New Study Finds Energy Efficiency May Help Utilities Meet Peak Demand at Relatively Low Cost

November 1, 2019

With rising peak demand for electricity in many regions of the country, utilities and states are increasingly interested in understanding how efficiency programs contribute toward electricity system reliability and resilience at the most affordable cost. According to a new study by Berkeley Lab, these programs appear to be a relatively low-cost way for utilities to meet peak demand, compared to the capital cost of other resources.

A free webinar summarizing key findings will be offered at noon Pacific on November 14, 2019, in collaboration with the National Association of Regulatory Utility Commissioners Center for Partnerships & Innovation. Register for the free webinar here. The report, Peak Demand Impacts From Electricity Efficiency Programs, will be available in advance of the webinar at https://emp.lbl.gov/publications/peak-demand-impacts-electricity.

Historically, most assessments of efficiency’s costs and benefits focused on the value of annual energy reductions. With increasing need for a more flexible and resilient electricity system, and relative costs for generation, utilities and other efficiency program administrators must take into account all characteristics of efficiency programs — including peak demand reduction — to ensure a reliable system at the most affordable cost.

As a first of its kind analysis, Berkeley Lab’s innovative study explores a new metric for utilities and other efficiency program administrators, the cost of saving peak demand. Researchers collected data on costs, energy savings, and peak demand savings for programs serving customers of 36 investor-owned utilities in nine states (Arizona, Arkansas, California, Colorado, Illinois, Massachusetts, Maryland, New York and Texas) for the period 2014 to 2017. The report presents the cost to the utilities for each state and for specific types of programs. 

For a reference point, researchers first calculated their standard metric for each program — what it costs to save a kilowatt-hour (kWh) of electricity, spread over the lifetime of the efficiency actions taken as a result of the program. Expressed in dollars per kilowatt-hour (kWh) of electricity savings, this metric measures activities from a utility’s perspective. Researchers then calculated the savings-weighted averages, where the cost performance of each program is assigned more or less value based on annual electricity savings. That means programs with larger savings have greater influence on the average cost of saving electricity and cost of saving peak demand than programs with smaller savings. The savings-weighted values average $0.029/kWh across the nine states, varying from $0.013/kWh to $0.039/kWh, and are generally aligned with previous Berkeley Lab studies.

Next, researchers calculated the cost of saving peak demand — what it costs to save a kilowatt (kW) of peak demand during the summer, the peak period for most U.S. electricity systems. The cost of saving peak demand averages $1,483/kW and varies by a factor of more than four ($568/kW to $2,353/kW) across the nine states (see table). 

A major challenge for researchers was assessing how utilities and states define and use terms such as “peak demand” in the context of electricity efficiency programs. Additional research also is needed to determine the extent to which differences in peak demand savings per program dollar invested are due to differences in local climate or methods used to estimate peak demand savings. Extending the analysis to a larger sample of states and to winter months also are priority research needs.

The report authors are Natalie Mims Frick, Ian Hoffman, Chuck Goldman, Greg Leventis, Sean Murphy and Lisa Schwartz in Berkeley Lab’s Electricity Markets and Policy Group. The U.S. Department of Energy’s Office of Electricity, Transmission Permitting and Technical Assistance division, supported this work.

Contacts: