New report provides guidance on considering time-varying rates in electricity system planning

January 22, 2024

Price-based demand response (DR), or time-varying rates, is an underutilized resource that could substantially contribute to load flexibility for electricity systems. But most utilities have not yet captured these benefits in electricity system planning.

Berkeley Lab's new technical brief, “The use of price-based demand response as a resource in electricity system planning,” finds that evaluation of price-based DR as a solution to meet identified electricity system needs is uncommon for both bulk power system planning and distribution system planning processes. Even where price-based DR is considered as a solution, its characterization and treatment are often deficient. The authors provide recommendations for improving consideration of price-based DR in the context of long-term planning for bulk power and distribution systems.

The authors will discuss their findings and recommendations in a webinar on February 22, 2024 at 3:00 ET / 12:00 PT. Register here:

The technical brief examines state requirements for Integrated Resource Plans (IRPs) and 12 recently filed plans1 by U.S. electric utilities in the West, Midwest, and Southeast. The analysis of price-based DR in these IRPs uses the following framework:

The framework reflects the traditional steps to quantify benefits of demand-side management programs in IRP: (1) define the types of programs to analyze, (2) quantify customer engagement and load reduction rates, (3) calculate the technical and achievable potential, and (4) economically assess the programs.

Among the authors' recommendations for improving consideration of price-based DR in bulk power system planning developed through IRP:

  • Treat price-based DR as a resource in capacity expansion modeling, which entails a much more granular representation of its potential, costs, and capacity contribution.
  • Avoid screening price-based DR prior to using it as model input.
  • Improve DR characterization using empirical recruitment and performance data.
  • Characterize DR in IRP resource adequacy assessments for proper evaluation of load-carrying capabilities.

In addition to benefits for bulk power systems, price-based DR also has the potential to reduce capacity upgrade needs for distribution systems. However, IRPs typically do not quantify these benefits. Any consideration in electricity planning processes of the locational value of price-based DR — its value at specific points on the electricity system to help meet distribution system needs — takes place in distribution system plans. Identification of price-based DR and other non-wires alternatives as potential distribution system solutions typically follows grid needs identification (see figure below). These alternative solutions can be procured through pricing, programs, and procurements, including price-based DR tariffs. 

Following the review of state requirements and nascent utility practices for distribution system planning in California, Colorado, Hawaii, Minnesota, New York, and Oregon, the paper recommends several potential improvements for considering price-based DR for planning local grids, including the following:

  • Evaluate price-based DR alongside DR programs for both deferring distribution system investments and meeting new loads and add a dynamic rate to help address local distribution events.
  • Establish a longer planning horizon.
  • Consider financial performance incentives to align utility shareholder and utility customer interests.
  • Improve grid data and make it publicly available.
  • Apply advanced planning tools, using a longer planning horizon.

While the paper is focused on price-based DR, most of the recommendations apply equally well to the treatment of any demand-side resource analyzed as part of electricity system planning processes.

We hope these findings assist public utility commissions, utilities, and stakeholders to improve the representation of price-based DR in planning processes to capture the wide range of values for bulk power and distribution systems.

For questions on the report, please contact JP Carvallo ([email protected]). We appreciate the funding support of the U.S. Department of Energy’s Office of Electricity in making this work possible.

The most recent filings as of March 2022, when the research sample was finalized.