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Today in Energy

March 29, 2019

Demand-side management programs save energy and reduce peak demand

annual incremental savings resulting from energy efficency programs
Source: U.S. Energy Information Administration, Annual Electric Power Industry Report

Utilities implement demand-side management programs to help customers save energy. Energy efficiency programs, by far the largest demand-side management effort, offer customers incentives to increase efficiency and, therefore, decrease overall electricity demand. Demand response programs, another type of demand-side management, are implemented to decrease customer demand during times of very high system demand or emergencies.

Demand-side management programs aim to lower electricity demand, which in turn avoids the cost of building new generators and transmission lines, saves customers money, and lowers pollution from electric generators. Utilities often implement these programs to comply with state government policies.

EIA’s annual survey of electric utilities, the Annual Electric Power Industry Report (EIA-861), tracks the incremental annual electricity savings and costs from utility-run energy efficiency programs. Incremental energy savings are the additional energy savings from new participants in energy efficiency programs during the current reporting year.

annual increment energy efficiency
Source: U.S. Energy Information Administration, Annual Electric Power Industry Report

The amount of incremental energy saved through energy efficiency programs increased from 26.5 million megawatthours in 2014 to 29.9 million megawatthours in 2017. At the same time, incremental spending on energy efficiency programs has remained essentially flat in recent years. Utilities spent about the same in 2017 as they did in 2014 ($5.9 billion), after spending had increased to $6.2 billion in 2016.

Utility spending on new energy efficiency programs is mostly focused on residential and commercial customers. Over half of utilities’ incremental spending on energy efficiency programs was spent on customer incentives. Examples of these incentives include free or low cost energy audits and assessments of homes and businesses, free or discounted energy-efficient lightbulbs, and rebates to customers who purchase energy-efficient or ENERGY STAR-certified major appliances such as refrigerators, freezers, hot water heaters, and air-conditioning equipment.

New energy efficiency program participants saved one kilowatthour (kWh) of energy for every 20 cents spent in 2017. However, the lifecycle costs of energy efficiency programs are only about 2 cents/kWh annually. Most of the utility expenditures are one-time, up-front costs, but the energy savings they produce continue for many years, such as discounts for energy-efficient appliances or free energy-efficient lightbulbs.

Although utility-run demand response programs are much smaller than energy efficiency programs, they play an important role in lowering peak demand to lessen chances of blackouts and reduce the need to build new generation to meet intermittent periods of extra demand. Demand response programs typically offer customers a rebate or lower energy costs for reducing energy use during specified hours or allowing the utility to cycle their air-conditioning systems when needed.

EIA tracks the utility costs, annual energy savings, and peak demand savings from demand response programs. Utility spending on new energy efficiency programs and participants is mostly focused on residential and commercial customers. Most of the decrease in costs were from the amount spent on non-incentive programs, such as new metering and billing systems; however, the amount paid to customers as incentives to lower demand is influenced more by the utility’s need to lower demand.

actual total peak demand savings from demand response
Source: U.S. Energy Information Administration, Annual Electric Power Industry Report

Some regional transmission organizations (RTOs) allow demand response to offer into the wholesale electricity markets with other generators. Instead of offering to fulfill electricity demand with generation, an aggregator of customers willing to stop using energy at a certain time for payment will offer a price into the market for not using a certain amount of energy. Utilities often act as aggregators in RTO programs.

For example, the Electricity Reliability Council of Texas (ERCOT) allows demand response to offer into energy and reserve resource markets, and it deploys utility programs and other demand response resources under emergency conditions. In ERCOT, about 3.7% of peak demand was reduced by utility-run demand response programs in 2017. ERCOT has been experiencing very hot summers and a very low reserve margin of generation to cover periods of high demand. Planning documents show that this situation is expected to continue, and demand response is expected to play a key role in the stability of ERCOT’s grid and in preventing blackouts.

Principal contributor: Lori Aniti