As the nation’s top per capita manufacturing state – the No. 1 steel producer and No. 3 for cars – Indiana is an energy-intensive state, so saving energy means saving money here as much as anywhere. But cost is driven especially by turning on those last, most expensive power plants – or building new ones – to meet demand at its peak. Meeting peak demand is expensive; not only are wholesale electricity prices higher during those times, but about 10% of our state’s electric power infrastructure investments focus on serving load during just 1% of the hours of the year. If Indiana can shave or eliminate these expensive peaks it could reduce costs and improve reliability, because times of peak demand are also typically when the grid is most stressed. Our new report shows three ways that Indiana can reduce peak demand.
The report, Potential for Peak Demand Reduction in Indiana, prepared for Indiana AEE by Demand Side Analytics LLC, examines the costs and benefits associated with demand reduction. Specifically, the report examines the potential for savings from reducing peak demand using three different market strategies: curtailing commercial and industrial electricity by paying customers to reduce their use at specific times (demand response); using connected thermostats to cut electricity use in the residential sector (residential demand response); and deploying energy storage technologies on the grid. Examining the impact of these strategies under scenarios representative of avoided costs in Indiana, analysis shows that net benefits for electric ratepayers (total savings minus total costs) range from $448 million to $2.3 billion over 10 years. (Estimates of residential demand response were developed using anonymized data from AEE member ecobee thermostat customers participating in Donate Your Data.)
The analysis confirms that demand response strategies can be cost-effective alternatives to costly construction of new generation resources that sit idle most of the year. Energy storage technologies such as batteries achieve similar benefits by storing energy at times when it is plentiful for use during peak hours, especially in locations where storage could defer or replace transmission or distribution upgrades. The strategies included in the analysis could save from 1,500 to 4,800 megawatts of electric capacity through 2027, significantly offsetting Indiana’s need for additional generating capacity over the next decade.
Some Indiana utilities are already doing a good job at taking advantage of the commercial and industrial (C&I) demand response potential identified in the report, but others have yet to tap into it. Conversely, the residential DR market is still nascent across the state, but as consumers continue to adopt smart thermostats, there is significant potential to expand this market at relatively low cost. Robust DR programs help customers, large and small, become smarter energy consumers – and give them savings they can use elsewhere in the state’s economy. As Indiana looks to remain a manufacturing leader, peak demand reduction can help keep energy prices low, save customers billions, and help utilities maintain a reliable and resilient electricity system.
Vince Griffin is executive director of Indiana AEE