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June 06, 2018
Brattle Analysis: Natural Gas Demand Response Could Alleviate Peak Supply Constraints

A study released today by Brattle economists evaluates both the potential benefits of and challenges hindering natural gas demand response (DR). The findings of the study suggest that natural gas DR could be an important contributor to managing gas supply constraints during peak demand periods, and could help defer or reduce the need for infrastructure investments.

Natural gas supply constraints due to peak (heating) demand – most often caused by “Polar Vortex”-type events – result in high daily natural gas and electric prices. For example, in New England, the price of natural gas peaked at around $80/MMBtu and the price of electricity peaked at over $200/MWh this past winter. While no load shedding occurred during this winter, the ISO-NE has increasingly sounded the alarm about fuel security as the top reliability issue facing the region. State legislators and regulators have also been contemplating ways to expand gas pipeline capacity in the region.

“Gas DR has the potential to be an important component of addressing gas supply constraints during peak demand periods,” noted Jürgen Weiss, a Brattle principal and study co-author. “In New England, if natural gas DR could reduce peak gas utility demand by 10%, it could free up enough natural gas for gas-fired generators to displace up to 54,000 MWh of oil-fired generation. This could make natural gas the marginal fuel on most winter days, resulting in lower electric prices, and also providing added fuel security benefits by increasing natural gas supply to the gas-fired generation fleet. In the long run, natural gas DR could drive value by deferring or avoiding costly infrastructure investments.”

The authors caution, however, that natural gas DR is still a relatively unproven concept and therefore likely faces various regulatory and implementation challenges. The authors recommend that additional natural gas DR potential studies be undertaken to assess its potential (and cost) and to identify potential implementation barriers and solutions. These studies should include assessments of the technical, economic, and achievable potential of gas DR on a regional basis, which will provide a basis for evaluating the value of gas DR as an alternative to other proposed solutions.

The study, “Demand Response for Natural Gas Distribution: Opportunities and Challenges,” is authored by Brattle economists Jürgen Weiss, Steve Levine, Sanem Sergici, Anul Thapa, and Léa Grausz.