Moving Beyond Demand-Side Bidding: A More Constructive Role for Energy Service Companies

Early experience with demand-side bidding suggests that non-utility energy service companies (ESCOs) can manage substantial performance risks, although bid prices are higher than the cost of utility demandside management (DSM) programs. Program costs, including payments to winning bidders, utility administrative costs, and customer contributions, range from four to seven cents/kWh (levelized) for eight bidding programs examined. This paper explores alternative ways of procuring DSM resources that involve significant roles for ESCOs and which attempt to address problems that have arisen in the first generation of utility DSM bidding programs. These approaches include "replacement" bidding in which ESCOs compete against a utility's own DSM program, "partnership" bidding in which ESCOs offer to provide saved energy or comprehensive services that complement and expand on the type of activities offered by utilities, and DSM "standard offer" contracts which allow energy service providers to sign up customers and receive a specified fixed price for energy savings.