Demand Response is Failing in California

California’s utility-led response programs are underperforming. We discuss possible solutions.
Published: Mon 31 Mar 2014

California's utility demand response programs are not up to standard and are failing to achieve energy efficiency goals. This is according to the California Energy Commission’s (CEC) 2013 Integrated Energy Policy Report.

Underperformance of these programs have led to a failure to achieve the 2007 goal-to reduce peak demand by 5%. Those programs are currently run by Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric.

The closure of the 2,200MW San Onofre nuclear plant in southern California has left a power gap which demand response can help to close. Out of the 1,500 MW to be replaced, state regulators directed Southern California Edison (SCE) and San Diego Gas & Electric (SDG&E) to procure at least 600 MW combined from “preferred” resources like demand response, energy efficiency and renewables.

Unfortunately, demand response programs have failed to achieve this and California’s Energy Commission is calling for some changes.

Open the demand response market

The report recommends that the demand response market be opened up. California utilities should get their program designs approved by the California Public Utilities Commission so that they will be locked into those programs. This will mean that any potential changes will entail a lengthy regulatory process.

Aggregators, on the other hand, can establish contracts with any entity at any time. Those contracts can be structured however the aggregators like, and they don’t need to get regulatory approval for each new contract. Aggregators have more flexibility in responding to the changing needs of the market.

Time-varying rates and regulatory structure

Implementing time-varying-rates for residential customers is another suggestion to improve the adoption and success of demand response programs.

A 2009 Federal Energy Regulatory Commission (FERC) report shows that the residential, commercial, and industrial markets have yet to be tapped. However, time varying rates may change that. The report, which reviewed over 200 tests conducted by utilities around the world, has found that customers respond positively to price signals when they are offered financial incentives.

The adoption of time-varying rates hasn’t taken off in California. With the California Public Utilities Commission aiming to redesign California’s electricity rates, this could mean broader deployment of time-varying rates. This could help towards achieving demand reduction goals.

In addition to this, the current regulatory structure needs to be altered. Currently, the regulatory structure doesn’t allow for fast development in a fast-paced market.

Gain customer understanding

It has also been recommended that utilities should improve their customer engagement strategies, as well as behaviour modification. Many customers do not understand demand response and this is a barrier that must be eliminated if demand response is going to see success.

The report suggests that an independent entity evaluates the customers and market sectors that are most and least likely to participate in various targeted demand response programs. This entity should evaluate communication strategies and develop strategic plans based on lessons learnt.

The need to prove the value of demand response to all roleplayers is critical if the programs are to be successful.