Energy Institute, The University of Texas at Austin Energy Institute The University of Texas at Austin
Sunday April 20 , 2014
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The Role of Consumers in Ensuring a Reliable Power Grid

Austin Electricity Conference Examines Prospects for Successful Demand Response Programs

By Gary Rasp

Power grid operators, in Texas and elsewhere, must make difficult decisions when the demand for electricity strains the system’s limits. They can add more electricity to the grid by turning on another power plant, but that can be costly and increases toxic emissions. Alternatively, they can lower demand for power by asking consumers and businesses to reduce their energy usage.

Such choices are serious business in Texas because the state’s population and economy continue to grow. Decisions made by operators of the state’s power grid – the Electric Reliability Council of Texas, or ERCOT – could help prevent blackouts and further ensure system reliability.

Reducing demand for electricity during peak periods of energy consumption was one of four issues that took center stage recently at the third annual Austin Electricity Conference, hosted by the McCombs School of Business’ Energy Management and Innovation Center (EMIC), held on the UT Austin campus April 18-19. The conference brought together nationally prominent academics, former and current regulators, NGOs and other stakeholders to examine a series of hot-button issues surrounding the Texas power grid and the function of electricity markets.

conference participants look on as a colleague speaks

In addition to EMIC, university faculty from the Cockrell School of Engineering, LBJ School of Public Affairs, School of Law and Energy Institute funded and helped organize the conference, which featured a series of short panel presentations followed by in-depth discussion in plenary session. Go here for a list of panels, conference participants and other information, and here for panelists’ presentations.

During a panel discussion of “demand response” programs – so-called because they would make the demand for electricity more responsive to real-time conditions on the grid – experts discussed advances in technology (such as remote control of appliances and air-conditioners) that make it easier to coordinate reduced electricity consumption. They also debated the prospects for implementing policies that offer demand response programs to consumers on a large scale.

Some industry observers estimate that if Texas took additional measures to foster participation in demand response programs, the state could reduce electricity consumption during peak periods by as much as 15 percent.

In general, conference panelists agreed that while demand response programs present tremendous opportunities to regulators to help stabilize the grid and reduce electricity usage during critical times, significant barriers remain to implementing such programs.

“Residential demand response is an essentially untapped reserve,” one panelist noted. “It’s like the Internet in 1990.”

A crucial question that must be answered before demand response programs become viable on a national scale, the same panelist observed, is how to properly assign an appropriate dollar amount or value to the avoided cost of supplying electricity at any given moment. This issue is further complicated by the varying structure of electricity markets.  Some states, including Texas, allow many customers to choose who supplies their electricity from retail electric providers that compete for their business.  Other states have retained a traditional market structure in which regulators set rates for the generation and provision of electric service.

Demand response programs also hold potential to help grid operators deal with the intermittent nature of renewable sources of energy, such as wind and solar power.  For example, power grid operators could provide incentives that encourage customers to turn off some lights or allow their water heaters or air-conditioning units to cycle off briefly on cloudy days or when the wind stops blowing.

One solution to the problem of what happens when the wind dies down or the sun goes behind a cloud is for electricity-grid operators to call on the air-conditioning cycling program or to pay hotels or grocery stores to turn off a few lights.

“Demand response is key to a low-carbon future,” one panelist contended, adding that the central challenge for regulators is to “efficiently monetize the benefits” to consumers for voluntarily reducing electricity consumption during periods of peak usage.

While many panelists and participants at the conference emphasized the need to develop appropriate financial incentives to encourage participation in demand response programs, one speaker suggested regulators must involve behavioral scientists to understand what influences consumers. Pecan Street Inc., a non-profit scientific research institute based in Austin, is studying this issue with residential customers in several cities.

“Consumer buy-in is essential,” the panelist added, “but motivations may be different. Demand response must be coordinated – it cannot be driven just by a price signal.”

Gary Rasp is communications director for the Energy Institute at The University of Texas at Austin.