Coordination of Energy Efficiency
and Demand Response
A RESOURCE OF THE NATIONAL ACTION PLAN
FOR ENERGY EFFICIENCY
JANUARY 2010
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About This Document
This paper, Coordination of Energy Efficiency and Demand
Response, is provided as a resource to assist those advancing the
National Action Plan for Energy Efficiency's goal of achieving all
cost-effective energy efficiency by 2025.
This paper summarizes existing research on the relationship
between energy efficiency and demand response. Using
information gathered through interviews with program
administrators, customers, and service providers, this paper
discusses the coordination of energy efficiency and demand
response programs, with a particular focus on current practices
and opportunities. It also discusses barriers to coordinating these
two types of programs.
This paper was developed as a resource for a variety of
audiences that may be interested in the nexus between energy
efficiency and demand response. Intended audiences include
policy-makers, program administrator staff, regulatory staff,
service provider organizations, and stakeholders who provide
input on the design and implementation of energy efficiency and
demand response programs and tariffs.
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Coordination of Energy Efficiency
and Demand Response
A RESOURCE OF THE NATIONAL ACTION PLAN FOR
ENERGY EFFICIENCY
JANUARY 2010
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The Leadership Group of the National Action Plan for Energy Efficiency is committed to taking
action to increase investment in cost-effective energy efficiency. Coordination of Energy
Efficiency and Demand Response was developed under the guidance of and with input from the
Leadership Group. The document does not necessarily represent a consensus view and does
not represent an endorsement by the organizations of Leadership Group members.
Coordination of Energy Efficiency and Demand Response is a product of the National Action
Plan for Energy Efficiency and does not reflect the views or policies of the federal government.
The role of the U.S. Department of Energy and U.S. Environmental Protection Agency is limited
to facilitation of the Action Plan.
If this document is referenced, it should be cited as:
National Action Plan for Energy Efficiency (2010). Coordination of Energy Efficiency and
Demand Response. Prepared by Charles Goldman (Lawrence Berkeley National Laboratory),
Michael Reid (E Source), Roger Levy, and Alison Silverstein.
For More Information
Regarding Coordination of Energy Efficiency and Demand Response, please contact:
Larry Mansueti
U.S. Department of Energy
Office of Electricity Delivery and Energy Reliability
Tel: (202) 586-2588
E-mail: lawrence.mansueti@.hq.doe.qov
Regarding the National Action Plan for Energy Efficiency, please contact:
Stacy Angel
U.S. Environmental Protection Agency
Office of Air and Radiation
Climate Protection Partnerships Division
Tel: (202) 343-9606
E-mail: angel.stacv@epa.gov
Larry Mansueti
U.S. Department of Energy
Office of Electricity Delivery and Energy Reliability
Tel: (202) 586-2588
E-mail: lawrence.mansueti@hg.doe.gov
or visit www.epa.gov/eeactionplan
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Table of Contents
List of Figures ...............................................................................................................................iii
List of Tables iii
List of Abbreviations and Acronyms iv
Acknowledgements v
Executive Summary................................................................................................ ES-1
Energy Efficiency and Demand Response ES-1
Coordinating Energy Efficiency and Demand Response ES-2
Concerns and Barriers Affecting Coordination ES-3
Facilitating Coordination ES-4
Notes ES-5
1: Introduction........................................................................................................ 1-1
1.1 Purpose 1-2
1.2 Scope of Research and Approach 1-2
13 Notes 1-3
2: Relationship Between Energy Efficiency and Demand Response 2-1
2 1 Energy Efficiency 2-1
2.2 Demand Response 2-2
2.3 Continuum of Customer Options 2-7
2.4 How Energy Efficiency and Demand Response Overlap 2-11
2.5 Notes 2-13
3: What Might Coordination of Energy Efficiency and Demand Response
Look Like? 3-1
3 1 Types of Coordination 3-1
3 2 Examples of Coordination—Current and Planned 3-2
3 3 Marketing That Ties Together Energy Efficiency and Demand Response Programs 3-5
3 4 Market-Driven Coordination by Service Providers 3-7
3 5 Developments in Wholesale Markets That Facilitate Coordination of Energy
Efficiency and Demand Response 3-8
3 6 Notes 3-9
4: Enabling Technologies for Energy Efficiency and Demand Response 4-1
4 1 Residential Market 4-1
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4 2 Commercial and Institutional Market 4-2
4 3 Notes 4-4
5: Constraints on Coordination of Energy Efficiency and Demand Response. 5-1
5,1 Some Market and Regulatory Structures Divide Responsibilities and Funding for
Energy Efficiency and Demand Response 5-1
5 2 Aligning Retail Rates wish Energy Efficiency and Demand Response Objectives 5-1
5 3 Customers Have Reservations About Demand Response 5-2
5 4 Developing Utility Staff and Contractor Capabilities in Both Areas Will Take Time 5-4
5 5 Barriers to Private Sector Business Models that Combine Energy Efficiency and
Demand Response 5-5
5 6 Notes 5-5
6: Developments That Wot pport Coordination of Energy Efficiency and
Demand Response 6-1
6.1 Clear Policy Signals That Coordination Is Important 6-1
6.2 Establishment of Peak Load Reduction Goals in Addition to Energy Savings Goals 6-1
6.3 Educating Customers on Demand Response 6-2
6.4 Support for Combined Programs That Promote Both Energy Efficiency and Demand
Response 6-3
6.5 Strategies that Enable Deployment of Advanced Technologies and Systems 6-3
6.6 Notes 6-4
7: Conclusion 7-1
Appendix A: National Action Plan for Energy Efficiency Leadership Group A-1
Appen< ferences.......................................................................................... B-1
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List of Figures
Figure 2-1. Reliability-Based Demand Response: California ISO Opportunity 2-5
Figure 2-2. Conceptual Perspective of Efficiency and Demand Response 2-8
Figure 3-1. Distribution of Energy Efficiency, Demand Response, and Peak Load
Management Programs 3-3
List of Tables
Table 2-1. Types of Energy Efficiency Programs and Strategies 2-2
Table 2-2. Common Types of Demand Response Programs 2-3
Table 2-3. Demand Response Trigger Criteria: Southern California Edison Example 2-4
Table 2-4. PG&E's Demand Response Programs for Business Customers 2-6
Table 2-5. Customer Options for Managing Electric Service Requirements and Costs 2-10
Table 3-1. Sacramento Municipal Utility District Small Business Summer Solutions:
Energy and Demand Impacts 3-4
Table 4-1. How Building Automation Systems (i.e., EMCS) Support Both Energy
Efficiency and Demand Response 4-3
Table 4-2 Levels of Demand Response Automation 4-4
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List of Abbreviations and Acronyms
ACC
air conditioning control
AMI
advanced metering infrastructure
BAS
building automation system
Btu
British thermal unit
CAISO
California ISO
CEC
California Energy Commission
CSP
curtailment service provider
CPP
critical peak pricing
CPUC
California Public Utilities Commission
DRRC
Demand Response Research Center
DOE
U.S. Department of Energy
DSM
demand-side management
EIS
energy information system
EMCS
energy management control system
EMS
energy management system
EPA
U.S. Environmental Protection Agency
ESCO
energy service company
ESPC
energy savings performance contract
FERC
Federal Energy Regulatory Commission
GE
General Electric Company
HVAC
heating, ventilating, and air conditioning
ISO
independent system operator
ISO-NE
ISO-New England
kW
kilowatt
kWh
kilowatt-hour
MW
megawatt
NYISO
New York ISO
O&M
operations and maintenance
PCT
programmable communicating thermostat
PG&E
Pacific Gas and Electric
RTO
regional transmission organization
RTP
real-time pricing
SMUD
Sacramento Municipal Utility District
TEM
total energy management
TOU
time of use rate
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Coordination of Energy Efficiency and Demand Response
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Acknowledgements
This paper, Coordination of Energy Efficiency and Demand Response, is a key product of the
Year Two Work Plan for the National Action Plan for Energy Efficiency.
Charles Goldman of Lawrence Berkeley National Laboratory served as the lead author of the
paper; Michael Reid (E Source) served as co-lead author with assistance from Roger Levy
(Levy Associates) and Alison Silverstein (Alison Silverstein Consulting). The Action Plan
Leadership Group provided review and comment. A full list of Leadership Group members is
provided in Appendix A and at www.epa.gov/eeactionplan.
The National Action Plan for Energy Efficiency is facilitated by the U.S. Environmental
Protection Agency (EPA) and the U.S. Department of Energy (DOE). Key staff include Larry
Mansueti (DOE Office of Electricity Delivery and Energy Reliability), Kathleen Hogan (DOE
Office of Energy Efficiency and Renewable Energy), and Stacy Angel and Katrina Pielli (EPA
Climate Protection Partnerships Division).
Eastern Research Group, Inc. provided copyediting, graphics, and production services.
National Action Plan for Energy Efficiency
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Executive Summary
This paper reviews the relationship between energy efficiency and demand response and
discusses approaches and barriers to coordinating energy efficiency and demand
response. The paper is intended to support the 10 implementation goals of the National
Action Plan for Energy Efficiency's Vision to achieve all cost-effective energy efficiency
by 2025.1 Improving energy efficiency in our homes, businesses, schools, governments,
and industries—which consume more than 70 percent of the nation's natural gas and
electricity—is one of the most constructive, cost-effective ways to address the
challenges of high energy prices, energy security and independence, air pollution, and
global climate change.
While energy efficiency is an increasingly prominent component of efforts to supply affordable,
reliable, secure, and clean electric power, demand response is becoming a valuable tool in
utility and regional resource plans. The Federal Energy Regulatory Commission (FERC)
estimated the contribution from existing U.S. demand response resources at about 41,000
megawatts (MW), about 5.8 percent of 2008 summer peak demand (FERC, 2008). Moreover,
FERC recently estimated nationwide achievable demand response potential at 138,000 MW (14
percent of peak demand) by 2019 (FERC, 2009).2 A recent Electric Power Research Institute
study estimates that "the combination of demand response and energy efficiency programs has
the potential to reduce non-coincident summer peak demand by 157 GW' by 2030, or 14-20
percent below projected levels (EPRI, 2009a).
This paper supports the Action Plan's effort to coordinate energy efficiency and demand
response programs to maximize value to customers. For information on the full suite of policy
and programmatic options for removing barriers to energy efficiency, see the Vision for 2025
and the various other Action Plan papers and guides available at www.epa.gov/eeactionplan.
Energy Efficiency and Demand Response
Energy efficiency refers to using less energy to provide the same or improved level of service to
the energy consumer in an economically efficient way; it includes using less energy at any time,
including during peak periods. In contrast, demand response entails customers changing their
normal consumption patterns in response to changes in the price of energy over time or to
incentive payments designed to induce lower electricity use when prices are high or system
reliability is in jeopardy. Because most demand response programs in effect today are event-
driven, customers tend to assume that demand response events occur for limited periods that
are called by the grid operator; but critical peak pricing (CPP) and real-time pricing (RTP) are
growing in prevalence and impact. Many demand response programs are designed primarily to
curtail or shift load for short periods of time; however, those programs that educate customers
about energy use with time of use (TOU) rates, dynamic rates, and energy use feedback can
also produce measurable reductions in customers' total energy use and cost (EPRI, 2009b).
There are significant differences in how energy efficiency and demand response are measured,
what organizations offer them, how they are delivered to customers, and how they are rewarded
in the marketplace. Reducing these differences and coordinating energy efficiency and demand
response could be beneficial. Better coordination of energy efficiency and demand response
programs at the provider level could bring about cost efficiencies and more rational allocation of
resources for both program providers and customers. Coordination could help customers, as
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most customers do not understand or care about the difference between energy efficiency and
demand response and would be receptive to an integrated, packaged approach to managing
their energy usage. Greater customer willingness could also increase demand response market
penetration and capture energy savings and customer bill-reduction opportunities that might
otherwise be lost.
Over the long term, customer and utility smart grid investments in communications, monitoring,
analytics, and control technologies will blur many of the distinctions between energy efficiency
and demand response and help realize the benefits of this integration.
Coordinating Energy Efficiency and Demand Response
Coordinating energy efficiency and demand response could provide customers with better tools
to understand, manage, and reduce their electricity use. Such coordination can occur in at least
four ways:
• Combined program offerings. Customers could be offered both energy efficiency and
demand response opportunities under the same program and provider umbrella;
separate programs are the norm today.
• Coordinated program marketing and education. Without merging the delivery of
services at the program level, program sponsors (e.g., utilities) could package and
promote energy efficiency and demand response in a closely coordinated or unified way.
Energy efficiency and demand response can be complicated topics, requiring
sophisticated customer effort and action, so program sponsors should offer education
that addresses both topics under a broad energy management theme.
• Market-driven coordinated services. Coordination need not occur only within the
context of programs offered by utilities, public benefit organizations, or independent
system operators (ISOs). Coordination of energy efficiency and demand response could
also come about through the initiative of private firms that find a market among
customers who are interested in reducing their energy costs. Our research and
interviews with selected energy service companies (ESCOs) and curtailment service
providers (CSPs) suggests that they are interested in this approach; we describe their
initial steps in this direction.
• Building codes and appliance standards. Building codes and appliance efficiency
standards can incorporate preferred energy efficiency and demand response features
directly into building design and infrastructure and appliance designs, enabling
significant reductions in the costs to customers of integrating energy efficiency and
demand response strategies and/or measures (e.g., global temperature setback
controls, automated demand response, embedded controls in appliances).
At the provider level, utilities and grid operators should coordinate energy efficiency and
demand response through the resource, budget planning, and rate design processes. Such
coordination is needed because energy efficiency affects how much load shift is available from
a given customer; chosen energy efficiency measures affect how much money the customer
and utility have available to spend on demand response (and vice versa); and rate design,
efficiency, and demand response affect the load levels and profiles that supply resources need
to serve.
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Today, few entities combine energy efficiency and demand response into an integrated
program. In December 2009, out of 2,016 U.S. and Canadian energy efficiency, demand
response, and load management programs in the E Source database, only 56 were identified as
serving both energy efficiency and demand response purposes. Some examples of these
combined programs include:
• Austin Energy, Kansas City Power & Light, Long Island Power Authority, and others offer
residential "smart" thermostat programs that provide customers with communicating
programmable thermostats in return for participation in a demand response program that
curtails load during a limited number of summer hours by raising the thermostat's set
point. Properly used, programmable thermostats can also provide daily energy savings.
• Sacramento Municipal Utility District (SMUD) implemented the Small Business Summer
Solutions Research Pilot in summer 2008, targeted to small commercial customers with
peak demands less than 20 kilowatts (kW). Building on an energy efficiency audit and
conservation and efficiency options, the demand response component gives customers
critical peak rates, options to install communicating programmable thermostats, and a
variety of pre-cooling and conventional control strategies. This integrated approach led
to a 23 percent reduction in weather-adjusted energy use and a 20 percent average
peak load reduction on critical peak event days.
• The New York State Energy Research & Development Authority offers incentives for
prequalified measures and performance-based incentives to customers and ESCOs for
electric and gas efficiency, as well as incentives that offset the cost of demand
response-enabling equipment, such as load-shedding controls and automation
equipment.
The capability and potential for energy efficiency and demand response at a customer site are
derived from four elements—the building, its electro-mechanical systems, appliances, and
customer behavior. Building design, materials, and orientation are primary determinants of
building energy consumption and usage patterns, but that use can be modified and managed by
new technology and systems integration tools. Energy control technologies can also enable
both energy efficiency and demand response. For example, programmable communicating
thermostats (PCTs) can automate energy management; embedded controls, like those being
explored with white goods appliances, can enable demand response without significant effort by
the consumer; and residential and commercial building energy management systems (EMS)
can deliver automated demand response and improve building energy and operational
efficiency. Other critical enabling technologies include advanced metering infrastructure (AMI)—
essential for dynamic pricing—and energy information systems (EIS) that provide customers
feedback on their energy use.
Concerns and Barriers Affecting Coordination
Several factors complicate the process of coordinating energy efficiency and demand response.
First, some market and regulatory structures separate responsibility and funding for energy
efficiency from that for demand response. Second, some customers with energy management
program experience express reservations about demand response. Recent interviews with
customers indicate the following concerns:3
• Demand response benefits are uncertain, changing with market prices and reliability
circumstances, even though energy efficiency impacts are predictable and long-lived.
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• Demand response programs vary widely across regions and utilities, and in some cases
the inconvenience of participating might outweigh the potential payoff.
• Demand response primarily appears to benefit the utility rather than the customer.
• Participating in demand response might reduce the amount of funding or staff resources
a customer can devote to energy efficiency efforts.
Demand response program designers, and those working to design coordinated energy
efficiency and demand response programs, should be aware of these concerns and work to
mitigate them.
Third, it is important to align retail rates with energy efficiency and demand response
objectives.4 Well-designed tariffs based on dynamic, time-varying prices facilitate demand
response without compromising energy efficiency opportunities, and they better reflect the true
cost of generating electricity. Many regulators and utilities have been reluctant to place
customers on such tariffs. Widespread deployment of an AMI, other enabling technologies, and
broad educational efforts will remove one of the major barriers to dynamic pricing among
residential and small commercial customers.
Fourth, developing utility staff and contractor capabilities in both energy efficiency and demand
response will take time. Many utility employees have expertise in one field or the other, but not
both. ESCOs specialize in delivering energy efficiency and sell large, capital-intensive
technology solutions, such as boiler and heating, ventilating, and air conditioning (HVAC)
replacements; this is a very different business model from that used by CSPs, which focus on
less capital-intensive operation and control solutions with shorter contracts.
Facilitating Coordination
There are several ways to encourage better coordination of energy efficiency and demand
response:
• Regulators can direct utilities and grid operators to coordinate the programs more
effectively and support rate designs that facilitate energy efficiency and demand
response.
• Demand-side management (DSM) program goals can be articulated more specifically to
address both energy efficiency and peak load reduction goals.
• Customer education about energy efficiency can be broadened to explain demand
response and its benefits to the customer.
• Government "lead by example" programs can demonstrate the value of coordinating
energy efficiency and demand response, particularly with respect to the impact of
enabling technologies that serve both purposes.
• Building codes and appliance efficiency standards can incorporate technology
improvements and functionalities that integrate and improve both efficiency and load
controllability.
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While coordinating energy efficiency and demand response can provide benefits, it will not be
easy or swift due to many market, human, financial, and institutional obstacles. Executives and
policy-makers should articulate some direction and clarity for utilities and program sponsors with
respect to priorities for energy efficiency and demand response programs, their coordination,
and overall goals. This is particularly important given the long-lasting nature of utility and
customer capital investments, the time and effort it takes to change customer behavior and
expectations, and the rapid pace of technological change. Program sponsors and customers
alike need guidance regarding the best ways to commit their resources to achieve effective
energy management.
In a few years, as electricity prices and information are delivered more effectively to users and
control and communication technologies become more widely accessible, demand response will
become more automatic and customer-friendly, allowing customers to identify and more easily
target discretionary loads that can be curtailed or shifted. These same technologies will
enhance energy efficiency through continuous site commissioning simultaneous with more
efficient new buildings—including zero net energy sites—reducing the amount of electricity
available for load-shifting. The nature of demand response is also likely to change. While today
the bulk of demand response programs are triggered by reliability events, in 10 years, most
demand response might be price-driven (and possibly linked to congestion management),
enabled by automated onsite energy controls fed by near-real time pricing information without
significant customer effort or intervention.
Large-scale deployment of cost-effective energy efficiency resources has the potential to
provide significant bill savings for customers and reduce and defer the need for more expensive
baseload or intermediate generation resources. Similarly, cost-effective demand response
resources have the potential to reduce or defer the need for expensive peak generation and to
enhance electric system reliability while also increasing the system's ability to absorb
intermittent renewable resources through sophisticated real-time monitoring, analytics, and load
controls. Effective coordination of energy efficiency and demand response—by policy-makers,
utilities, and third-party program providers—will be necessary to increase the effectiveness and
utilization of energy management resources. While progress has been made in recent years,
more work and effort are needed to achieve the full promise and potential of the synergy
between energy efficiency and demand response.
Notes
1 This paper supports the National Action Plan's Vision for 2025 Implementation Goal Nine, which
encourages program administrators to implement state-of-the-art efficiency information sharing and
delivery systems and to coordinate energy efficiency and demand response programs to maximize
value to customers (National Action Plan for Energy Efficiency, 2008). For information on the full suite
of policy and programmatic options for removing barriers to energy efficiency, see the Vision for 2025
and the various other Action Plan papers and guides available at www.epa.gov/eeactionplan.
2 The Achievable Potential scenario estimates the cost-effective demand response potentially available
if AMI were universally deployed; dynamic pricing were the default tariff; and other demand response
programs, such as direct load control, were available to those who opt out of dynamic pricing.
3 Some primary research was conducted for this study, including interviews with 16 utilities and ISOs;
14 large commercial, industrial, and institutional energy consumers; and five large ESCOs and CSPs
that operate nationally.
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4 For more information on energy efficiency and retail rates, see National Action Plan for Energy
Efficiency (2009).
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1: Introduction
Across the United States, electric utilities and independent system operators (ISOs)1 are
devoting increasing attention and resources to demand response. While energy efficiency is the
most prominent component of growing efforts to supply affordable, reliable, secure, and clean
electric power, demand response is a key pillar of utilities' and ISOs' resource plans, and its
importance is growing. The Federal Energy Regulatory Commission (FERC) estimated the
contribution from existing U.S. demand response resources was about 41,000 megawatts
(MW), which represents about 5.8 percent of 2008 summer peak demand (FERC, 2008), close
to a 10 percent increase from 2006. Moreover, FERC recently completed a national study that
estimated demand response potential and identified an achievable potential of 138,000 MW (14
percent of peak demand) by 2019 (FERC, 2009).2 A recent Electric Power Research Institute
study estimates that "the combination of demand response and energy efficiency programs has
the potential to reduce non-coincident summer peak demand by 157 GW [gigawatts]" by 2030,
or 14-20 percent below projected levels (EPRI, 2009a).
Energy efficiency and demand response are closely related concepts. The 2006 National Action
Plan for Energy Efficiency defined energy efficiency to include some types of demand response
that do not compromise the level of energy service received by consumers and reduce total
energy consumption and peak demand.3 Yet, while both energy efficiency and demand
response are means to reducing energy consumption and utility bills, there are significant
differences in the way these resources are tapped. Market structures have evolved in some
regions to vest responsibility for energy efficiency and demand response in separate
organizations. Companies that contract to provide energy efficiency or demand response
services to utilities and ISOs generally work in one area but not the other. Wth rare exceptions,
energy efficiency and demand response are marketed and delivered to customers in entirely
separate programs.
Reducing this degree of separation would be beneficial. Better coordination of energy efficiency
and demand response programs at the provider level, or even full integration of programs, could
bring about cost efficiencies and more rational allocation of resources. Coordination might be
beneficial at the customer level, as customers might be receptive to a packaged, rather than
piecemeal, approach to managing their energy usage. And greater customer willingness could
translate into higher market penetration for programs and capture energy savings and customer
bill reduction opportunities that might otherwise be lost.
However, relatively little work has been done to date on coordination. Accordingly, the Action
Plan's Year Two Work Plan called for exploring the energy efficiency/demand response
relationship:
Particular focus will be to determine how to incorporate energy efficiency (EE) and
demand response (DR) in complementary ways such that customers have increased
tools at their disposal to understand and manage and reduce their electricity use
(National Action Plan for Energy Efficiency, 2007).
This paper was commissioned in support of the above objective.
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1.1 Purpose
This paper was developed as a discussion document and resource for those utilities, utility
regulators, energy efficiency and demand response service providers, consumer advocates,
and others interested in the energy efficiency/demand response nexus. It aims to:
• Summarize existing research on the relationship between energy efficiency and demand
response.
• Present new information, gathered through interviews with program administrators,
customers, and service providers, on the coordination of energy efficiency and demand
response, focusing in particular on current practices and opportunities.
• Discuss barriers to coordinating energy efficiency and demand response programs.
The target audiences for this report include:
• Policy-makers who need a short and concise higher level summary of the issue.
• Program administrator staff members who are involved in designing, marketing, and
implementing energy efficiency and demand response programs.
• Regulatory staff members who are responsible for overseeing and approving energy
efficiency and demand response program and tariff offerings.
• Service provider organizations that are involved in energy efficiency and/or demand
response and are considering strategies to facilitate increased coordination of service
offerings.
• Stakeholders who provide input on the design and implementation of energy efficiency
and demand response programs and tariffs.
1.2 Scope of Research and Approach
This paper includes a literature review and attempts to synthesize findings of the existing
studies on coordinating energy efficiency and demand response. Approximately 40 interviews
were conducted with program administrators, customers, and service providers to explore their
perspectives on coordinating energy efficiency and demand response. Other experts in energy
efficiency and demand response were also consulted, and preliminary findings were discussed
at the January 2008 meeting of the Action Plan's Leadership Group.4
For reasons of time and budget, the scope of new primary research for this paper was limited.
The utility managers interviewed were from a geographically diverse set of utilities, but the
sample size (16) was small. The interviewees included representatives from 11 large, investor-
owned utilities, three municipal utilities, and two ISOs. Fourteen large commercial, industrial,
institutional, and governmental customers were interviewed; no small business or residential
customers were surveyed. Interviews were conducted with five large energy service companies
(ESCOs) and curtailment service providers (CSPs) that operate nationally. These limitations
should be taken into consideration when reading this paper.
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1.3 Notes
1 U.S. regional electric grid management organizations are classified as either ISOs or regional
transmission organizations (RTOs). While there are technical differences between ISOs and RTOs, for
the purposes of this paper, they are essentially the same. For simplicity, we sometimes use "ISO" as
shorthand for "ISOs and RTOs."
2 The Achievable Potential scenario estimates the cost-effective demand response potentially available
if advanced metering infrastructure (AMI) were universally deployed; dynamic pricing were the default
tariff; and other demand response programs, such as direct load control, were available to those that
opted out of dynamic pricing.
3 The National Action Plan for Energy Efficiency (2006) defines "energy efficiency" as follows on p. 1-1:
"The term energy efficiency as used here includes using less energy at any time, including at times of
peak demand through demand response and peak shaving efforts."
4 This paper has also benefited from review by the Action Plan Leadership Group and members of the
Demand Response Coordinating Council.
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2: Relationship Between Energy Efficiency and
Demand Response
For the purposes of this paper, the following definitions are used:
Energy efficiency refers to permanent changes to electricity usage through installation of or
replacement with more efficient end-use devices or more effective operation of existing devices
that reduce the quantity of energy needed to perform a desired function or service.
Demand response refers to "changes in electric usage by end-use customers from their normal
consumption patterns in response to changes in the price of electricity over time, or to incentive
payments designed to induce lower electricity use at times of high wholesale market prices or
when system reliability is jeopardized." (DOE, 2006)
From a policy perspective, many states have committed to recognize demand-side resources
and energy savings as the first or priority resource; some specify that energy efficiency is the
priority resource while others address both energy efficiency and demand response (National
Action Plan for Energy Efficiency, 2008).
2.1 Energy Efficiency
York and Kushler (2005) describe energy efficiency as follows:
Energy efficiency involves technology measures that produce the same or better levels
of energy services (e.g., light, space conditioning, motor drive power, etc.) using less
energy. The technologies that comprise efficiency measures are generally long-lasting
and save energy across all times when the end-use equipment is in operation.
Depending on the time of equipment use, energy efficiency measures can also produce
significant reductions in peak demand.
This definition of energy efficiency makes three key assumptions: (1) existing consumer devices
are replaced with devices that use less energy, assuming no change in operating practice; (2)
new energy-using devices should perform their functions using less energy; and (3) actual
kilowatt-hour usage is reduced, irrespective of when that reduction occurs (i.e., it is not time-
sensitive). These attributes are very important to understanding efficiency, how it differs from
demand response, and ultimately how energy efficiency and demand response might be
coordinated.
As stated, energy efficiency does not entail sacrifice or reduction in comfort; rather, installation
of high-efficiency equipment and/or measures is assumed to result in "the same or better levels
of energy services." This definition implicitly distinguishes energy efficiency from conservation
(although some people use the terms interchangeably). Conservation often implies a reduction
in energy use and services through such actions as lowering thermostats during the heating
season and dimming lights below the level presumably preferred by building occupants. Often,
conservation is assumed to occur through behavioral changes that are considered short-lived,
whereas energy efficiency occurs through installation of long-lasting technologies.
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Energy efficiency programs are initiatives that encourage— and in many cases provide financial
incentives and services to customers or contractors for—the acquisition, installation, and use of
energy efficiency measures in customer facilities. Currently, such programs are administered by
electric and gas utilities, state energy or regulatory agencies, and/or nonprofit or for-profit
organizations; models for energy efficiency program administration vary by state.
Programs that provide rebates to customers who install energy-efficient equipment are perhaps
the most popular, but there are several other types of energy efficiency programs (see Table 2-1
for a sampling).1
Table 2-1. Types of Energy Efficiency Programs and Strategies
Rebates for customers who install energy-efficient lighting, motors, HVAC equipment,
building shell measures, etc.
Financing, often at a subsidized rate, to offset the upfront cost of energy efficiency
measures.
Trade-ally incentives paid to businesses that stock, sell, or install energy efficiency
measures.
Commissioning services that help ensure that buildings' energy-using systems are
operated and maintained properly.
Education for end-users and building/construction trades and other trade allies on
the benefits of energy efficiency measures.
Appliance standards to incorporate energy efficiency design and embedded
demand responsive controls.
Building codes to require construction, design, and operational standards that build
in energy efficiency and/or demand response capability.
HVAC = heating, ventilating, and air conditioning.
Energy efficiency is also delivered outside the framework of utility or public-benefit programs.
For example, ESCOs design, install, service, and often finance efficiency projects, most often
for large public sector institutions (e.g., K-12 schools, universities) and government agencies
(e.g., local, state, and federal agencies). Contractors who do not necessarily call themselves
ESCOs offer analogous services for residential and business customers. In states with retail
energy competition, retail service providers may offer efficiency services in addition to
commodity electricity and gas. Some state and federal governments have also offered tax
credits to promote installation of high-efficiency equipment and appliances.
2.2 Demand Response
Demand response programs are designed to elicit changes in customers' electric usage
patterns. Some types of demand response, implemented through approved utility tariffs or
through contractual arrangements in deregulated markets, vary the price of electricity over time
to motivate customers to change their consumption patterns; this approach is termed price-
based demand response. Other demand response programs reward customers for reducing
their electric loads upon request or for giving the program administrator some level of control
over the customer's electricity-using equipment. These are termed incentive- or event-based
demand response.
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Coordination of Energy Efficiency and Demand Response
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Within these two broad categories of demand response programs (price-based and incentive-
based), there are several different program types (see Table 2-2).
Table 2-2. Common Types of Demand Response Programs
Price Options
Incentive- or Event-Based Options
TOU rates: Rates with fixed price blocks
that differ by time of day.3
Direct load control: Customers receive
incentive payments for allowing the utility a
degree of control over certain equipment.
CPP: Rates that include a pre-specified,
extra-high rate that is triggered by the
utility and is in effect for a limited number
of hours.
Demand bidding/buyback programs:
Customers offer bids to curtail load when
wholesale market prices are high.
RTP: Rates that vary continually (typically
hourly) in response to wholesale market
prices.
Emergency demand response programs:
Customers receive incentive payments for
load reductions when needed to ensure
reliability.
Capacity market programs: Customers
receive incentive payments for providing
load reductions as substitutes for system
capacity.
Interruptible/curtailable: Customers
receive a discounted rate for agreeing to
reduce load on request.15
Ancillary services market programs:
Customers receive payments from a grid
operator for committing to curtail load when
needed to support operation of the electric
grid (i.e., ancillary services).0
CPP = critical peak pricing; RTP = real-time pricing; TOU = time of use.
a Some analysts do not consider TOU rates to be a dynamic demand response option because the rating
periods and prices are fixed, and utilities typically do not regard customers on TOU as a resource that can
be dispatched similar to a generator when needed to support grid operations. A well-designed TOU rate,
however, may induce customers to make long-term investments that reduce peak demands.
b Some utilities also regard interruptible tariffs as a "price-based" option, particularly if their interruptible
tariff includes dynamic pricing provisions during emergency events (e.g., some tariffs give customers the
option of "riding through" a curtailment event by paying higher real-time prices and still receiving
electricity).
c Ancillary services demand response arrangements can also be viewed as a pricing program, because
real-time pricing signals can be set up under a tariff to trigger event-specific customer behavior.
More utilities offer some type of price-based demand response tariff (including time of use
[TOU] rates) to customers than incentive-based demand response programs; however, price-
based demand response accounts for just a small part of the total existing demand response
resource base. In 2008, customers enrolled in existing incentive-based demand response
programs were capable of providing 38,000 MW of potential peak load reductions, while price-
based demand response programs were expected to provide another 2,700 MW. In percentage
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terms, about 93 percent of the peak load reduction from existing demand response resources in
the United States is provided by various types of incentive-based, event-driven demand
response programs (Cappers et al., 2009).
Incentive- or event-driven demand response can be invoked in response to a variety of trigger
conditions, including local or system temperature, local or regional grid congestion, system
economics, or operational reliability requirements. As an example of relevant events that justify
a demand response, Table 2-3 shows the trigger criteria for Southern California Edison's 2009-
2011 demand response programs. Trigger conditions reflect a key difference between demand
response and energy efficiency, as energy reductions for demand response are time-dependent
whereas reductions for energy efficiency are not.
Table 2-3. Demand Response Trigger Criteria: Southern California Edison
Example
Demand Response Program
Event Trigger Criteria
Demand Response Contracts
Varies
Capacity Bid/Demand Bid
Power Plant Thermal Heat Rate
15,000 Btu/kWh (as a proxy for
high spot market electricity
prices and limited generator
availability)
CPP
System conditions, temperature,
and price
Base Interruptible
CAISO stage 2 alert
Air Conditioner Load Control
CAISO stage 2 alert, storm alert
Btu = British thermal unit; CAISO = California ISO; CPP = critical peak pricing; kWh = kilowatt-hour.
Demand response events may be triggered by economics (e.g., a spike in the wholesale price
of electricity) or by reliability requirements (e.g., a major power plant trips offline, and customer
load must be reduced to prevent blackouts). It is common for event-driven programs to have
upper limits on the duration of individual events and the total number of event-hours per year.
Some definitions of demand response incorporate assumptions that programs will be used no
more than 40 to 100 hours per year (Faruqui et al., 2007).2
The frequency and duration of demand response events can vary substantially from one year to
the next, and by utility system and application. The 40 to 100 hour example from the preceding
paragraph is generally applicable to bulk-power reliability applications when reserve margins dip
below threshold conditions or when wholesale prices spike. Figure 2-1 provides a load duration
curve for the California ISO (CAISO) that illustrates the potential target hours and value for a
demand response application. CAISO estimates that 15 hours of well-targeted demand
response could reduce 5 percent of the CAISO peak load and the associated costs, and 55
hours could reduce 10 percent of its peak load (Goodin, 2008).
Event frequency and the value of demand response can vary substantially when targeted to
load balancing and other ancillary service applications. Where bulk power reliability and
economic applications may prescribe a maximum of 10 to 15 events per year with durations of 4
to 8 hours each, ancillary service applications may necessitate 80 to 120 events per year with
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Coordination of Energy Efficiency and Demand Response
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durations of 10 to 20 minutes each. The customer impacts, communication and equipment
options, and approach to coordination of demand response and energy efficiency will be quite
different under these two applications.
Limits on the number of hours that customers can be called for demand response programs
reflect the limitations of current demand response technologies and capabilities and perceived
customer acceptance. As long as customer demand response involves disruptive activities like
dimming lights, raising temperatures, or shutting down production operations, participating
customers will want strict limits on the extent to which they can be subjected to such
inconvenience. These limits have two consequences. First, they affect the degree to which
system operators can count on the availability and magnitude of demand response resources
for reliability operations. Second, they highlight the value of evolving automation, monitoring,
and control technologies for building and energy use process management. As these control
systems are integrated and aggregated across multiple facilities and energy applications, they
can be operated in a fashion that makes demand response less obstructive and inconvenient for
the customer (particularly if demand response resources are aggregated by a load aggregator).
At that point, operational limits on the amount of demand response resources that grid operators
are willing to include in ancillary service markets may become less restrictive, and demand
response could be used more broadly as a tool for reliable power system operations.
Figure 2-1. Reliability-Based Demand Response: California ISO Opportunity
60,000
50,000
1 40,000
"O
c
E 30,000
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Table 2-4. PG&E's Demand Response Programs for Business Customers
Program Name
Description (Partial)
Incentive- or Event-Based Demand Response
Base Interruptible Program
Provides monthly or per-event incentives for curtailing load with
either 30-minute or 4-hour advance notification. Curtailments
limited to 120 hours per year.
Capacity Bidding Program
Offers monthly payments from May through October for
curtailing nominated load on either a day-ahead or day-of basis,
up to 24 times per month, when load conditions require the use
of generators with heat rates of 15,000 Btu/kWh or greater.
Demand Bidding Program
Provides payments of $0.50-0.60 per kWh to customers who
submit day-ahead or day-of offers to curtail load.
Optional Binding Mandatory
Curtailment Plan
Allows customers to be exempt from rotating outages in return
for agreeing to reduce load by 5 to 15 percent within 15 minutes
of notification.
Peak Choice
Allows customers to customize their demand response by
selecting from a range of advance notice, timing, load reduction,
and number of day options, where incentives are determined by
option combinations.
Scheduled Load Reduction
Program
Pays $0.10 per kWh for commitments to reduce load one to
three times per week, 4 hours at a time, from June through
September.
SmartAC
(Air Conditioner Load Control)
Offers $25 to customers who allow installation of either an air
conditioner compressor switch or a smart thermostat that can be
used to control load up to 100 hours per year when CAISO
declares emergency or near-emergency conditions. This
program is also offered to residential customers.
Price-Based Demand Response
CPP
Provides lower rates during on-peak and partial-peak hours in
exchange for higher (three to five times normal) rates on up to
12 days between May and October when system demand is
high.
Demand Response Technical Assistance
Technical Assistance and
Technology Incentive Programs
Provide engineering assistance and cash incentives to support
installation of equipment or software supporting demand
response.
Integrated Energy Audit
Offer audits that comprehensively address opportunities in
energy efficiency, time of use management, demand response,
self-generation, and renewables.
Sources: ;
.
Btu = British thermal unit; CAISO = California ISO; CPP = critical peak pricing; kWh = kilowatt-hour.
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The event- vs. non-event-driven distinction is important. Customers and program administrators
alike are usually referring to event-driven programs when they talk about demand response.
(Our interviews with customers, which are discussed later in this paper, reflect this distinction.)
On a conceptual level, critical peak pricing (CPP) and real-time pricing (RTP) are under the
demand response umbrella, but these options often are discussed and treated separately from
discussions about event-driven demand response program options. However, when high
wholesale prices or reliability shortages are used as the activation variable for event-driven
demand response options, they are proxies for and may be highly correlated with high prices in
the real-time energy market.
Most demand response programs are sponsored by electric utilities; in some markets they are
sponsored by ISOs. Customers can participate directly with the utility or ISO, or they can work
through an intermediary. The intermediary role is commonly filled by firms specializing in
demand response services, sometimes called curtailment service providers (CSPs) or simply
"aggregators." In states with retail energy competition, retail service providers may serve as
intermediaries in addition to supplying commodity electricity and gas.
When customers participate in demand response, there are three possible ways in which they
can change their use of electricity (DOE, 2006):
• Customers can forego or reduce some uses of electricity. Raising thermostat settings,
reducing the run time of air conditioners, dimming or reducing lighting levels, or taking
some elevators out of service are common customer load curtailment strategies.
• Customers can shift electricity consumption to a time period outside the demand
response event or when the price of electricity is lower. For example, an industrial facility
might employ storage technologies to take advantage of lower cost off-peak energy,
reschedule or defer some production operations to an overnight shift, or, in some cases,
shift production to companion plants in other service areas. Similarly, with enough
notice, commercial or residential customers could pre-cool their facilities and shift load
from a higher to lower cost time period. Residential and commercial customers could
also choose to delay running certain appliances until prices are lower. Most successful
demand response programs have a customer override capability that allows the
customer to choose not to adjust its energy use when a specific demand response event
is called.3
• Customers can self-generate electricity using onsite standby generating equipment,
thus reducing their reliance on utility-delivered power.4
^ Options
From a conceptual perspective, distinctions between energy efficiency and demand response
are somewhat artificial and not always as well understood as they may seem to program
administrators. Figure 2-2 depicts efficiency and demand response as more of a continuum and
shows the potential impact on customer service levels. The customer's existing building and
equipment infrastructure establish the opportunities and potential for both energy efficiency and
demand response.
In Figure 2-2, the progression of customer options from left to right presumes that the customer
should begin first with "daily energy efficiency" improvements. Succeeding stages involve more
sophisticated demand response behavior on shorter timescales, likely requiring additional
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investment to execute real-time or "fast demand response" options (which the power system
views as ancillary services, such as spinning reserves). To the degree that it is cost-effective to
do so, making the underlying infrastructure as efficient as possible creates permanent load
reduction impacts.
Figure 2-2. Conceptual Perspective of Efficiency and Demand Response
Source: DRRC, 2008.
The "daily energy efficiency" category of actions in Figure 2-2 incorporates both short-term
conservation actions and long-term investments in energy efficiency. While it is always desirable
that customers undertake all appropriate efficiency investments and behaviors before they
undertake load management and demand response activities, it is not always feasible for them
to do so. There are many well-documented barriers to energy efficiency, including limited
funding, the split between owners and beneficiaries, lack of information, and extended payback
periods, among others (National Action Plan for Energy Efficiency, 2006). Thus, it is common for
a customer to enter into a demand response opportunity because it is available and feasible,
even though further efficiency improvements could be made. In fact, the wide spectrum of
unfinished efficiency has created many current demand response opportunities; for instance,
inefficient buildings and inefficient, uncommissioned heating, ventilating, and air conditioning
(HVAC) systems create a large resource for demand response providers who offer peak load
reduction strategies. While efficiency-driven load reductions often improve overall electric
system effectiveness, they may also reduce the degree to which electricity uses remain
available for cost-effective demand response.
2-8 Coordination of Energy Efficiency and Demand Response
Service Levels
Optimized
Time of Use
Optimized
Service Levels
Temporarily Reduced
-------
Figure 2-2 also illustrates that end-use customers have a range of options for managing their
electric service requirements and costs: they can invest in energy efficiency, manage the timing
of discretionary energy use, or participate in a variety of demand response activities. Movement
along the continuum tends to be incremental—signing up for a TOU rate may incent a customer
to shift loads to off-peak hours to achieve "daily peak load management," taking actions such as
changing air conditioner settings and setting a pool pump to operate off-peak. Integrating or
"embedding" demand responsive controls in the basic electronics of an appliance can also
facilitate movement along this continuum. For example, air conditioners or water heaters with
embedded demand responsive controls can be designed to automatically provide day-ahead
and real-time response capability.
Key attributes and distinguishing features of various customer options include the required
frequency of response, underlying motivation and drivers, required customer actions, supporting
infrastructure required to enable customers to participate, and potential impact on level of
energy services (see Table 2-5). Daily peak load management involves efforts by customers on
tariffs that include demand charges (typically commercial and industrial customers) to minimize
peak demand usage (see middle column of Table 2-5). Some customer demand-side strategies
blend elements from more than one customer option. For example, storage, a strategy that
shifts loads using active thermal storage or passive building-mass storage, can be used either
for daily peak load management or for event-driven demand response (Kiliccote and Piette,
2005). Similarly, installation of energy-efficient equipment or appliances may reduce the
customer's peak demand charge and typically reduces the peak demand on the utility system.
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Table 2-5. Customer Options for Managing Electric Service Requirements and
Costs
Attributes
Energy Efficiency
Daily Peak Load
Management
Demand Response
Why Participate
¦ Bill savings
¦ Energy savings
¦ Highest
environmental
benefits
¦ Bill savings
¦ Likely
environmental
benefits
¦ Bill savings
¦ Improve reliability
¦ Potential
environmental
benefit
Equipment or
Infrastructure
Required
¦ Energy-efficient
equipment
¦ Energy-efficient
building
infrastructure (e.g.,
insulation levels,
high-efficiency
windows)
¦ Timers and controls
¦ Energy storage
¦ Remote control
switch
¦ Embedded controls
¦ Building EMS
¦ Communications
¦ Standby generation
Who Buys/Owns the
Infrastructure or
Equipment
Customer
Customer
¦ Utility owns control
switch
¦ Customer owns
EMCS
Required Customer
Actions (What must be
done to participate?)
¦ Purchase
¦ O&M
¦ Purchase
¦ O&M
¦ Shift loads
¦ Limiting loads
¦ Shifting loads
¦ Shedding loads
¦ Displacing grid
power
(Any/all of the above)
Who Controls
Customer
Customer
For event-based
demand response:
¦ Distribution utility
¦ ISO
¦ Aggregator
(depending on
program option)
For price-based
demand response:
¦ Customer
Impact on Energy
Services (How does
participation affect
comfort, production
levels, etc.)
None
None to slight
Barely noticeable to
substantial
Source: Adapted and expanded from Motegi et al. 2007.
EMCS = energy management control system; EMS = energy management system;
ISO = independent system operator; O&M = operations and maintenance.
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2.4 How Energy Efficiency and Demand Response Overlap
Energy efficiency programs yield energy savings, and demand response programs yield
reductions in demand at critical times, which usually correspond to times of peak power demand
(although demand response events can be triggered by occurrences at non-peak times, such as
transmission problems). But the programs have overlapping effects: energy efficiency can
permanently reduce demand, and demand response, with proper control strategies, also
produces some energy savings.
Energy Efficiency's Effects on Demand
The effect of energy efficiency on electricity demand is clear. Buildings and equipment that use
less energy (fewer kilowatt-hours) because they are more efficient impose smaller power loads
(lower kilowatts of demand) on the system. Over 20 years of data on efficiency programs
document this effect. Because the majority of technologies that are promoted by energy
efficiency programs (e.g., lighting, air conditioning) operate during hours of peak demand—
typically hot summer afternoons across most of the United States—they contribute to reductions
in system peak (York and Kushler, 2005).
Demand Response's Effects on Energy Consumption
Whether demand response programs provide energy savings depends on the customer strategy
chosen and the timing of the response. As mentioned above, customers participating in demand
response can forego electricity consumption, shift it to another time, or displace grid power with
self-generation. A commercial building customer that participates in a demand response
program might dim its lighting when an event is called; because there is no opportunity to "make
up" the lost light output, there is a net reduction in energy usage.5 With sufficient advance
notice, that same building might shift some of its load from peak to off-peak hours by using its
air conditioning system to pre-cool the building in the early morning hours and letting the
temperature rise above the normal setting during peak hours; many pre-cooling strategies
reduce both energy usage and peak load (CEC, 2006).6 Engaging self-generation for demand
response does not, in and of itself, produce any energy savings at the customer end but may
reduce load on the utility's system.7
York and Kushler (2005) reviewed studies addressing the effect of demand response programs
on overall energy efficiency and found that, while some studies have suggested that demand
response programs generally yield energy savings, most descriptions of this effect are
anecdotal and have not been carefully evaluated. This suggests a need for more systematic
evaluations of the energy savings impacts from demand response programs.
King and Delurey (2005) conducted a meta-review of studies and reported that dynamic pricing
(including TOU rates, RTP, and CPP) produced an average savings effect of 4 percent of
energy used, while reliability-oriented demand response programs, generally corresponding to
the incentive-based programs in Table 2-2 and operating less than 100 hours per year, reduced
energy consumption by 0.2 percent. They found stronger savings effects, on the order of 11
percent, among information/feedback programs, which provide customers with usage
information over the Internet or via in-home displays but do not involve equipment controls or
commitments to reduce load when called upon.8 The range of effects reported in the studies
they reviewed varied considerably, from -5 percent (i.e., an increase in consumption) to savings
in excess of 20 percent. A 2007 update added a few data points, further supporting savings
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effects of 3 to 5 percent for pricing-based demand response programs. One new information-
only program reported savings of 6.5 percent (Nemtzow et al., 2007).
To summarize, most demand response programs are likely to either produce some energy
savings or have no net effect on consumption. Although certain demand response strategies
and technologies may increase energy consumption during off-peak hours, and in limited cases
may increase total energy consumption, this is not necessarily a drawback—increased off-peak
usage is less costly for the electric system and society as a whole, improving plant performance,
decreasing fuel use, generating lower line losses, and potentially mitigating congestion in the
transmission and distribution system.
Energy Efficiency, Demand Response, and Environmental Impacts
There is extensive documentation on the environmental benefits of energy efficiency, recounting
the fact that with every unit of electricity not generated, the nation reduces its consumption of
energy resources, air pollutant emissions, water use, and associated land uses. The
environmental impacts of demand response are less conclusive because (1) the effects are
specific to the time and place where energy use was avoided and (2) the effects depend on
whether the electricity use was offset to another time—and if so, what power sources were used
to generate that electricity.
Various considerations affect whether a specific demand response measure offers net
environmental benefits or costs:
• If demand response is used to shift electricity use from on- to off-peak, it may cause a
net reduction (or increase) in air emissions. The environmental impact of a demand
response-driven load shift will be determined by local utility and regional generation
portfolios used during peak and off-peak periods (e.g., nuclear, coal) and actual
operations during the demand response event.
• Some demand response measures have small "rebound" or "snap-back" effects, in that
after the load reduction is over, the customer consumes more electricity to catch up for
the suppressed use (as with air conditioning). However, control improvements may soon
alleviate many of these problems.
• Some demand response measures may cause a net increase in the customer's energy
use, and that increase could negate any efficiency benefits from the electricity time shift.
• If demand response is used to integrate intermittent renewable generation in the future,
it can have a net environmental benefit because the additional wind, solar, and other
renewable sources are likely to displace fossil fuel-fired generation with higher emissions
of pollutants such as nitrous oxides, sulfur oxides, and carbon dioxide.
• Substituting onsite fossil fuel-fired self-generation (e.g., diesel-fired generators) for grid-
supplied power may cause a net increase in fuel use and local air pollution.
As smart grid technologies, widespread energy price and use information, and dynamic rates
become more accessible for consumers, these tools that facilitate demand response will also
enable customers to become more energy-efficient and deliver greater overall environmental
benefits from this synergy.
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2.5 Notes
1 For more information on energy efficiency program types, see National Action Plan for Energy
Efficiency (2006) and National Action Plan for Energy Efficiency (2009).
2 The difficulty for the utility or ISO is targeting the limited events or hours of control to the right time
period to obtain customer response when needed and to make sure the annual allocation of demand
response resources is not exhausted prematurely.
3 Shifting energy usage may increase or decrease total emissions from electricity, depending on
regional differences in types of generators used.
4 Onsite generation avoids emissions from supply-side generators but has adverse effects on local air
quality when fossil fuel backup generators are used.
5 Additionally, dimming lights may reduce air conditioning requirements, further reducing peak load and
consumption.
6 In some cases, a pre-cooling strategy might increase overall energy consumption even while curbing
the peak. However, research by the Demand Response Research Center and Purdue University has
identified pre-cooling strategies that reduce energy usage and peak load.
7 The net effect of self-generation on fuel consumption depends on the efficiency of onsite generation
relative to that of grid-supplied power, including the effects of transmission and distribution losses.
8 King and Delurey (2005) consider information/feedback programs a form of demand response.
Referring back to DOE's definition of demand response, which we have adopted for this paper, pure
information/feedback programs fall outside the scope of demand response because they do not
involve changing price signals or providing incentives to motivate changes in usage. The systems and
devices used in information/control programs, however, can be used as enabling technologies in
demand response programs.
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3: What Might Coordination of Energy Efficiency and
Demand Response Look Like?
As envisioned in the Action Plan's Work Plan, coordinating energy efficiency and demand
response is worth exploring because it could provide customers with "increased tools... to
understand and manage and reduce their electricity use" (National Action Plan for Energy
Efficiency, 2007). From the customer perspective, coordinating energy efficiency and demand
response provides an opportunity to make better use of their time and consider operational
changes and investments that minimize their total energy costs. We therefore looked at
coordination primarily in terms of what it would mean for retail customers, and we also
examined the programs and services retail customers can take advantage of.
3.1 Types of Coordination
Energy efficiency and demand response could be coordinated at the customer level in at least
four ways:
• Combined program offerings. Customers could be presented with both energy
efficiency and demand response opportunities; separate programs are the norm today.
• Coordinated program marketing and education. Wthout merging the delivery of
services at the program level, program sponsors (e.g., utilities, state energy agencies)
could package and promote energy efficiency and demand response in a closely
coordinated or unified way. There is some activity along these lines occurring through
regulatory and utility initiatives. Energy efficiency and demand response can be
complicated topics that require sophisticated customer effort and action, so program
marketing must include a strong educational component. Program sponsors could offer
education that addresses both topics under a broad energy management theme.
• Market-driven coordinated services. Coordination need not occur only within the
context of programs offered by utilities, public benefit organizations, or ISOs.
Coordination of energy efficiency and demand response could also come about through
the initiative of private firms that find a market among customers who are interested in
reducing their energy costs. Our research and interviews with selected ESCOs and
CSPs suggests that they are interested in this approach; we describe their initial steps in
this direction.
• Building codes and appliance standards. Building codes and appliance efficiency
standards can incorporate preferred energy efficiency and demand response features
directly into building design and infrastructure and appliance designs. Building these
features into the building and appliance infrastructure through codes and standards can
lead to significant reductions in the costs to customers of integrating efficiency and
demand response strategies and/or measures. For example, global temperature
setback,1 OpenADR,2 and standard reference designs that facilitate embedded controls
in appliances can lower the customer's cost of integrating demand response and energy
efficiency.3
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Coordination could (and does) occur in other ways that are mainly upstream from the retail
service level. For example, utilities could (and often do) utilize coordinated planning processes,
such that they choose target levels of energy efficiency and demand response resources in a
unified process rather than separate planning processes. Energy efficiency and demand
response efforts could be (and often are) funded from a single budget rather than separate
budgets, and program staff members could be (and in some cases are) trained to provide
customer assistance in both energy efficiency and demand response. These types of
coordination play supporting roles; ultimately, their purpose is to affect the choices that
customers have for managing and reducing their energy use, which is why our primary focus in
this study is on retail-level coordination.
3.2 Examples of Coordinrlr -v —Cur : - t nl:v.
Combined Programs That Provide aotli Energy ZZf.iciogwy asid
Currently, energy efficiency and demand response are seldom combined at the program level.
To help uncover combination programs, DSMdat™, an E Source database of programs in the
United States and Canada, was analyzed. Programs listed in DSMdat are tagged with their
apparent purpose—energy efficiency, demand response, peak load management,4 or multi-
purpose—based on analysts' interpretation of program descriptions and marketing materials
posted on the sponsors' Web sites.
As of December 2009, out of 2,016 active programs in DSMdat, just 56, or 3 percent, are
tagged as serving more than one purpose (see Figure 3-1). The vast majority of those
combination programs are ones that subsidize installation of energy efficiency equipment,
provided it can be shown that the equipment will reduce the customer's peak load during the
likely peak hours (for example, from 2 to 5 p.m. during summer afternoons). In other words, they
support energy efficiency and daily load management (as described in Table 2-5) rather than
demand response. In short, DSMdat confirmed that there are very few points of intersection
between today's energy efficiency and demand response programs.
Using the detailed program entries in DSMdat plus Web and literature searches, we found
several existing programs that clearly combine energy efficiency and demand response (as
distinct from load management) objectives. For example:
• Many residential "smart" thermostat programs provide customers with programmable
communicating thermostats (PCTs)—an energy efficiency technology—in return for
participation in a demand response program that curtails load during a limited number of
summer hours by raising the thermostat's set point. Such programs are offered, for
example, by Austin Energy,5 Kansas City Power & Light,6 Long Island Power Authority,7
and many other utilities, a few of which also allow businesses to participate.
• PG&E's Integrated Energy Audit is a program for businesses that encompasses analysis
of energy efficiency, load management, demand response, distributed generation, and
renewable energy opportunities.8
• PG&E's Federal Advanced Lighting Technology Program works with U.S. government
agencies to maximize savings through installation of high-efficiency lighting systems that
can also be controlled for demand response.9
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Figure 3-1. Distribution of Energy Efficiency, Demand Response, and Peak Load
Management Programs
Load
Management Multi-Purpose
Massachusetts, launched in spring
2008, jointly markets energy
efficiency, demand response, and
distributed generation (photovoltaic
systems) to residential and business
customers in one community to
alleviate overloading of the local
distribution system (see sidebar, "The
Marshfield Energy Challenge").
• The New York State Energy Research
and Development Authority
(NYSERDA) Existing Facilities
Program offers incentives for
prequalified measures and
performance-based incentives to
customers or ESCOs for electric and
gas efficiency and incentives that
partially offset the cost of equipment
that enables demand response (e.g.,
load-shedding controls and
automation equipment, load-shedding
ballasts if enrolled in a New York ISO
[NYISO] demand response
program).10
The Marshfield Energy Challenge
With funding from the Massachusetts
Technology Collaborative, NSTAR has
launched a pilot project in the town of
Marshfield, Massachusetts, aiming to test
whether an intensive program of energy
efficiency and demand response can improve
the reliability and capacity of the local 25 MW
distribution network. The program aims to
provide energy efficiency services to 1,200
homes and 100 businesses. Five hundred
customers will be enabled for demand
response via smart thermostats. Additionally,
30 photovoltaic systems with a projected
capacity of 250 kWwill be installed. NSTAR
has obtained extensive community involvement
in the design of the program and has developed
a coordinated marketing approach, including
local newspaper ads, local radio spots, direct
mail, an energy program curriculum in the
schools, and presence at town events. To rally
support, the entire effort is named "The
Marshfield Energy Challenge" and even
includes its own logo (NSTAR, 2008).
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• Sacramento Municipal Utility District (SMUD) implemented the Small Business Summer
Solutions Research Pilot in summer 2008, targeted to small commercial customers with
peak demands less than 20 kW. The demand response component provided customers
with critical peak rates, options to install PCTs, and a variety of pre-cooling and
conventional control strategies. Pre-project focus groups indicated that customers
understood basic demand response concepts; however, the customers' highest priority
was for assistance in reducing energy use. SMUD capitalized on this need in its
marketing by offering to help customers reduce their energy use if the customer would in
turn help SMUD by volunteering for the demand response pilot. As a first step, SMUD
technicians performed energy audits and provided advice to each customer regarding a
range of lighting, efficiency, and conservation options. The integrated efficiency/demand
response approach was very successful, and SMUD reported a 23 percent reduction in
weather-adjusted energy use (see Table 3-1), along with a 20 percent reduction in
average peak load on critical peak event days, with no load rebound measured on top of
the reduced energy baseline (Herter, 2009).
Table 3-1. Sacramento Municipal Utility District Small Business Summer
Solutions: Energy and Demand Impacts
Business
Type
Program
Option
Monthly Energy
Savings
Peak Period
Demand Impact
Monthly
Bill Savings
kWh/
Month
Weather
Adjusted
% 2007
Baseline
Average
Peak kW
Reduced
% 2008
Baseline
Energy
Efficiency
Demand
Response
Total
Office
4 ACC
254
-27%
-0.8
-38%
$29
$10
$39
CPP
344
-32%
-0.6
-24%
$39
$7
$46
Retail
4 ACC
254
-15%
-0.8
-22%
$29
$10
$39
CPP
344
-19%
-0.8
-14%
$39
$7
$46
Combined
316
-23%
-0.7
-20%
$36
$8
$43
Source: Herter, 2009.
ACC = air conditioning control; CPP = critical peak pricing.
• The City of Ames Electric Service requires customers to agree to participate in its Prime
Time Power air conditioner load control program to receive ENERGY STAR incentives
for purchasing more efficient air conditioners. In some cases, the control equipment is
installed on the air conditioner before the unit leaves the store. This approach simplifies
marketing and recruitment for the utility, and it also reduces their installation costs. It
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also integrates the energy efficiency and demand response incentives, which
encourages customers to consider upgrading to even more efficient units.
Other utilities are planning to offer combination programs. For instance, an integrated resource
plan filed jointly in January 2008 by Connecticut Light & Power and United Illuminating (The
Brattle Group, 2008) envisions two business-sector programs that will deliver both energy
efficiency and demand response to begin in 2009:
• Business Energy Services. "The goal of this program is to provide a holistic, one-stop
energy solution to businesses through integration of energy efficiency, load
management, load response, direct load control, distributed generation, renewable
energy systems, CHP [combined heat and power] and other initiatives..."
• Business Energy Challenge. "This program calls for businesses to make commitments
to aggressive energy efficiency and load reduction goals... In exchange for accepting
this energy challenge, businesses will receive a custom tailored package of the entire
CEEF [Connecticut Energy Efficiency Fund] conservation and load management
offerings into one cost-effective bundle, technical consulting services, and other support
necessary to make the transition."
The California Public Utilities Commission (CPUC) issued a long-term strategic plan for energy
efficiency that includes a goal for demand-side management (DSM) coordination and
integration: "Deliver integrated DSM options that include efficiency, demand response, energy
management, and self-generation measures through coordinated marketing and regulatory
integration" (CPUC, 2008).
Continuation and expansion of pilot programs that explore strategies to integrate and coordinate
efficiency and demand response is one of four overarching strategies listed by the CPUC to
achieve the DSM integration goals (CPUC, 2008). These pilots "will offer a bundled product that
includes elements of energy efficiency and conservation, customer generation, demand
response, and the best available AMI [advanced metering infrastructure] technology" (CPUC,
2008). In their 2009-2011 program filings, the California investor-owned utilities proposed a
number of pilot programs in response to this CPUC strategic priority.
There are likely other integrated energy efficiency-demand response programs underway that
have not been widely publicized. The roster of DSM programs undergoes continual change, but
to date the number of current programs that combine energy efficiency and demand response
elements is relatively small.
3.3 Marketing That Ties Together Energy Efficiency and Demand
Response Programs
Even while maintaining distinct energy efficiency and demand response programs, program
sponsors can achieve a measure of coordination through marketing that combines both types of
offerings.
Utility interviews conducted for this study revealed examples of utilities marketing separate
energy efficiency and demand response programs in a coordinated fashion. One approach
involves using key account managers—the utility representatives who handle relationships with
the utility's larger commercial, industrial, and institutional customers. Key account managers are
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well-positioned to market both energy efficiency and demand response services to their
assigned customers. "Our customer people can walk into a facility and talk about our entire
portfolio of energy efficiency and demand response," according to an Otter Tail Power
executive.
Reaching beyond the subset of customers served by key account managers, sponsors can unify
their presentation of programs to the entire customer base through advertising and messaging
that covers both types, sometimes under an "umbrella" name or slogan. Some examples:
• Austin Energy recently adopted "Power Saver Program" as the name for its entire
program portfolio of energy efficiency and demand response programs.
• Duke Energy is using the name "Save-a-Watt Plan" for the energy efficiency and
demand response programs it has proposed or is implementing in several jurisdictions.
• NYSERDA has for years used "New York Energy Smart" as the umbrella name for its
energy efficiency and demand response programs.
• Otter Tail Power strives to use complementary messages for energy efficiency and
demand response, and sometimes "doubles up" its advertising to cover both types of
programs.
• Xcel Energy markets both energy efficiency and demand response as "environmental
programs that will save you money."
• All of Texas's electric utilities market a peak demand-targeted load curtailment program
(called the Load Management Standard Offer Program) to commercial customers in
conjunction with a suite of energy efficiency programs.11
These marketing and branding strategies ignore the distinctions between energy efficiency and
demand response. Instead, the pitches focus on broader objectives that resonate with
customers—saving energy, saving money, helping the environment—because it is believed that
most customers do not care which "bin" a program falls in (nor should they). However, it is not
clear whether all utilities that are marketing and branding energy efficiency and demand
response together are designing and offering the underlying energy efficiency and demand
response programs in ways that are coordinated to help both the utility and its customers.
Additionally, some utilities are using the term "energy efficiency" internally and externally to
describe the full breadth of their DSM programs. Austin Energy, for example, changed the name
of its Demand-Side Management Division to the Energy Efficiency Division. Duke Energy
describes all of its proposed programs as energy efficiency efforts, and they are managed by its
Energy Efficiency business unit. Even though it may not be the most technically accurate term,
energy efficiency is believed to have more favorable associations for customers than "demand
response," "load management," or "demand side management."12
In California, the CPUC Energy Efficiency Strategic Plan proposes a strategy to "carry out
integrated marketing of DSM opportunities across all customer classes," with utilities conducting
the following near-term implementation activities (CPUC, 2008):
• Adopt marketing integration plans by sector.
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Coordination of Energy Efficiency and Demand Response
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• Streamline and integrate energy efficiency, demand response, and distributed
generation program outreach.
• Coordinate integrated marketing with AMI deployment.
• Offer technical assistance and audits that address combined DSM opportunities.
3.4 Market-Driven Coordination by Service Providers
Commercial and industrial energy management services represent a well-established offering
from building control and energy management system (EMS) vendors, energy and facility
management companies, and ESCOs. Historically, energy management services generally
focused on maintaining facility operating conditions and providing energy efficiency and other
options to minimize customer utility costs. ESCOs expanded this role by pioneering the use of
energy savings performance contracts (ESPCs), which use verified energy savings as the basis
for financing customer investment in new, more efficient systems and equipment (or onsite
clean energy options). In performance contracts, ESCOs have to verify and document multiyear
energy savings that result from installing a broad set of measures/strategies; the customer uses
the value of these savings to make debt service payments on its contract with a third-party
financial institution. In terms of size, the U.S. ESCO industry had annual revenues of
approximately $3.6 billion in 2006, with energy efficiency accounting for about 75 percent of
those revenues—and renewables, onsite generation, and consulting accounting for the
remaining 25 percent.13
Starting in the early 1980s, a number of utilities offered "group load curtailment" programs that
were developed and implemented by third-party aggregators as part of utility load management
portfolios. These programs were the genesis for today's third-party demand response
aggregators—CSPs. CSPs grew with the recent expansion of ISO/regional transmission
organization (RTO) and utility demand response programs after 2001. There are about 40 active
CSPs that are committed to providing more than 10,000 MW of peak demand reductions to
ISO/RTOs (and utilities).14
A number of ESCOs and CSPs are currently assessing how to adapt and enhance their existing
business models to coordinate energy efficiency and demand response in their service
offerings. Interviews with selected ESCOs and CSPs indicated that "total energy management"
(TEM) (i.e., integrating energy efficiency and demand response) is an attractive concept for
many commercial, institutional, and industrial customers. Providing TEM involves optimizing
energy management control systems (EMCS) and strategies to manage and control facility
energy use, minimize peak demand charges, and maintain comfort conditions; providing energy
information services; and serving as the customer's energy advisor. However, both ESCOs and
CSPs acknowledged that these enhancements to their existing business models are in their
infancy.
For example, CSPs stated that demand response provides the "foot in the door" to engage with
customers, and that some customers have used revenues from participating in demand
response programs to fund energy efficiency improvements. A few CSPs said that their
organizations were expanding and providing energy efficiency services through acquisitions of
companies that provide energy efficiency services. One CSP is offering a monitoring-based
commissioning service to large commercial and institutional customers. Through this service,
the CSP analyzes interval meter, EMCS, and energy information system (EIS) data to provide
demand response services and identify energy efficiency opportunities.15
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Several ESCOs indicated that their energy efficiency products are regularly used for building
automation and temperature control in buildings, and that existing high-efficiency EMCS or
controls typically have demand response capabilities. However, the ESCOs have historically not
emphasized or marketed demand response as a key feature of EMCS. A few ESCOs were
exploring partnering arrangements with CSPs as a way to become more familiar with demand
response programs in organized markets, as well as examining strategies to more effectively
integrate energy efficiency and demand response. The interviewed ESCOs view demand
response as a niche market with a relatively steep learning curve, given varying market rules
and program participation requirements in organized wholesale markets and the fact that fewer
customers are familiar with demand response compared with energy efficiency.
3.5 Developments in Wholesale Markets That Facilitate Coordination
of Energy Efficiency and Demand Response
While this study focuses primarily on opportunities for effectively coordinating energy efficiency
and demand response at the retail level, recent developments in organized, wholesale, forward
capacity markets offer new opportunities for customers and service providers to offer load
reductions from energy efficiency investments and/or demand response capabilities to offset
grid capacity requirements.
In December 2008, ISO-New England (ISO-NE) reported the results of its 2011/2012 electric
capacity auction, where nearly 3,000 MW of demand resources won capacity contracts. The
market rules define demand resources by the way in which they reduce load, not by the
technology used to achieve load reductions. ISO-NE recognizes five types of demand
resources. Critical Peak, Real-Time, and Real-Time Emergency Generation require participants
to be "dispatchable" and primarily include demand response resources. On-Peak and Seasonal
Peak are designed for non-dispatchable measures and include energy efficiency. Energy
efficiency resources accounted for about one-third (approximately 980 MW) of the total demand
resource commitment.
In May 2009, PJM announced results of its electric capacity auction for the 2012/2013 capacity
year and reported that demand resources will increase its contribution by 5,680 MW, to 7,050
MW in total.16 For the first time, energy efficiency resources were explicitly eligible to participate
in this auction, with PJM accepting 569 MW of efficiency resources.
Market rules require load aggregators to treat and account for different types of demand
resources separately for purposes of measuring and verifying load reductions. As a result, load
aggregators end up bidding demand response and energy efficiency resources separately to
ISO-NE and PJM. The ISO/RTO program rules do not prevent load aggregators from jointly
marketing both energy efficiency and demand response services to customers, but as a
practical matter, the separate tracking and measurement and verification of savings for different
types of demand resources creates additional challenges for load aggregators.
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3.6 Notes
1 In 2008, the California Energy Commission (CEC) adopted global temperature setback as a Title 24
nonresidential standard and required that temperature settings in all zones in a commercial building be
controllable from a single central point. This facilitates the centralized automation of demand
response.
2 CEC is considering OpenADR under Title 24 to mandate that all targeted commercial buildings have
the capability to receive price, reliability, and event signals via the Internet or other standard
communications media.
3 Some energy efficiency strategies that can be incorporated into building codes may reduce the need
for demand response because they reduce the need for peak load reductions to remedy building-
design-based temperature extremes. These strategies include building orientation and other passive
solar design features, daylighting, high-efficiency windows, and enthalpy standards.
4 "Demand response/load management" is a single tag in DSMdat. A program is tagged with this
description if the stated purpose is load reduction (either continually or during demand response
events) or if there is a requirement that energy efficiency measures installed underthe program
provide load reductions during system peak hours.
5 See .
6 See .
7 See .
8 See .
9 See
.
I n
See .
II See .
12 A 2007 national survey found that the term "demand response" elicits negative connotations in a large
percentage of consumers. Adjectives respondents selected to describe demand response included
"unpopular" (44 percent), "annoying" (42 percent), and "unhelpful" (40 percent). In comparison,
"energy conservation," "energy efficiency," "smart energy," and "clean energy" were rated much more
positively (Cogar, 2007).
13 See Hopper et al. (2007). There are about 40 ESCOs that offer performance contracting in the United
States, although eight to 10 firms account for 75 to 80 percent of the revenue and projects.
14
Many CSPs only work in organized markets (e.g. PJM, ISO-NE, NYISO), and many of these
companies are relatively new and small.
15 See .
16 One reason for the sharp increase in demand response contribution in PJM's Reliability Pricing Model
was PJM's elimination of the Interruptible Load for Reliability product beginning in the 2012/2013
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capacity year. This action drove load aggregators with several thousand megawatts of demand
response into the forward-capacity market.
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4: Enabling Technologies for Energy Efficiency and
Demand Response
The capability and potential for energy efficiency and demand response at a customer's facility
are derived from a combination and interaction of four distinct elements: the building
infrastructure, building electro-mechanical systems, appliances, and customer behavior. New
technology and systems integration are key building blocks to enable greater coordination of
efficiency and demand response (CPUC, 2008). To illustrate the potential promise of enabling
technology to facilitate coordination of demand response and energy efficiency, we describe
technology trends in selected customer market segments.
4.1 Residential Market
In the residential market, demand response technologies are evolving through a three-stage
process, with implications for coordination of energy efficiency opportunities.
• Stage 1: Retrofit control switches. Historically, utilities targeted selected loads like air
conditioners and water heaters through direct load control. The utility installed a control
switch on the customer's air conditioner or water heater that allowed the utility to cycle or
shed this load for relatively short time periods (e.g., several hours) during a system
event. The control switch adds a new demand response capability onto the existing
customer appliance.
• Stage 2: Replacement transition devices. PCTs, or smart thermostats, are an
example of a replacement transition device, replacing a customer's existing appliance or
control with one that has more utility as an energy efficiency and/or demand response
controller. Smart thermostats eliminate the need for a separate control switch and
provide a single point of integration between efficiency and demand response actions.
When properly set up to match occupants' daily schedules, smart thermostats provide
efficiency and conservation benefits by ensuring that heating and cooling systems
operate only as much as is needed to maintain the desired temperature. They provide
demand response capability by allowing a customer (or a utility or CSP, via a
communications channel) to adjust the occupant's temperature setting a few degrees to
curtail load.
Some smart thermostat models now include functionality to act like a bridge device or
repeater and pass price, reliability, and event signals on to other appliances and loads.
This capability lets smart thermostats act like small-scale, limited-purpose versions of a
building automation system (BAS).1 When produced in large volumes, PCTs have the
potential to reduce equipment costs for demand response devices and give customers
more control over load sheds and curtailments.
• Stage 3: Embedded controls. Appliance and white goods vendors are beginning to
incorporate demand response functional and engineering logic developed for smart
thermostats into other major residential appliances.2 For example, General Electric (GE)3
and Whirlpool4 have announced that they will provide their most efficient washing
machines, dryers, dishwashers, refrigerators, water heaters, range tops, and other
selected appliances with integrated electronics that provide customers with the capability
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to let them "listen" and respond automatically to price, reliability, and other demand
response event signals. Menus of built-in options will enable customers to automatically
shift or defer operations and to modify settings to take advantage of low-price periods.
Building embedded controls into manufacturers' highest efficiency products represents a
strong integration of energy efficiency and demand response. This move will
substantially reduce demand response equipment technology and installation costs,
while appliance-specific, factory-developed control strategies will make it easier for
customers to perform demand response operations customized to their family, lifestyle,
and business needs.
This approach should facilitate customer education because energy efficiency, demand
response, and efficiency capability become transparent functions of customer appliances. There
are also numerous efforts underway to develop complementary, low-cost energy monitoring
systems that further facilitate customer education. Google "Power Meter," Microsoft "Hohm,"
Greenbox, Tendril, Control4, OpenPeak, and several other companies are pioneering Internet-
based software and hardware to support customer monitoring and control.
The combination of these control technologies with better customer information about energy
costs and usage is expected to enable customers to adopt more energy-efficient behaviors and
invest in more energy-efficient end-use devices, as well as to participate in price- or event-
based demand response programs.
The "white goods" manufacturer and vendor community has indicated that embedded controls
are likely to be economically feasible if (1) there is widespread introduction of dynamic pricing to
create a market for demand response and a value function for consumers to purchase more
capable smart appliances and (2) policies are put in place that open the market to price
responsive demand, where customers, rather than the utility, determine what, when, and how to
respond.5
4.2 Comrrv :i>!
Automation is the key to commercial and industrial sector energy efficiency and demand
response, incorporating monitoring, communications, and control technologies. Many medium to
large commercial and institutional buildings have installed enabling technology that has the
potential capability to support both energy efficiency and demand response (see requirements
of ASHRAE 90.1 Energy Code). Facility managers typically use EMCS to manage and control
their HVAC and lighting loads. EMCS can provide efficiency and reduce energy costs by
monitoring equipment and enabling ongoing device control, turning equipment on or off at
appropriate times or modulating equipment operation. Another example of an EMCS function
that supports energy efficiency is "optimum start"—control of the HVAC system based on
weather conditions so that heating or cooling of the building occurs just in time to make the
building comfortable for the start of the work day. Similarly, specific HVAC control features (e.g.,
global zone reset, duct static pressure reduction) and lighting control options (e.g., central
dimming) can simultaneously support both energy efficiency and demand response (see Table
4-1). EMCS can effect daily load management, reducing demand charges by managing and
scheduling equipment loads. EMCS can also improve building equipment efficiency by using
monitoring and analytics to perform continuous commissioning, identifying any mis-performing
or broken equipment and maintenance needs. Continuous commissioning has been shown to
produce energy savings in building and equipment performance of as much as 10 to 15 percent.
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Coordination of Energy Efficiency and Demand Response
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Table 4-1. How Building Automation Systems (i.e., EMCS) Support Both Energy
Efficiency and Demand Response
Function: Energy Efficiency
Function: Energy Efficiency
and Demand Response
Function: Demand
Response
Lighting Control Features of BAS
¦ Centralized on/off
controls, timers
¦ Central dimming
¦ Bi-level/zonal switching
¦ Demand limiting
¦ Lighting sweep
¦ Overrides
HVAC Control Features of BAS
¦ Optimal start
¦ Variable speed drive
control
¦ Demand-controlled
ventilation
¦ Chilled water temperature
control
¦ Condensing temperature
control
¦ Cooling tower/evaporative
condenser fan control
¦ Global zone reset
¦ Duct static pressure
reduction
¦ Equipment lockout
¦ Pre-cooling
¦ Thermal energy storage
¦ Cooling reduction
¦ Fan, pump, or chiller
quantity reduction
Source: Based on Kiliccote and Piette, 2005.
BAS = building automation system; EMCS = energy management control system;
HVAC = heating, ventilating, and air conditioning.
In terms of demand response capability, building operators identify what they can do to reduce
load and put their buildings in "low power mode" during demand response events. These
actions are then programmed into their BAS, thus automating the customer's ability to curtail
and/or shift load in response to demand response events or high prices. Table 4-2 shows three
levels of demand response automation: manual, semi-automated, and fully automated. Even
though many large commercial and institutional buildings have EMCS with the capability to fully
automate and support both energy efficiency and demand response, the reality is that currently,
relatively few large buildings are operated in a fashion that optimizes performance to achieve
both energy efficiency and demand response objectives.
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Table 4-2. Levels of Demand Response Automation
Level
Uses
BAS?
How Response Occurs
Manual demand response
No
People manually turn off lights and equipment
when asked to do so.
Semi-automated demand
response
Yes
A person initiates a control strategy—
preprogrammed into the BAS—when a demand
response event is called.
Fully automated demand
response ("AutoDR")
Yes
Receipt of an external price, reliability, or event
signal automatically triggers a BAS control
sequence that switches the building to low-
power mode; no human intervention is
required.
Source: Based on Kiliccote and Piette, 2005.
BAS = building automation system.
California's Demand Response Research Center (DRRC) has pioneered an approach that links
utility or ISO/RTO price- and incentive-based demand response event signals directly to a BAS.
Through 2008, the three California investor-owned utilities reported 141 participating customers
enrolled in AutoDR, representing approximately 54 MW of dispatchable demand response
(DRRC, 2009).6 In aggregate, AutoDR peak load reductions are typically in the 10 to 20 percent
range, without any complaints of occupant discomfort (DRRC, 2006; Kiliccote and Piette, 2005).
AutoDR has significant potential as a demand response strategy, in part because of the
prevalence of BAS.7 AutoDR provides the facility manager with the capability to re-engineer the
existing building to better achieve efficiency and demand response objectives. AutoDR
facilitates coordination with energy efficiency because the facility manager can pre-specify
operational modes for high-efficiency performance and also specify "low power" modes that are
implemented in response to demand response event signals.8
4.3 Notes
1 BAS is also referred to as EMCS and EMS.
2 GE announced that it has re-engineered several of its appliances to further reduce their peak load
footprint and provide additional demand response control capability that allows them to automatically
change temperature settings or go into low-power mode.
3 See: GE "Smart" Appliances Empower Users to Save Money, Reduce Need for Additional Energy
Generation. .
4 See: Whirlpool Corporation to Make All Electronically Controlled Appliances "Smart Grid Compatible"
by 2015. .
5 Private communication with appliance vendors and GE testimony at the California Energy
Commission, Integrated Energy Policy Report Committee Workshop, Smart Grid Technologies to
Support California's Policy Goals, May 13, 2009.
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Coordination of Energy Efficiency and Demand Response
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6 Initial AutoDR pilot research was conducted from 2003 through 2006. In 2006 the CPUC issued a
ruling that effectively began the commercial rollout of AutoDR to the largest commercial and industrial
customers (>200 kW peak load) in the PG&E, Southern California Edison, and San Diego Gas &
Electric service territories.
7 As of 2003, nearly one-third of floor area in commercial buildings had a BAS (DOE, 2003); that
percentage is growing because BAS are common in new commercial buildings.
8 DRRC researchers cite several benefits of AutoDR: (1) more consistent load response; (2) decrease in
time needed to prepare for an event; (3) increased number of times building managers are willing to
participate in events; and (4) potentially larger demand reductions (DRRC, 2006).
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5: Constraints on Coordination of Energy Efficiency
and Demand Response
There are several reasons why coordinating energy efficiency and demand response may be
challenging and may not come about swiftly.
5.1 Some Market and Regulatory Structures Divide Responsibilities
and Funding for Energy Efficiency and Demand Response
Opportunities for coordinating energy efficiency and demand response among regulated entities
are heavily influenced by market structure and design and regulatory policies regarding the
administration of demand-side programs. For example, coordination of energy efficiency and
demand response is probably easiest for traditional, vertically integrated utilities that are subject
to integrated resource planning requirements and are responsible for procuring all demand-side
resources.
In some markets and states, however, responsibilities for administering energy efficiency and
demand response are divided. For example, ratepayer-funded energy efficiency programs might
be administered by state agencies (e.g., in Maine and New York) or third-party, non-utility
entities (e.g., in Vermont, Oregon, Wisconsin, Delaware, and Hawaii). In nearly all of these
states, utilities or ISOs are the primary entities administering demand response programs.
Coordination of energy efficiency and demand response is still possible under these institutional
arrangements, but it involves coordination across organizations that might require active
oversight and support by utility regulators.
Many states provide separate funding sources for energy efficiency and demand response.
Most of the states with a public benefits fund charge limit use of those funds to energy
efficiency. Demand response programs must be funded from other charges to ratepayers,
typically involving separate regulatory processes. For example, in California, some energy
efficiency programs are funded through a public benefits charge, where restrictions prohibit
energy efficiency dollars from being used to support demand response. In this situation, the
California utilities must obtain regulatory approval for their energy efficiency and demand
response programs in separate regulatory proceedings, and coordination of energy efficiency
and demand response requires utilities and other parties to adopt consistent approaches in
multiple regulatory processes.
In those states with retail competition, the choice of whether and how to offer energy efficiency
or demand response services may be wholly up to retail electricity providers and competitive
ESCOs rather than the regulated utility. States like Texas and Maryland have addressed this in
part by requiring the regulated transmission and distribution utility to meet energy efficiency
and/or demand response goals, acquiring the savings from competition between ESCOs.
*v *) AIinninn Rcktsul with F-nprnw Pffiripnru anH npmanH
Customers see energy prices through their rates.1 Rate design has played a central role in the
electricity industry since its inception. In developing retail rates, regulatory commissions and
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utilities are typically balancing multiple criteria: promoting economic efficiency and equity,
facilitating customer choice, and clearly and simply communicating prices and costs (Faruqui
and Hledik, 2009). Other goals that often enter rate design proceedings include bill stability for
customers and revenue stability for utilities. In many states, regulators and utilities have been
reluctant to require that customers be placed on default tariffs based on time-varying prices that
fully reflect the cost to produce and deliver electricity.
Large-scale deployment of an AMI removes one of the major barriers to dynamic pricing among
residential and small commercial customers (i.e., the inability of existing meters to measure
time-varying usage at hourly or shorter intervals). The availability of advanced meters, however,
does not ensure that electricity customers will see prices that are sufficiently detailed and
informative to motivate appropriate changes in energy use behavior. Well-designed tariffs based
on dynamic, time-varying prices (e.g., real-time prices, CPP) facilitate demand response. For
more information on rate designs for energy efficiency, including increasing block rates, see
National Action Plan for Energy Efficiency (2009).
Conceptually, it is possible to develop tariffs for residential customers that include both an
increasing block structure and time-varying pricing (e.g., CPP), which may facilitate both energy
efficiency and demand response policy objectives. However, few examples exist to date of that
type of rate design. Given the challenges, many utilities and regulatory commissions have opted
for alternative approaches that rely primarily on providing financial incentives through energy
efficiency and/or demand response programs (e.g., rebates for high-efficiency equipment, bill
credit for participating in a direct load control program). Over the long term, more use of well-
designed dynamic pricing tariffs would facilitate the development of price responsive demand
without adversely impacting energy efficiency opportunities.
Whatever the rate design, with or without advanced meters, tariffs and demand response
programs work best when supported by extensive customer education. There are many
examples of rate designs that work well on paper but failed in the field because customers did
not know that rates had changed or did not understand the new rate and how to modify their
energy use. A poorly explained, poorly publicized rate can lead to high customer bills, loud
protests, and public backlash, regardless of the merits of the underlying goals.
5.3 Customers Have Reservations About Demand Response
Among the 16 companies that responded to our questions from the end-user point of view, all
reported having active energy management programs, and nearly all said they participate in
demand response programs on at least a limited basis. Although these customers seem familiar
with demand response, many said that customers find demand response less compelling than
energy efficiency and, in some cases, problematic.2 As a result, customers were frequently less
than enthusiastic about the notion of coordination, especially if programs try to deliver energy
efficiency and demand response together. Customers voiced the following concerns about
demand response, which are worth understanding in the context of coordinating energy
efficiency and demand response.3
• Demand response benefits are uncertain. Customers who invest in energy efficiency,
as is the case with all of the companies we interviewed, have confidence that those
investments will yield steady benefits for many years, assuming proper maintenance of
installed equipment. The benefits of demand response, in contrast, are heavily
dependent on programs and markets that are outside customers' control. A demand
response program sponsor may change the terms of the program from year to year or
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even eliminate the program entirely. Customers' monetary benefits from participating in
demand response are usually tied to the number of curtailment events and/or wholesale
electricity market prices, both of which are highly uncertain. For these reasons,
customers see demand response as less than a "sure bet."
• The payoff from demand response is "not worth the hassle." Participating in
demand response, especially for organizations with national footprints, means dealing
with a myriad of program requirements and terms that vary significantly. For some
customers, aggregating medium-size facilities (e.g., grocery stores) to reach minimum
curtailment requirements can be challenging. When these considerations are coupled
with the uncertainty regarding whether demand response events will be called, the
financial benefit might not be great enough to justify participation.
• Demand response is "something done for the utility's benefit," not for customers'
benefit. Some customers think that the direct benefits of demand response accrue
mostly for the program sponsor, and, while a customer might be willing to participate on
a limited scale upon request, it is not something they will seek out for their organization's
benefit.
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5-3
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• Demand response may unacceptably reduce energy services below acceptable
levels. This issue was raised by a property management firm which noted that curtailing
lighting and raising temperatures during demand response events may violate tenants'
lease agreements.
• Participating in demand response may crowd out the pursuit of energy efficiency.
Given manpower and budget constraints, some energy managers are reluctant to
pursue demand response because they believe it will detract from their energy efficiency
activities, to which they give higher priority.
None of the above concerns directly confronts the issue of coordinating energy efficiency and
demand response. But policy-makers or program administrators who want to encourage
coordination should take note of these concerns and be prepared to address customers'
misperceptions about demand response. For one thing, the concerns suggest that program
designers should be careful about packaging energy efficiency and demand response in
inflexible ways. Pushing demand response on reluctant participants could backfire and even
impede energy efficiency programs.
5.4 Developing Utility Staff and Contractor Capabilities in Both
Areas Will Take Time
Some utilities expressed reservations about their current ability to deliver energy efficiency and
demand response services jointly because their employees are more skilled or experienced in
one area over the other. For example, account representatives who are more comfortable with
energy efficiency concepts and opportunities than with demand response will spend most of
their time with customers helping them identify efficiency opportunities. At one utility, we were
told that the engineering support staff members who analyze customer opportunities tend to
specialize in either energy efficiency or demand response. These are not insurmountable
problems—they should be fixable through training and, in some cases, reconfiguration of
employee responsibilities and performance goals—but addressing them might take some time.
Similar issues arise with respect to the local, often small, consulting firms and contractors that
utilities depend on to help carry out components of programs such as marketing and outreach,
energy audits, and installation verification. A few utilities mentioned that, as with their internal
staff, it will be challenging to find contractors who are able to perform successfully in both
energy efficiency and demand response, because at present few are qualified in both areas.
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5.5 Barriers to Private Sector Business Models that Combine Energy
Efficiency and Demand Response
In Section 3.4, we describe how some ESCOs and CSPs are beginning to explore new
business strategies and service offerings that move beyond their current areas of focus on
energy efficiency and demand response, respectively. While these initiatives are promising, it is
too soon to know whether or when market-based coordination will firmly take hold. In our
interviews, ESCOs and CSPs identified "internal" barriers (e.g., limited interest within their
company, concerns about whether there was a "fit" with their basic business model) as well as
"external" barriers (e.g., limited customer interest; complex, fragmented regulatory and market
structures and program rules) to more effective coordination.
It is also unclear whether the business models of these two specialties are compatible with one
another. Many ESCOs tend to concentrate on selling capital-intensive technology solutions
(e.g., new chillers, boilers, onsite generation, renewables) and prefer large projects using long-
term performance contracts. In contrast, demand response projects tend to have relatively low
upfront costs with short contract terms. So far, those CSPs that are exploring and/or offering
energy efficiency services are taking a different approach from the ESCO performance
contracting business model: analyzing information from EMCS as a means to identify energy
efficiency savings opportunities that primarily involve improvements in building operations and
controls rather than major capital investments in new equipment.
Finally, several organized wholesale markets (e.g., ISO-NE, NYISO, PJM) now allow
participation by demand resources. Thus far, various types of demand-side service providers
have been aggressively pursuing this new business opportunity with much success. There is
little evidence yet, however, to suggest that service providers are leveraging the ISO-NE and
PJM forward capacity market to offer coordinated energy efficiency and demand response
programs to customers; this is one area that ISO/RTO administrators should assess in
evaluating demand-side participation in these markets.
Notes
1 A rate is typically embedded in a tariff, which is a legal document approved by a regulatory
commission that defines the prices to be paid for defined classes of customers under defined terms of
service (National Action Plan for Energy Efficiency, 2009).
2 Customers' issues and concerns with demand response centered on incentive-based programs. See
Table 2-2 for definitions of program types.
3 Text in quotation marks is from interviews; in some cases the remarks have been edited or
paraphrased for clarity and to preserve respondents' anonymity.
National Action Plan for Energy Efficiency
5-5
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8: Developments That Would Support Coordination
of Energy Efficiency and Demand Response
Coordination of energy efficiency and demand response would be fostered by any of the
developments described below.
To date, the most effective policy signals have been legislative or regulatory statements that
energy efficiency and demand response resources and programs are both valuable and should
be coordinated. Such statements can change the course of regional and utility integrated
resource planning activities and approaches and the nature of utility, grid operator, and third-
party efficiency and demand response offerings.
California has been on a path to encourage coordination of energy efficiency and demand
response programs since 2005. The state's Energy Action Plan II, an "implementation roadmap"
jointly issued by CEC and the CPUC, listed "Integrate demand response programs with energy
efficiency programs" among the "key actions" required in the area of energy efficiency (CEC and
CPUC, 2005). In October 2007, the CPUC directed California's three investor-owned utilities to
"prepare a single, comprehensive statewide long-term energy efficiency plan" and to "integrate
customer demand-side programs, such as energy efficiency, self-generation, advanced
metering, and demand response, in a coherent and efficient manner" (CPUC, 2007). Finally, in
the CPUC's Long Term Energy Efficiency Strategic Plan, its vision for DSM coordination and
integration is:
Energy efficiency, energy conservation, demand response, advanced metering, and
distributed generation technologies are offered as elements of an integrated solution that
supports energy and carbon reduction goals immediately, and eventually water and
other resource conservation goals in the future (CPUC, 2008).
Connecticut has not specifically directed utilities to propose integrated programs, but it has
legislatively mandated that that the utilities put energy efficiency and demand response on an
equal footing, and it requires that each resource type be developed to the fullest extent
practicable: "Resource needs shall first be met through all available energy efficiency and
demand reduction resources that are cost-effective, reliable and feasible."1 In response, utilities
in Connecticut have proposed integrated commercial and industrial programs.
Other states could take similar approaches.
6.2 Establishment of Peak Load Reduction Goals in Addition to
Energy Savings Goals
A number of states have set ambitious energy reduction goals; often, those goals are expressed
solely in terms of energy savings (kilowatt-hours). Examples include:
• The New York State Public Service Commission established an Energy Efficiency
Portfolio Standard to implement the governor's "15 by 15" goal, aiming for a 15 percent
reduction in electricity consumption below forecasted levels by 2015.
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6-1
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• Minnesota's Energy Efficiency Portfolio Standard calls for statewide annual energy
savings goals equal to at least 1.5 percent of retail sales.2
Goals established at the state level or for individual utilities that include peak demand (kilowatt)
reduction targets can signal that demand response is an important resource that should be
pursued alongside energy efficiency. Several states have adopted this approach.
• In Maryland, the legislature passed the Empower Maryland Energy Efficiency Act of
2008, which calls for a 15 percent reduction in per capita electricity consumption and
peak demand by 2015.
• In Ohio, the legislature passed SB221, which requires utilities to reduce electricity use by
22 percent by 2025 and reduce peak demand by 1 percent in 2009, and to continue
achieving an additional 0.75 percent reduction in peak demand per year until 2018.
• Pennsylvania has adopted legislative goals for both energy efficiency and peak
reduction savings.
• Texas's energy efficiency goal is expressed in terms of a required reduction from annual
peak load growth, and thus requires the state's utilities to acquire both kilowatt and
kilowatt-hour savings.
The development of joint goals would not necessarily ensure coordination—utilities could
pursue the two types of programs on separate tracks—but it would encourage joint planning and
possibly joint marketing and/or joint programs, on the theory that coordinated programs would
have synergistic effects. The potential downside of peak reduction targets is that they might not
reflect actual electric system needs (e.g., load/resource balance), which could change
significantly over time. States that have specified peak reduction targets have also had to
confront significant policy and implementation issues. These include:
1. Defining the scope and type of demand-side resources that can be used to satisfy a
peak reduction target (e.g., energy efficiency, event-based demand response programs,
dynamic pricing).
2. The policy basis and rationale for a peak demand reduction target.
3. Methods used to estimate and verify peak demand impacts and demonstrate capability
to reduce peak demand and/or actual peak load. For event-based demand response
programs, what happens if events are not called during summer? For dynamic pricing,
what happens if wholesale market energy prices remain low or CPP events are not
called?
8.3 Educating Customers on Demand Response
Our interviews showed that even sophisticated business customers who are clear on the
benefits of energy efficiency can be uncertain about the purposes and benefits of demand
response. Coordinated programs will stand a better chance of succeeding if customers are clear
about the benefits of both types of resources.
One educational challenge is to counter the view held by some customers that demand
response is primarily a reliability tool that is largely for the utility or power grid's benefit.
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Lieberman (2005) suggests framing demand response as a resource that can improve the
functioning of power markets, provide clean and reliable capacity, and provide new
opportunities for customer choice.
Customer education can also address specific concerns about demand response, such as
those related to comfort, hassle, and uncertain payoffs. Case studies of successful customer
participation should help. Additionally, as well-designed demand response tariffs and demand
response-enabling technologies (e.g., smart thermostats, automated controls and smart
appliances, energy information feedback tools) become more widely available, customers' views
may evolve and become more positive.
8.4 Support for Combined Programs That Promote Both Energy
Efficiency and Demand Response
In Section 3.2, the review of existing ratepayer-funded programs suggests that there are
relatively few examples of coordinated, customer-focused energy efficiency and demand
response programs. A number of utilities and other program administrators (e.g., NYSERDA)
have begun to offer combined or coordinated demand-side programs in the last several years,
but regulatory commissions need to encourage their utilities to conduct pilots and program
offerings in various market segments that explicitly attempt to coordinate energy efficiency and
demand response service offerings. In so doing, commissions need to examine and address
institutional and regulatory barriers that discourage innovation in coordinated approaches to
deploying demand-side resources.
In commercial and institutional markets, utilities and private sector providers are exploring
coordinated offerings that involve monitoring-based commissioning and demand response
capability. A key to the success of this approach is developing well-established measurement
and verification protocols for the energy efficiency savings that are achieved through monitoring-
based commissioning, as well as documenting best practices in this field, given that the savings
tend to be driven by changes in operational practices (Mills, 2009).
8.5 Strategies that Enable Deployment of Advanced Technologies
and Systems
Chapter 4 describes how emerging technologies and systems integration represent key building
blocks for enabling greater coordination of energy efficiency and demand response and
provides examples of these technologies in residential and commercial and institutional
markets. State and federal regulators and policy-makers and utilities can support strategies that
will emphasize testing and deployment of new technologies and systems that support
integration and coordination of energy efficiency and demand response.
Examples include:
• Government "lead by example" demonstrations. With their large inventories of office
buildings, hospitals, military bases, and housing, federal and state government agencies
provide an important opportunity to lead by example and make investments that will
develop effective coordinated energy efficiency and demand response options.
Government facilities can provide a foundation for research and development to support
the technologies, education, training, and case studies to guide other market sectors.
National Action Plan for Energy Efficiency
6-3
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• Emerging technology and demonstration programs. In some states, regulatory
commissions encourage utilities to develop programs that demonstrate emerging
technologies as part of ratepayer-funded energy efficiency programs, particularly as
market transformation efforts. It is possible to also include technologies that enable
demand response, particularly those technologies that offer both energy efficiency
savings and demand response capability. In light of the growing interest in smart grid
technologies, state regulators should consider supporting demonstration programs that
deploy emerging technologies that integrate both energy efficiency and demand
response.
• Building codes and appliance efficiency standards. Historically, building codes and
appliance efficiency standards have focused primarily on energy-efficient technologies
and equipment. Standards can provide common functionality in equipment that lowers
cost and increases availability and can eliminate barriers that inhibit the integration of
energy efficiency and demand response. Two examples include the global temperature
setback and OpenADR standards referenced earlier.
• Ongoing programs. As demand response technologies and practices evolve and
consumers realize the benefits, there should be an increased emphasis on programs
that encourage consumer adoption of both energy efficiency and demand response
capability.
• Existing policies. Existing policies, such as tax incentives (e.g., credits), can be
expanded to accelerate the adoption of demand response technologies and devices.
8.8 Notes
1 Connecticut Public Act 07-242, Section 51, effective July 2007.
2 In May 2007, the Minnesota legislature passed the New Generation Energy Act of 2007.
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7: Conclusion
In five to 10 years, demand response potentially could look much different from both the
customer's perspective and the utility's perspective compared with today, given advances in
enabling technology, metering, and communications. As demand response-enabling
technologies (control and communication systems) and price information become more
sophisticated and widely accessible, customers should realize direct benefits, and their
perceptions of demand response should shift from the belief that demand response involves
extra effort and sacrifice to the realization that it is discretionary and easy for chosen
applications. Moreover, as energy-using devices become more efficient and easier to monitor
and control, and as real-time energy information becomes more accessible, there will be less of
a distinction between energy efficiency and demand response. In a few years, customers may
be able to manage their energy use without caring whether their energy management falls
under an "energy efficiency" or "demand response" label.
Program administrators and policy-makers need to be increasingly cognizant of the impact of
energy efficiency on demand response and vice versa, particularly as we move toward a future
of low-to-zero net energy buildings and continuous commissioning. The potential for demand
response will certainly be impacted (and may be reduced) as buildings and equipment become
more energy-efficient and better operated. At the same time, the monitoring and control
technologies that enable demand response can produce real energy savings. Both individual
building managers and load aggregators aggregating and managing thousands of buildings for
demand response have the potential to use that monitoring capability for site-based continuous
commissioning, achieving additional energy efficiency in addition to event-specific demand
response.
Studies on the potential of demand response indicate that price-based demand response may
well become increasingly common, facilitated by better customer access to energy usage and
price information (FERC, 2009). As advanced meters are installed at accelerated rates across
the nation, more utilities will be offering TOU or dynamic pricing rates and price signals. As a
result, there will be more customer load responding to dynamic prices by leveraging behind-the-
meter enabling technologies such as energy control systems and price-responsive devices.
Many of these individual customer responses and choices could be opaque to the utility or grid
operator, which will see only total load net of the price response. It will be necessary to study
and document the long-term load reduction impacts of price-based demand response to
understand its net load and system impacts.
Program administrators and policy-makers are encouraged to start planning for this future when
thinking about the evolution of energy efficiency and demand response. The above capabilities
will eventually change the way utilities and grid operators do business and relate to their
customers, as expressed by the manager of the Bluebonnet Electricity Cooperative:
Giving members an anywhere-anytime, Internet-based ability to control how and when
they use their appliances, respond to price signals or peak load emergency situations to
save money and conserve energy, and sell their own distributed energy back to the
utility, allows them to become meaningful players on the grid.... We think it is the
distribution grid of the future. We don't sell kilowatts, we sell the service of bringing
electricity to your house (McGowan, 2009).
National Action Plan for Energy Efficiency
7-1
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Large-scale deployment of cost-effective energy efficiency resources has the potential to
provide significant bill savings for customers and reduce and/or defer the need for more
expensive baseload or intermediate generation resources. Similarly, cost-effective demand
response resources have the potential to reduce and/or defer the need for more expensive peak
generation and enhance electric system reliability, while increasing the system's ability to
absorb low-cost intermittent renewable resources through sophisticated real-time monitoring,
analytics, and load controls. Effective coordination of efficiency and demand response—by
policy-makers, utilities, and third-party program providers—is a necessary step to increase the
effectiveness and utilization of energy management resources. While progress has been made
in recent years, more work is needed to achieve the full promise and potential of the synergy
between energy efficiency and demand response.
While coordinating energy efficiency and demand response is necessary, it will not be easy or
swift due to the many market, human, financial, and institutional obstacles. Executives and
policy-makers should articulate some direction and clarity for utilities and program sponsors
regarding priorities for energy efficiency and demand response programs and their coordination
and overall goals. This is particularly important given the long-lasting nature of utility and
customer capital investments, the time and effort it takes to change customer behaviors and
expectations, and the current rapid pace of technological change. Program sponsors and
customers alike need guidance on the best ways to commit their resources to achieve effective
energy management.
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Appendix A: National Action Plan for Energy
Efficiency Leadership Group
Co-Chairs
Marsha Smith
Commissioner, Idaho Public
Utilities Commission
Past President, National
Association of Regulatory Utility
Commissioners
James E. Rogers
Chairman, President, and
C.E.O.
Duke Energy
Leadership Group
Barry Abramson
Senior Vice President
Servidyne Systems, LLC
Tracy Babbidge
Director, Air Planning
Connecticut Department of
Environmental Protection
Angela Beehler
Senior Director, Energy
Regulation/Legislation
Wal-Mart Stores, Inc.
Bruce Braine
Vice President, Strategic Policy
Analysis
American Electric Power
Jeff Burks
Director of Environmental
Sustainability
PNM Resources
Sandra Byrd
Vice President, Strategic Affairs
Arkansas Electric Cooperative
Corporation
Kateri Callahan
President
Alliance to Save Energy
Jorge Carrasco
Superintendent
Seattle City Light
Lonnie Carter
President and C.E.O.
Santee Cooper
Sheryl Carter
Co-Director, Energy Program
Natural Resources Defense
Council
Gary Connett
Director of Environmental
Stewardship and Member
Services
Great River Energy
Larry Downes
Chairman and C.E.O.
New Jersey Natural Gas (New
Jersey Resources Corporation)
Roger Duncan
General Manager
Austin Energy
Neal Elliott
Associate Director for Research
American Council for an
Energy-Efficient Economy
Angelo Esposito
Senior Vice President, Energy
Services and Technology
New York Power Authority
Jeanne Fox
President
New Jersey Board of Public
Utilities
Philip Giudice
Commissioner
Massachusetts Department of
Energy Resources
Dian Grueneich
Commissioner
California Public Utilities
Commission
Blair Hamilton
Policy Director
Vermont Energy Investment
Corporation
Stephen Harper
Global Director, Environment
and Energy Policy
Intel Corporation
Maureen Harris
Commissioner
New York State Public Service
Commission
Mary Healey
Consumer Counsel for the State
of Connecticut
Connecticut Consumer Counsel
Joe Hoagland
Vice President, Energy
Efficiency and Demand
Response
Tennessee Valley Authority
Val Jensen
Vice President, Marketing and
Environmental Programs
ComEd (Exelon Corporation)
Mary Kenkel
Consultant, Alliance One
Duke Energy
National Action Plan for Energy Efficiency
A-1
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Ruth Kiselewich
Director, Demand Side
Management Programs
Baltimore Gas and Electric
Company
Harris McDowell
Senator
Delaware General Assembly
Ed Melendreras
Vice President, Sales and
Marketing
Entergy Corporation
Janine Migden-Ostrander
Consumers' Counsel
Office of the Ohio Consumers'
Counsel
Michael Moehn
Vice President, Corporate
Planning
Ameren
Fred Moore
Director, Manufacturing and
Technology, Energy
The Dow Chemical Company
Richard Morgan
Commissioner
District of Columbia Public
Service Commission
Diane Munns
Vice President, Regulatory
Relations and Energy Efficiency
MidAmerican Energy Company
Clay Nesler
Vice President, Global Energy
and Sustainability
Johnson Controls, Inc.
Brock Nicholson
Deputy Director, Division of Air
Quality
North Carolina Department of
Environment and Natural
Resources
Jed Nosal
Chief, Office of Ratepayer
Advocacy
Massachusetts Office of
Attorney General Martha
Coakley
Pat Oshie
Commissioner
Washington Utilities and
Transportation Commission
Jim Parks
Manager, Energy Efficiency and
Customer R&D
Sacramento Municipal Utility
District
John Perkins
Consumer Advocate
Iowa Office of Consumer
Advocate
Doug Petitt
Vice President, Marketing and
Conservation
Vectren Corporation
Phyllis Reha
Commissioner
Minnesota Public Utilities
Commission
Roland Risser
Director, Customer Energy
Efficiency
Pacific Gas and Electric
Gene Rodrigues
Director, Energy Efficiency
Southern California Edison
Wayne Rosa
Energy and Maintenance
Manager
Food Lion, LLC
Art Rosenfeld
Commissioner
California Energy Commission
Ted Schultz
Vice President, Energy
Efficiency
Duke Energy
Larry Shirley
Director of the Green Economy
North Carolina Department of
Commerce
Paul Sotkiewicz
Senior Economist, Market
Services Division
PJM Interconnection
Jim Spiers
Senior Manager, Planning,
Rates, and Member Services
Tri-State Generation and
Transmission Association, Inc.
Susan Story
President and C.E.O.
Gulf Power Company (Southern
Company)
Tim Stout
Vice President, Energy
Efficiency
National Grid
Debra Sundin
Director, Energy Efficiency
Marketing
Xcel Energy
Paul Suskie
Chairman
Arkansas Public Service
Commission
Dub Taylor
Director
Texas State Energy
Conservation Office
David Van Holde
Energy Manager, Department of
Natural Resources and Parks
King County, Washington
Brenna Walraven
Managing Director, National
Property Management
USAA Realty Company
J. Mack Wathen
Vice President, Regulatory
Affairs
Pepco Holdings, Inc.
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Coordination of Energy Efficiency and Demand Response
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Mike Weedall
Vice President, Energy
Efficiency
Bonneville Power Administration
Michael Wehling
Strategic Planning and
Research
Puget Sound Energy
Henry Yoshimura
Manager, Demand Response
ISO New England, Inc.
Dan Zaweski
Assistant Vice President,
Energy Efficiency and
Distributed Generation
Long Island Power Authority
Observers
Glen Andersen
Program Principal
National Conference of State
Legislatures
Rex Boynton
President
North American Technician
Excellence
James W. (Jay) Brew
Counsel
Steel Manufacturers Association
Susan Coakley
Executive Director
Northeast Energy Efficiency
Partnerships
Roger Cooper
Executive Vice President, Policy
and Planning
American Gas Association
Mark Crisson
President and C.E.O.
American Public Power
Association
Dan Delurey
Executive Director
Demand Response
Coordinating Committee
Reid Detchon
Executive Director
Energy Future Coalition
Ron Edelstein
Director, Regulatory and
Government Relations
Gas Technology Institute
Claire Fulenwider
Executive Director
Northwest Energy Efficiency
Alliance
Sue Gander
Director, Environment, Energy,
and Natural Resources Division
National Governors
Association—Center for Best
Practices
Jeff Genzer
General Counsel
National Association of State
Energy Officials
Donald Gilligan
President
National Association of Energy
Service Companies
Chuck Gray
Executive Director
National Association of
Regulatory Utility
Commissioners
Katherine Hamilton
President
GridWise Alliance
William Hederman
Member, IEEE-USA Energy
Policy Committee
Institute of Electrical and
Electronics Engineers
Marc Hoffman
Executive Director
Consortium for Energy
Efficiency
John Holt
Senior Manager, Generation
and Fuel
National Rural Electric
Cooperative Association
Eric Hsieh
Manager, Government
Relations
National Electrical
Manufacturers Association
Lisa Jacobson
Executive Director
Business Council for
Sustainable Energy
Wendy Jaehn
Executive Director
Midwest Energy Efficiency
Alliance
Meg Matt
President and C.E.O.
Association of Energy Services
Professionals
Joseph Mattingly
Vice President, Secretary and
General Counsel
Gas Appliance Manufacturers
Association
Kate Offringa
President and C.E.O.
North American Insulation
Manufacturers Association
Ellen Petrill
Director, Public/Private
Partnerships
Electric Power Research
Institute
Steven Schiller
Board Director
Efficiency Valuation
Organization
Jerry Schwartz
Senior Director, Energy and
Environmental Policy
American Forest and Paper
Association
National Action Plan for Energy Efficiency
A-3
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Andrew Spahn
Executive Director
National Council on Electricity
Policy
Ben Taube
Executive Director
Southeast Energy Efficiency
Alliance
Rick Tempchin
Executive Director,
Retail Energy Services
Edison Electric Institute
Mark Wolfe
Executive Director
Energy Programs Consortium
Lisa Wood
Executive Director
Institute for Electric Efficiency
Facilitators
U.S. Department of Energy
U.S. Environmental Protection
Agency
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Appendix B: References
The Brattle Group (2008). Integrated Resource Plan for Connecticut. Prepared for Connecticut
Light & Power and United Illuminating.
Burress, C. (2008). State Dumps Thermostat Control Plan. San Francisco Chronicle, January
17.
California Energy Commission and California Public Utilities Commission [CEC and CPUC]
(2005). Energy Action Plan II.
California Energy Commission [CEC] (2006). Demand Shifting with Thermal Mass in Large
Commercial Buildings: Field Tests, Simulations and Audits.
California Public Utilities Commission [CPUC] (2007). Decision 07-10-032, October 18.
California Public Utilities Commission [CPUC] (2008). California Long-term Energy Efficiency
Strategic Plan,
California Public Utilities Commission [CPUC] (2009). 2009-2020 Marketing, Education &
Outreach Strategic Plan.
Cappers, P., C. Goldman, and D. Kathan (2009). Demand Response in U.S. Electricity Markets:
Empirical Evidence. Ernest Orlando Lawrence Berkeley National Laboratory, report no. LBNL-
2124E.
Cogar, D. (2007). The Green Gap: Communications and Language. EcoPinion Survey Report
(Issue 1). Distributed Energy Financial Group.
Demand Response Research Center [DRRC] (2006). Auto-DR Successful: Large Commercial
Buildings Reduce Load by up to 30%. DRRC Newsletter (March).
Demand Response Research Center [DRRC] (2008). Demand Response Best Practices,
Design Guidelines and Standards, Work Papers. Presentation to the California Public Utilities
Commission, December.
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Funding and printing for this report was provided by the U.S. Department of Energy and U.S. Environmental
Protection Agency in their capacity as co-sponsors for the National Action Plan for Energy Efficiency.
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