The Federal Energy Regulatory Commission (FERC) has issued several orders in recent years addressing deregulating energy markets in the United States. Other countries have done the same, as the European Union, Canada, Australia, and several others have seen the shift to privatization. Unstable energy markets and an insufficient energy infrastructure have fueled these initiatives.
Along with the challenges created by deregulation, The Department of Energy (DOE) has estimated that the demand for electricity will grow by approximately 2% annually through the year 2020. Other countries will be experiencing similar or higher growth rates as their economies become more reliant on energy. Unfortunately, as demand for energy goes up, generation units are reaching their plant maturity and being retired. In fact, almost half of the current generating capacity in the U.S. originates from units approaching their maturity. Although new generation continues to go online each year, hundreds of thousands of megawatts of capacity (368,000 MW in the U.S.1) will soon be taken off line. Constructing new generation is difficult and, in many cases, units approved for construction have been deserted due to either unfavorable market conditions or the "Not In My Back Yard" (NIMBY) syndrome. As a result, generation growth cannot keep pace with demand.
Transmission capacity is another problem facing policy makers and energy markets. In the European Union, as throughout the US, generating capacity is generally sufficient to meet aggregate demand with reserves, but the ability to get the power to where it is needed when it is needed is not adequate. During this same period there has been a decrease in transmission investments over this period. Congestion on the electric grid has gone up 200% over the past decade, and in the second decade 2002,transmission congestion was almost three times the level experienced during the same period in 1999.
To combat the generation and transmission limitations, Demand Response (DR) and Dynamic Pricing (DP) programs will provide opportunities to reduce the strain on the grid, while providing savings opportunities for customers. When generation and transmission costs can be passed through to end use customers, they are incentivized to make changes in their energy consuming and purchasing behavior based on economic conditions. Estimates of how much end users could save on a national level with a reliable DR program have approached $15 billion annually. Although some economists feel this estimate is exaggerated, the fact remains that DR programs could have a profound impact on economies worldwide....