Guest Op-Ed: The Demand Response Fetish

Guest Op-Ed: The Demand Response Fetish

By John Olson

During the debates around the  Affordable Care Act (ACA), one of the features of the legislation touted by healthcare “wonks” was the insurance marketplace.  The theory was that individuals would be able to compare health plans against each other based on coverage networks, deductibles, copays, etc. to determine the plan best suited for them.  This was seen as an exciting opportunity and there was a real belief that people would be happy with more choice in the system.

It hasn't worked out that way.  Shopping for health insurance on the exchanges remains an anxiety-provoking and unpleasant experience.  Most people want to be able to access healthcare services when they need them without worrying about insurance coverage.  They don’t want to spend time weighing the risks of different deductibles or coverage limitations. 

I have been thinking a lot about this as there has been an increase in discussions about residential “demand response” and its role in the future of our energy system.  Demand response programs provide incentives (or, potentially, requirements) for customers to reduce their energy use during peak hours and/or shift their energy use to non-peak hours.  Examples include time-of-use pricing where the retail cost of electricity use during peak hours is more than during non-peak hours or programs where individuals are given a break on their electricity bill and in exchange the utility can turn off their air conditioner or other appliances during times when there is not enough energy supply to meet demand. 

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Many energy “wonks” view the utility system as outdated and inefficient because it doesn't provide sufficient price signals to consumers to reduce their energy use or load shift throughout the day.  They are excited about residential demand response and the possibilities presented by smart appliances, opportunities for more aggressive time-of-use pricing, and other mechanisms to optimize energy use on the grid. They also recognize that more variable resources on the grid will require more “demand flexibility” and load shifting, as customers will need to adjust their electricity use to meet the needs of the grid.  

This perspective misses that most people want their electricity to work when they need it and they want it to be relatively affordable, but they don’t want to think about it much beyond that.  They don’t want to spend time studying time-of-use plans to determine if they will save them money, analyzing the costs of smart appliances to decide whether or not it's worth it to invest, or worrying about being hit with a surcharge for running their dishwasher at the wrong time. This is especially the case for lower-income people who often have less flexibility in choosing when to use electricity. The fact that electricity and heating use peaks during certain times isn’t a weird anomaly that can be easily addressed by incentives or nudges–people run their air conditioners on hot days because they don’t want to be hot, they run their heaters on cold days because they don't want to be cold.  While a sense of social obligation can lead people to take more aggressive measures to reduce demand during emergency situations–like we recently saw in California–we can’t expect that to be the norm. 

As we continue to figure out ways to decarbonize our electricity system, we should do so in a way that actually works for most people. Overdependence on residential demand response programs to balance the grid could lead to real backlash as individuals grow frustrated with external control over their energy use.  It could also lead to situations where individuals are unwilling or unable to cut back energy use during peak hours and we are left without the energy supply needed to meet demand—requiring grid operators to institute rolling blackouts. For those reasons, we need to temper our expectations of residential customers’ willingness to manage their use of electricity to meet the needs of the grid, and we should focus on ensuring we have the generation assets to provide electricity for when people need it.

John Olson tweets about energy and other topics. You can find him here.