A Methodology for Estimating Large-Customer Demand Response Market Potential

Publication Type

Report

Date Published

08/2007

LBNL Report Number

LBNL-63346

Abstract

Demand response (DR) is increasingly recognized as an essential ingredient to well-functioning electricity markets. DR market potential studies can answer questions about the amount of DR available in a given area and from which market segments. Several recent DR market potential studies have been conducted, most adapting techniques used to estimate energy-efficiency (EE) potential. In this scoping study, we: reviewed and categorized seven recent DR market potential studies; recommended a methodology for estimating DR market potential for large, non-residential utility customers that uses price elasticities to account for behavior and prices; compiled participation rates and elasticity values from six DR options offered to large customers in recent years, and demonstrated our recommended methodology with large customer market potential scenarios at an illustrative Northeastern utility. We observe that EE and DR have several important differences that argue for an elasticity approach for large customer DR options that rely on customer-initiated response to prices, rather than the engineering approaches typical of EE potential studies. Base-case estimates suggest that offering DR options to large, non-residential customers results in 1-3% reductions in their class peak demand in response to prices or incentive payments of $500/MWh. Participation rates (i.e., enrollment in voluntary DR programs or acceptance of default hourly pricing) have the greatest influence on DR impacts of all factors studied, yet are the least well understood. Elasticity refinements to reflect the impact of enabling technologies and response at high prices provide more accurate market potential estimates, particularly when arc elasticities (rather than substitution elasticities) are estimated.

Year of Publication

2007

Refereed Designation

Unknown

Institution

LBNL

City

Berkeley

Organization: 

Research Areas: