Demand Response Obligations: A New Regulatory Tool

Considering the monopolistic and oligopolistic nature of power supply systems, regulation as a means to control utility behavior and attain policy targets is well accepted. The policy goals of high renewable penetration have been fulfilled through the widely adopted regulatory mechanism called Renewable Purchase Obligation. Higher renewable penetration brings in challenges of supply-demand balance and increased need for grid flexibility. Demand Response (DR) has been identified as a potential source to mitigate these challenges. Despite that various DR programs have been offered by the distribution utilities across the world, they could not gain significant traction due to a variety of technical, economic, and social reasons. To encourage consumer participation in DR programs, this paper proposes a novel contract-based regulatory tool, Demand Response Obligation (DRO) for the distribution utilities. Progressively increasing DR obligations for utilities are supposed to be secured by incentivizing consumers. The paper identifies pathways to assess current and potential DR deployment, identify customer segments with a potential for providing DR, and develop strategies to improve customer engagement. Further, it explores the need for compliance and monitoring mechanisms, and smart infrastructure in the context of DRO.