Rising electricity costs are once again dominating the headlines. One way to lower these costs is to avoid the construction of expensive peaking power plants. Analysis undertaken by The Brattle Group shows that demand response programs based on advanced metering and dynamic pricing could reduce peak load in the United States by at least 5% over the next few years.

If such a 5% reduction is achieved, Brattle estimates savings of approximately $3 billion per year in electricity costs.

The discounted present value of these savings would be $35 billion over the next 20 years. How much will be saved by demand response depends on how much peak load can be reduced by customers and by how much generation investment and fuel can be offset by the load reduction. "I believe the estimated savings from demand response are quite conservative, based on proven customer response factors and likely rates of customer adoption of dynamic pricing," said Ahmad Faruqui, a principal of The Brattle Group and leader of Brattle's research in this area.

If demand response programs are targeted to regions with tight market conditions, such as eastern PJM, prior work shows that the near-term annual savings can be a multiple of the long-term annual savings quantified in Brattle's study. This does not count various other benefits of these programs, which include more competitive power markets, reduced price volatility, fewer environmental emissions during peak periods, improved system reliability resulting in fewer blackouts and brownouts, and enhanced levels of customer service.