Demand Response's Three Generations: Market Pathways and Challenges in the Modern Electric Grid
81 Pages Posted: 20 Jun 2017
Date Written: May 2017
Through a historical analysis spanning nearly five decades, this Article provides a comprehensive discussion of how demand response (reductions in electricity consumption in response to grid emergencies or price signals) has become both a growing resource on the electric grid and a policy trailblazer in the grid’s ongoing transformation. The discussion centers on three separate generations of efforts to promote demand-side measures in the electric grid, dating to the 1960s and oriented chronologically around important events in the electric power industry. Demand response has been a test bed of important regulatory principles like frameworks for interactivity with the grid, the role of third parties and new business models, and the split of regulatory jurisdiction between states and FERC. For this reason, the Article introduces and discusses the concept of “market pathways” — experiences learned from combinations of technology advances, regulatory innovations, and judicial and regulatory proceedings that tested demand response’s legitimacy and implementation. These pathways, the Article claims, now form a significant part of the foundation for overhauling the electric grid to accommodate all distributed energy resources, not simply demand response. Thus, the Article concludes, demand response is important for the long-term, iterative regulatory strategies that promoted it, viewed against the context of the electric power industry’s ever changing overall regulatory and policy landscape. The Article concludes with an examination of “demand response 3.0.” This is the current industry landscape in which the green light for innovation and experimentation, combined with further advances in technology and the rise of sophisticated distributed energy resources (including energy storage, distributed solar PV, and others), have prompted policymakers to steer the electric grid towards a modernized, two-way, participatory system.
Keywords: electricity, electric grid, demand response, wholesale markets, energy, distributed energy resources, power, regulation, FERC, demand-side management, climate change, technology
JEL Classification: K10, K20, K23, K32
Suggested Citation: Suggested Citation