Demand Response in the Recent East Coast Heat Wave

Lynne Kiesling

It was pretty hot on the East Coast a couple of weeks ago, wasn’t it? The kind of heat that drives up the use of air conditioning and creates electricity demand spikes near system capacity, threatening service reliability. But there were no blackouts, no brownouts … what gives?

Price signals and demand response, that’s what gives. Price signals give incentives to reduce use at precisely the times when the system is the most stressed. As reported in the Philadelphia Enquirer on 11 August:

PJM Interconnection said yesterday that, as electricity use soared Wednesday, the region’s power grid set a record in the amount of peak need that was met by so-called demand response, in which power customers are paid market rates to curtail consumption. …

PJM said demand-response providers, typically businesses or institutions that offer to cut their consumption as needed, provided nearly twice that much, 1,945 megawatts of power, to meet the system’s peak requirements Wednesday afternoon.

The volume of demand response was “similar to the amount of power used by a mid-size city,” PJM said.

“This was the largest amount of demand response we’ve ever had on one day, and it’s an encouraging milestone,” PJM vice president Andrew L. Ott said in a statement. “Participating consumers responded to price signals in the wholesale electricity market and to system needs.”

See also Patrick Mazza’s comments over at Grist about his time in sticky Pennsylvania in August.

Price signals just keep giving and giving … when our regulatory institutions let them.

Back in July, Mazza also had a nice post about demand response, in which he went through a lot of the economic logic familiar to you KP readers. He also talked with the ever-insightful Rob Pratt at Pacific Northwest National Laboratory about the system-wide benefits that smart-grid-enabled, widespread demand response would provide:

On the old “dumb” grid, information flow from power users to suppliers consists almost entirely of 12 meter readings a year; from suppliers to users, it is 12 power bills. One of the most profound changes introduced by the smart grid — indeed, what makes it smart — is a communications backbone that allows massive two-way information flows. An information network is overlaid on top of the power network. Demand response (DR) employs these information/communications capabilities to engage power users directly in managing the grid. In essence, information becomes a new power resource. …

DR provides some clear environmental benefits. It can serve as a substitute for spinning reserve — power plants that run ready to supply power on short notice, typically around 10-15 percent of overall power generation. The less spinning reserve, the fewer emissions. And DR could sharply reduce the need for peaker power plants and infrastructure, with all their embedded energy and land-use impacts. Pacific Northwest National Laboratory (PNNL) calculates that moving to smart-grid technology will eliminate the need for between $46 and $117 billion in conventional utility infrastructure. That does not count investments in new smart grid technology. But one PNNL calculation gives an indication of comparative costs: smart appliances that can adjust their demand to grid conditions could, for $600 million, provide reserve capacity equal to power plants costing $6 billion, proving that “bytes are cheaper than iron.”

Would Perfectly Internalizing Motor Vehicle Externalities Make the Economy Less Efficient?

Michael Giberson

Would perfectly internalizing motor vehicle externalities make the economy less efficient? Jerry Taylor and Peter Van Doren of the Cato Institute make that claim in a paper advocating the repeal of federal and state gasoline taxes. The paper has picked up a couple of high profile econoblogging mentions – from Tyler Cowen, Greg Mankiw, The Economist’s FreeExchange among others.

I haven’t read the paper yet, yet suspect that I will be largely sympathetic to the conclusions reached. But I wonder what Taylor and Van Doren mean when they say, in the executive summary, that “perfectly internalizing motor vehicle externalities would likely make the economy less efficient—not more—by inducing motorists into even more (economically) inefficient mass transit use.”

Since mass transit relies on motor vehicles (are their exceptions?), if externalities associated with motor vehicles are perfectly internalized then persons desirous of transit would face the appropriate prices at the margin across private and publicly-organized alternatives.

I suppose it is a little unfair to pick at the logic in the executive summary, which necessarily omits much of the explanation. I guess I’ll have to read the paper.