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Demand Response Industry Will Need to Innovate with the Overturn of FERC 745
Green Technology Featured Articles
September 22, 2014

Demand Response Industry Will Need to Innovate with the Overturn of FERC 745

By Tracey E. Schelmetic
TMCnet Contributor

When it comes to making electric grids smarter, utility companies are implementing a number of technologies and processes that can make their options more flexible. In times of high demand, for instance, utility companies would once need to bring all their generation capacity online, firing up only occasionally used and less efficient plants or generators. It’s an expensive and often dirty option, since power is being generated by older and less environmentally compliant means. A cleaner, and increasingly viable option is to temporarily reduce demand, a process called “demand response.” Utility companies do it with the help of large utility customers, who promise to slacken their power use during times of high demand.


The demand response market, once predicted to grow to atmospheric levels, has seen a damper recently thanks to a ruling by the U.S. Court of Appeals that overturned a three-year-old order by the Federal Energy Regulatory Commission (FERC). FERC 745 originally mandated that demand response paid at full wholesale price (when it’s above the net benefits threshold). Prior to the implementation of the rule, participants were paid only the difference between the wholesale price and the retail price for generation and transmission. FERC 745 made it more lucrative for utility customers to participate in demand response. The appeals court decision found that FERC had overstepped its jurisdiction when in the creation of the rule.

According to the latest report from GTM Research, demand response will continue to grow, but not as briskly as it would have had FERC 745 stayed in place. Without Order 745, the market will still grow at an annual rate of 4.9 percent on average, reaching $2.2 billion in 2023. If the order is reinstated, GTM Research forecasts the market to grow at nearly 8 percent per year, reaching $2.9 billion in 2023. The cumulative difference between these two outcomes is $4.4 billion in unrealized revenue, according to a recent article by Mike Munsell writing for GreenTechGrid.

“Business models will have to adapt to the recent regulatory overhaul,” said GTM analyst and report co-author Geoff Wyatt. “With more policy decisions being made at the state level, the fragmentation of the demand response market will only be exacerbated.”

The demand response industry may have to pursue new lines of revenue and growth with the loss of FERC Order 745.

"The way we think about demand response is fundamentally shifting,” said report co-author Mei Shibata. “The adoption of new DR technologies and distributed energy resources is creating unprecedented opportunities – as well as uncertainties – around demand optimization.”




Edited by Stefania Viscusi


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