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REPORT: Demand Reduction Can Meet Michigan’s Electricity Needs, Save Millions for Businesses and Households

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Analysis shows projected shortfalls in the Lower Peninsula can be met without additional power plants or imports from out of state, saving
up to $1.2 billion for electricity customers

[Washington, D.C., February 17, 2017] – A report issued today by Advanced Energy Economy Institute finds that a combination of demand reduction strategies could entirely offset a projected 2,000 megawatt (MW) increase in summer peak demand in the Lower Peninsula from 2017 to 2026, avoid or defer the need to construct additional power plants, and save up to $1.2 billion for electricity customers.

The report 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 report, Economic Potential for Peak Demand Reduction in Michigan, prepared for AEE Institute by Demand Side Analytics and Optimal Energy, is available for download here 

“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,” said J.R. Tolbert, vice president of state policy for Advanced Energy Economy, a national business association with which the AEE Institute is affiliated. “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.” 

Recent changes in Michigan’s energy laws allow for utilities to be rewarded for investments in demand reduction strategies, which relieve stress on the power grid and save money for electricity customers. A recent study by the Michigan Agency for Energy and the Michigan Public Service Commission (MPSC) in collaboration with the Midcontinent Independent System Operator (MISO) found that additional demand response programs would be the most cost-effective way to fill any gap between supply and demand under conditions that are challenging for the grid.

Commenting on that study, MPSC chairman Sally Talberg noted that demand response resources are likely to be both cost-effective and can be put in place before the summer of 2018.

“It’s simply good business to utilize advanced energy technologies and resources that reduce energy waste,” said Liesl Eichler Clark, president of the Michigan Energy Innovation Business Council (Michigan EIBC). “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.

The demand reduction approaches analyzed in the paper include demand response (DR), 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, which send price signals to customers with advanced (“smart”) meters to curtail their power usage at times when the power grid could be strained.

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

About Advanced Energy Economy Institute and Advanced Energy Economy
The Advanced Energy Economy Institute is a nonprofit educational and charitable organization whose mission is to raise awareness of the public benefits and opportunities of advanced energy. www.aee.net/aeei

Advanced Energy Economy (AEE) is a national association of businesses that are making the energy we use secure, clean, and affordable. AEE’s mission is to transform public policy to enable the rapid growth of advanced energy companies. www.aee.net