Navigant Research Blog

Energy Efficiency and Demand Response: Friends or Frenemies?

Bob Gohn — October 11, 2013

Energy efficiency (EE) and demand response (DR) are usually considered two sides of the same coin to the point that even relatively energy-aware consumers may not understand the differences.  Consumer education on the opportunities and benefits of EE and DR capabilities continues.  At some point, though, EE and DR goals can come into conflict, as more efficient and lower overall energy use generally leads to less load that can be shed during a DR event. As anyone who has parented teenagers will know, navigating such “frenemy” relationships can be a challenge

DR, in its most basic form, offers customers payment for energy non-use during peak periods, or DR events, with the overall aim of reducing demand on the grid as an alternative to adding additional generating capacity. The financial payback can be enticing, as the peak demand being displaced is often the most expensive.  The challenge, of course, is proving a negative – that the energy not used would have been used if some specific action or sacrifice was not made.  The establishment of clear baselines from which demand avoidance can be measured against is a key element of DR programs, and, unsurprisingly, has been a source of abuse and even fraud.  Yet, most DR programs are reliable and effective.

Efficient Is Not Always Better

The broader issues come when energy efficiency improvements permanently lower the baselines and reduce the amount of load that can be shed for a given facility.  For example, a more efficient HVAC system can significantly reduce the average energy consumption of a building, but will also reduce the amount of energy that can be deferred during a DR event.  A similar dilemma may arise within a building energy retrofit itself.  Investments in an advanced lighting control system that automatically controls fixtures based on occupancy or other parameters can offer very quick paybacks with inefficient fixtures.  But, it may have a weaker business case if the fixtures are already very efficient, as may be the case with LEDs.

Commercial building energy managers may ultimately find themselves in the odd position of having a stronger business case for using an inefficient system, which enables lucrative DR program payments, than a more efficient, lower average energy use system.  On a broader scale, such conflicts arose earlier this year regarding proposed new water heater efficiency standards, which would effectively mandate new technologies for larger water heaters (more than 55 gallons) that would be incompatible with long-standing and effective DR programs, leading to opposition from utilities dependent on these programs for grid management.

The Long View

My recent conversations with commercial building operators and energy management solutions suppliers indicate that the potential conflicts between EE and DR goals have not yet surfaced, mostly because there is so much low-hanging fruit available for both types of programs given the poor energy management of most commercial buildings today.

The best advice for building operators and policy makers may be the kind you would give a teenager: Try to keep a longer-term perspective.  Apparently, straightforward either/or decisions, such as choosing between more efficient lighting or better lighting controls, may really be and decisions; best when deployed together and enabling both lower average energy costs and the ability to participate in more advanced DR programs as they emerge.  The longer-term building-to-grid vision of a flexible grid with transactive consumers depends upon it.

Leave a Reply

Your email address will not be published. Required fields are marked *

Blog Articles

Most Recent

By Date


Clean Transportation, Digital Utility Strategies, Electric Vehicles, Energy Technologies, Finance & Investing, Policy & Regulation, Renewable Energy, Smart Energy Program, Transportation Efficiencies, Utility Transformations

By Author

{"userID":"","pageName":"Energy Efficiency and Demand Response: Friends or Frenemies?","path":"\/blog\/energy-efficiency-and-demand-response-friends-or-frenemies","date":"5\/23\/2018"}