Demand response supports reliability of the power grid by helping to reduce load during peak demand periods. Demand-side management includes company-sponsored programs and rate structures that encourage customers to reduce energy consumption during these peak demand periods. Within each of AEP’s state integrated resource plans, demand-side resources and other smart grid-related projects such as Volt VAR optimization are modeled on the same economic basis as supply-side generating resources.
Peak demand is reported in megawatts and is the amount of power used at the time of maximum power usage. Peak demand periods vary across AEP’s service territory. For example, Appalachian Power Company’s system peak generally occurs on a winter weekday morning, when electric heating and appliance usage is happening at the same time that commercial equipment and industrial machinery is ramping up electric use. Whereas Public Service Company of Oklahoma’s system peak typically occurs in the afternoon of a summer weekday, as people get home from work or school and increase their use of air conditioners and fans while the demand from commercial and industrial customers remains high.
Historically, as peak demand grows with the economy and population, new capacity would ultimately be needed. AEP could defer building new power plants by developing, interruptible contracts with customers to allow AEP to “interrupt” their power consumption during peak times in exchange for reduced rates.
The North American Electric Reliability Corporation (NERC) is forecasting the lowest peak demand growth rates since 1990 in its 2016 annual long-term reliability assessment of the bulk power system. NERC forecasts that winter and summer peak demand growth during the next decade will be less than 1 percent. Although this flat load growth does not eliminate the need for demand response, it does create a challenge in determining its proper economic value.
Energy efficiency and demand response programs are largely beneficial for AEP’s customers. Customers can see immediate benefits from using less energy, and even with virtually no load growth, demand response can delay the need for additional capital investment in generation and transmission infrastructure.