical utilities. Some concentrate on long-term adaptation of buyer demand in response to costs and effectivity measures (known as “form” within the seminal California demand response potential research).

We profiled seven states and located numerous approaches to rewarding utilities for his or her SDR. Some states used conventional utility procurement approaches to peak demand discount, comparable to in Hawaii and Texas; in distinction, Massachusetts and New York used newer strategies of encouraging SDR by compensating utilities for a mixture of actions and outcomes. Others concentrate on conventional utility and wholesale market demand response applications (known as “shed” in that research).

Massachusetts not too long ago demonstrated an evolution in metrics, including winter and summer time peak demand discount targets. The utilities can meet these targets with power effectivity in addition to “lively demand administration,” which might embrace storage and demand response. New York’s outcome-based peak demand discount and cargo issue PIMs (which it calls Earnings Adjustment Mechanisms) give utilities flexibility in assembly targets. Its strategy permits a variety of efforts, together with demand response, power effectivity measures with demand impacts and fee design. Massachusetts and New York additionally differed of their award construction, with a shared financial savings incentive tied to totally different sorts of demand discount in Massachusetts and a fee of return incentive tied to outcomes in New York.

Lengthy-term, iterative PIMs largely profitable in driving SDR

We discovered that PIMs are an efficient software for unlocking SDR. Of the 5 instances we studied with accessible outcomes, 4 program directors — in Massachusetts, New York, Texas, and Vermont — met or exceeded their targets. The others have been too new or didn’t have outcomes accessible.

A standard characteristic was a course of for iterative updates. With the benefit of a number of program evaluation cycles, utilities might depend on the regulatory certainty and stability wanted to develop refined applications, whereas nonetheless enabling regulators to replace incentives to guard ratepayer pursuits and encourage steady enchancment.

Most demand discount PIMs presently concentrate on long-term adaptation of buyer demand in response to costs and effectivity measures (“form companies”) and conventional utility and wholesale market demand response applications (“shed companies”). Nonetheless, states present rising curiosity in shifting demand from one time of day to a different and in grid-balancing measures that concentrate on instances when renewables create steep ramps in accessible provide (“shift companies”). These approaches can higher assist distributed sources and renewables integration.

PIMs are one coverage software amongst many wanted to speed up SDR

PIMs aren’t sufficient to ship the sturdy and assorted SDR wanted to scale back prices, shrink emissions and speed up grid integration of renewables. We’d like sturdy state and regional insurance policies, together with Power Effectivity Useful resource Requirements and different clear power targets, enterprise mannequin reforms together with decoupling and power effectivity PIMs, and unbiased analysis, measurement and verification (EM&V). Correctly valuing SDR additionally might be important for costs and participation fashions in wholesale markets, fee design and distribution and built-in useful resource planning.

Looking forward to a brand new decade of renewable power advances and state coverage targets to handle local weather and financial points, the significance of SDR will proceed to develop. States from New Hampshire to Michigan are assessing their PIMs for SDR, and different states together with Minnesota and Hawaii might contemplate these metrics in PBR efforts that establish associated coverage outcomes. Current laws in Washington requires demand response targets and establishes authority for PBR, opening the door for demand discount PIMs.

Learn our full report to study extra about PIMs for SDR which can be delivering focused power financial savings to combine renewables and ship cheaper, dependable electrical energy techniques. 

Amanda Myers, Mike O’Boyle and Grace Relf contributed to this report.

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