Effective Use of Demand Side Resources: The Continued Need for Availability Payments

Wed Oct 23 16:24:00 EDT 2013
By Jonathan Falk and Stephen Buryk (with Dr. Noah Kaufman)

This NERA paper, by Vice President Jonathan Falk and Senior Analyst Stephen Buryk et. al., states the case for availability payments to demand side resources in electric markets. Although availability payments -- promises of payments (direct financial or in-kind) to electricity customers in return for reductions of electric demand when requested -- to customers are a part of many electricity markets, they remain mired in controversy. What makes them controversial is the assertion by some economic theorists of electric markets that so-called dynamic pricing, in which customers pay prices for electricity which reflect the marginal economic cost of producing power, would render availability payments, or indeed, most demand-side programs, superfluous. These arguments are then recycled by advocates for generators who see demand-side competition as unwanted. In this paper, the authors demonstrate that demand-side resources represent a potential source of cost-saving and reliability enhancement for any electric system, and that successful recruitment of demand-side resources is substantially enhanced by the presence of availability payments.