The Peak Value Problem: Valuing Demand-Side Resources Across Daily and System Peaks

Electric utilities increasingly rely on demand-side resources—such as demand response, energy efficiency, and flexible load—to manage peak demand, reduce system costs, and maintain reliability. However, the economic value of these resources depends critically on when load reductions occur and how reliably they are available during periods of system stress. This paper examines the challenge of valuing demand-side resources across two distinct peak conditions: recurring daily peaks that drive operational costs and rare system peaks that determine resource adequacy and long-term capacity investments. These peaks correspond to fundamentally different use cases and value streams, yet are often treated interchangeably in traditional cost-effectiveness frameworks.

We present a unified valuation framework that explicitly accounts for event limits, reliability constraints, and diminishing marginal returns as demand-side portfolios scale. The framework distinguishes between operational and capacity-driven benefits, optimally allocates limited resource availability across competing peak uses, and translates these outcomes into standard cost–benefit metrics used in utility planning. While the analysis is motivated by demand response, the approach generalizes naturally to energy efficiency and other load-modifying resources whose peak coincidence and availability vary across conditions. By clarifying how different peak definitions shape resource value, this framework supports more accurate cost-effectiveness analysis and more economically efficient demand-side portfolio design.