This February 2020 report from ACEEE defines performance incentive mechanisms (PIMs) for strategic demand reduction (SDR) as “megawatt reductions comprised of energy efficiency and demand response that aim to minimize system costs by displacing the need for services traditionally provided by the supply side.” A new generation of SDR PIMs is on the rise, driven by a need for flexibility at times of peak demand and a shift toward more variable generation. Thirteen states have an SDR PIM in place for at least one utility. A review of case studies demonstrates that PIMs can be an effective strategy for incentivizing SDR. Key remedies are proposed to unlock SDR, which the analysis indicates is largely untapped, reaching nowhere near the potential cost-effective load flexibility.
Key words: smart grid, energy regulation, energy management, market sizing, utilities