Using Pricing and Demand-Side Management to Reduce Congestion Costs
Demand-side management and dynamic pricing—from time-of-use rates to peak-time rebates—are two tools that can reduce the cost of utility system congestion by reducing peak demand, allowing utilities to cut back on or defer expensive generation and transmission projects. At a workshop for the National Governors Association, David Littell discussed these two options in the context of RAP’s rate design principles, explored how they are designed, what technology is needed to implement them, and key differences between them. The two tools accomplish different goals—dynamic pricing results in a steady, fairly reliable reduction that alters the daily load curve, while demand response can be used to respond to a specific system peak. The “Non-Transmission Alternative” pilot project on Maine’s Boothbay Peninsula is an example of how demand response, along with energy efficiency programs, can be part of a resource mix designed to reduce peak stresses on the grid without the need for new or upgraded transmission.