Report: Demand Reduction Could Save Millions for Businesses, Households on Michigan’s Lower Peninsula

A report released on February 17 by Advanced Energy Economy Institute –a national association of business leaders dedicated to making the global energy system more secure, clean, and affordable – has established that that a combination of demand reduction strategies could entirely offset a projected 2,000-MW increase in summer peak demand in Michigan’s Lower Peninsula from 2017 through 2026 – which would both avoid or defer the need to construct additional power plants, and save up to $1.2 billion for electricity customers.

The report – Economic Potential for Peak Demand Reduction in Michigan – examines potential for savings from demand reduction under three different market scenarios. Net benefits for electric ratepayers – total savings minus costs – range from $53 million to $1.2 billion, with the middle scenario producing net savings for consumers and businesses of $482 million over 10 years, compared with spending on additional power generating capacity. 

The three approaches analyzed in the paper include:

  • Demand Response programs, under which commercial and industrial customers are compensated for reducing their energy use upon request by grid operators;
  • Connected Thermostat programs, under which utilities control certain appliances; and
  • Time-varying rates programs, under which price signals are sent to customers with who have advanced meters on their premises in order to curtail their power usage at times when the power grid could be strained.

Challenges in Michigan’s power sector have been characterized mainly as potential shortfalls in generating capacity to meet electricity demand.

Indeed, resource constraints in the Lower Peninsula are largely driven by hot weather and air conditioning needs in the summer, making peak demand events predictable – and therefore good candidates for management. Demand reduction is less capital-intensive and can be more economic for meeting demand during peak hours than investment in traditional “peaker” power plants, which sit idle for most the year.

“There are ways to meet Michigan’s energy needs by reducing demand that are much lower-cost than increasing generation from high-cost power plants,” commented J.R. Tolbert, VP of State Policy for Advanced Energy Economy. “Demand reduction not only saves ratepayers money, it makes the electric grid more reliable. As Michigan plans for its energy future, demand reduction strategies should be pursued by regulators and utilities.”

“It’s simply good business to [use] advanced energy technologies and resources that reduce energy waste,” said Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council, adding, “Managing how much energy is used – and, as importantly, when it is used – can drive significant savings for Michigan ratepayers. Regulators and utilities searching ways to bring down electricity costs in the state should take this report’s findings to heart and implement effective demand reduction programs.”

Challenges in Michigan’s power sector have been characterized mainly as potential shortfalls in generating capacity to meet electricity demand. But resource constraints in the Lower Peninsula are largely driven by hot weather and air conditioning needs in the summer, making peak demand events predictable – and therefore good candidates for management. Demand reduction is less capital-intensive and can be more economic for meeting demand during peak hours than investment in traditional “peaker” power plants, which sit idle for most the year.

“Our analysis shows that reducing summer peak demand is a smart and cost-effective way for Michigan to meet the energy needs of its citizens,” said Jesse Smith, principal consultant for Demand Side Analytics, a company that authored the study along with Optimal Energy. “With the right policies, demand reduction allow system planners to meet capacity needs at lowest cost.”

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