The Economics of Demand Flexibility: How “Flexiwatts” Create Quantifiable Value for Customers and the Grid

Rocky Mountain Institute (Free download with registration)
http://www.rmi.org/electricity_demand_flexibility

[From Executive Summary] Electric utilities in the United States plan to invest an estimated $1+ trillion in traditional grid infrastructure— generation, transmission, and distribution—over the next 15 years, or about $50–80 billion per year, correcting years of underinvestment. However, official forecasts project slowing electricity sales growth in the same period (less than 1% per year), coming on the heels of nearly a decade of flat or declining electricity sales nationwide. This is likely to lead to increasing retail electricity prices for customers over the same period. Meanwhile, those customers enjoy a growing menu of increasingly cost-effective, behind-the-meter, distributed energy resource (DER) options that provide choice in how much and when to consume and even generate electricity. These dual trends and how customers might respond to them—rising prices for retail grid electricity and falling costs for DER alternatives that complement (or in extreme cases even supplant) the grid—has caused considerable electricity industry unrest. It also creates a potential for overinvestment in and duplication of resources on both sides of the meter. Yet utility and customer investments on both sides of the meter are based on the view that demand profiles are largely inflexible; flexibility must come solely from the supply side. Now, a new kind of resource makes the demand side highly flexible too. Demand flexibility (DF) evolves and expands the capability behind traditional demand response programs. DF allows demand to respond continuously to changing market conditions through price signals or other mechanisms. DF is proving a grossly underused opportunity to buffer the dynamic balance between supply and demand…

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