FIGURE 2-2 Effects of demand-reduction programs on daily power demand. SOURCE: Adapted from Kirby et al. (2005); Gillingham et al. (2004).

Definition of Demand-Side Options and Measures of Potential

Demand-Side Options

This chapter considers two types of demand-side options:

  • Energy efficiency programs (principally in the commercial and residential sectors) and demand-response (DR) programs (including permanent and “callable” resources), and

  • Distributed generation (DG), which is generally not dispatchable and thus not included in most electrical system reliability analyses. DG includes combined heat and power (CHP) systems and distributed photovoltaics (PV).

Energy Efficiency and Demand-Response Programs. Energy efficiency programs allow users to perform the same functions that they normally would, but with less energy consumption. When applied to electricity uses, improved efficiency reduces demand throughout the day, often with the greatest effect during peak demand. The left panel of Figure 2-2 shows a typical daily cycle of demand, low at night, rising during the day, and peaking during the late afternoon. The lower curve shows demand with improved efficiency of use. Energy-efficiency improvements can be expensive, but once implemented they can save energy for many years. Reductions in peak-power requirements can also contribute to system stability in the event of sudden disturbances such as a loss of system components or short circuits.3 Furthermore, reducing peak demand means that gen erating capacity and reserve margins can both be reduced. Thus, investments in reducing peak demand through energy efficiency measures can have a value of 118 percent of the actual reduction in avoiding the addition of new capacity.4

Energy-efficiency mechanisms can include mandatory efficiency standards for buildings and appliances; targeted financial incentives and assistance; codes; information and education programs; and research on energy-efficient technologies (Silva, 2001, pp. 96-104; Brown et al., 2005, pp. 45-60). They can take place in a variety of program areas, including residential lighting; single-family weatherization; nonresidential heating, ventilating, and air conditioning (HVAC); and new construction (National Energy Efficiency Best Practices Study, 2004). Stimulating greater investments in energy-efficiency measures is complex, however, since it involves multiple actors and agents, including varied consumers, vendors, independently owned utilities, unaffiliated distribution companies, and federal, state, and local agencies (Harrington and Murray, 2003).

One well-documented stimulant for energy efficiency is that of increased electricity prices. Most models of electricity markets incorporate an estimate of the price elasticity of demand for electricity. Consistent with past research, one recent study of price response based on 119 customers from New York State (Goldman et al., 2005) confirms that customers’ price response is generally modest. In particular, the surveyed customers had an average price elasticity of 0.11, which means that their combined ratio of peak to off-peak electricity usage declines by 11 percent in response to a doubling of peak prices (relative to off-peak prices). Thus, price


The adequacy and security aspects of electrical system reliability are briefly discussed in NYISO’s report Reliability Needs Assessment (NYISO, 2005a).


The North American Electric Reliability Council has set a standard of 18 percent for reserve generation. This criterion has been adopted by the New York State Reliability Council.

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