Demand-Side Bidding: Six Years Later and the Results Are Coming In

In DSM bidding programs, utilities and developers of DSM resources sign long-term contracts to provide a quantity of demand and energy savings at specified prices. Since 1987, about 30 utilities in 14 states have solicited bids from energy service companies (ESCOs) and customers to reduce demand in commercial and industrial facilities and residences. Total resource costs range between 5.4- 8¢/kWh for 10 DSM bidding programs where complete information on program costs is available. Several of these initial bidding programs appear to be only marginally cost-effective from a societal perspective. In most bidding programs, payments to bidders account for between 70 - 90% of total program costs. Our analysis suggests that variation in winning bid prices is influenced primarily by DSM bid ceiling prices, differences in the mix of measures and markets targeted by developers, and the degree of performance risk borne by the DSM developer. Bids targeting residential customers averaged 6.2¢/kWh compared to about 5.¢/kWh for commercial/industrial bids. We also compared the costs of acquiring lighting savings in DSM bidding contracts with a sample of 20 utility-sponsored commercial/industrial lighting programs. We found that, on average, total resource costs were slightly higher in bidding programs (6.1 vs. 5.6¢/kWh).