“Tapping the Mother Lode: Employing Price-Responsive Demand to Reduce the Investment Challenge“ is one of eight white papers from ESIG’s Aligning Retail Pricing with Grid Needs Task Force. The task force examined ways that retail pricing may be used more widely and more efficiently to allow flexible demand to respond to grid needs as the role of demand becomes increasingly important for the reliability of the grid. It brought together experts in rate design and electricity markets, transmission and distribution planning and operations, consumer advocates, and others to explore current issues, potential solutions, and practical implementation challenges involved in utilizing the flexibility in price-sensitive loads.

All of the white papers can be found here.

A Summary of “Tapping the Mother Lode: Employing Price-Responsive Demand to Reduce the Investment Challenge” by Michael Hogan

The rapid and parallel growth in both variable electricity production from wind and solar, and in large inherently flexible loads (such as electric vehicles and heat pumps) presents an opportunity to ensure that each transition is both reliable and affordable. In a future that will be increasingly capital intensive, demand flexibility can significantly reduce the amount of infrastructure that must be financed. But much remains to be done to access that potential, most of which is beyond the reach of traditional approaches to demand response.

The primary focus must shift from strategies that require flexible demand to mimic centrally dispatched generation, to strategies that empower consumers to save money by linking their consumption more dynamically to daily fluctuations in variable supply. At a retail level, this includes adopting a series of innovations that widen consumers’ access to the untapped potential for flexible loads to reduce costs and lower electricity bills. At the wholesale level, it means attacking institutional practices that discriminate against flexible demand reliant on energy market pricing, and that artificially depress energy prices by pre-emptively committing consumers to pay for uneconomic investments through forward capacity mechanisms. Overall, it means progressively assessing and integrating responsive demand into forward resource planning and procurement processes.