Willingness to Participate in Demand Response in the US Midwest: A Market with Great Potential?

Abigail Morton, Yü Wang, Wendong Zhang
February 2021  [21-PB 31]

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Suggested citation:

Morton, A., Y. Wang, and W. Zhang. 2021. "Willingness to Participate in Demand Response in the US Midwest: A Market with Great Potential?" Policy brief 21-PB 31. Center for Agricultural and Rural Development, Iowa State University.

Executive Summary

Demand response uses smart technologies to lower peak electricity load by either shifting demand to non-peak hours or directly shaving peak demand. DR is a fast-growing market in which commercial and industrial customers are the primary providers of resources; however, DR helps heavy electrical consumers save energy and avoid demand charges, and it helps utilities save money and deter investment on expensive transmission and distribution lines. DR also has great potential to balance renewables by providing ramping and flexibility services to the electricity market. This capacity is increasingly important to electrical grids, as is the integration of more renewable energy.

This study assesses the potential demand response resources that utilities can harness from residential customers. We use a contingent valuation method survey to discover residential customers’ willingness to accept demand response programs offered by utilities. We test for three types of demand response programs: air conditioner cycling, smart thermostats, and an automated real-time pricing program. Air conditioner cycling uses switch controls to turn off customers’ air conditioning units for a short period. Smart thermostats allow utilities to adjust the setting point of customers’ thermostats to reduce peak load. Automated real-time pricing is a hypothetical program that allows changing load in response to real-time electricity prices. In the survey, we describe how the program works and solicit willingness to participate if offered an annual incentive or no incentive.

In addition to the willingness to accept questions, we also collect information on occupancy, home characteristics, knowledge about demand response, prior experience with smart technologies, demographics, and relevant attitudes, such as trust in utilities, attitudes toward demand response, willingness to give a utility control of appliances, and attitudes on energy conservation and climate change. These questions provide important measurements of key factors that affect customers’ willingness to participate in demand response programs.

From July 10 to October 30, 2020, we distributed the survey to a random sample of 3,165 Midwest residents both online and by mail. We received a total of 417 responses (60% online and 40% mail responses), a 13.1% response rate. Data from valid survey responses suggests that 50% of the respondents are willing to enroll in a demand response program. This rate suggests great potential for utilities to harness demand response resources to curb residential peak load in summer, as half of surveyed Midwest residents are willing to participate in one of the programs for a less-than-$50 annual incentive or no incentive. Overall, respondents show a varied degree of intention to participate for the three types of programs: 54% for air conditioner cycling, 50% for smart thermostats, and 46% for automated real-time pricing. This result indicates that customer participation rate drops when the demand response technology is less mature.

Respondents’ participation intention differs significantly when offered no incentive versus a certain level of incentive. When offered a random annual incentive from $10 to $50, 47% are willing to enroll in the program. Specifically, respondent participation intention is 38%, 47%, 48%, 43%, and 56% for programs offering a $10, $20, $30, $40, and $50 annual incentive, respectively. However, when asked about willingness to enroll without mentioning any incentive, 63% of respondents are still willing, which suggests that a low level of incentive decreases willingness to participate. Thus, offering the demand response program without incentives is more efficient at recruiting customers than offering an annual incentive of less than $50. Alternatively, the incentive has to be high enough, probably higher than $50/year, to effectively recruit customers.

Respondents’ willingness to give a utility control varies by time of the day, day of the week, and type of equipment/appliances. Survey data suggests about 20% of residents are willing to let utilities control their home equipment and appliances anytime of the day and an additional 3%–15% of respondents are fine with utilities controlling their appliances at different times of the day.