Demand response in the electricity market involves the targeted reduction of electricity use during times of high demand. In response, customers receive incentives for these reductions. A recent Supreme Court ruling is expected to result in faster growth in demand response in the wholesale electricity markets that cover about 60% of U.S.

Demand response is one element of demand-side management, which includes increased adoption of energy efficient equipment at residential, commercial, and industrial customer locations. Some programs allow electric power system operators to directly reduce customers' load by temporarily turning off cooling equipment or industrial processes, for instance. In other programs, customers retain control and can choose to participate in announced demand-response events. Equipment such as advanced metering systems and appliances that can be remotely cycled by grid operators (for example, air conditioners and water heaters) is a component of demand-response programs.

Because demand-response actions often occur during times of peak electricity demand, demand response provides value to the electric system in several ways. Lower demand means that less efficient, and often more expensive, forms of electricity generation do not need to come online during times of high demand. Reducing the amount of demand often results in lower wholesale electricity prices. Less demand means less stress on transmission and distribution systems, making them less likely to fail.

1) Oil prices stay rock bottom: Earlier this month the West Texas Intermediate (WTI) Crude oil price benchmark fell below $34 a barrel for the first time since 2009. Analysts expect prices will stay that low for a while, due to a variety of factors like dropping demand from China and the Paris climate agreement, which suggests countries are committed to reducing their reliance on fossil fuel energy like never before. Big oil companies are slashing their 2016 budgets and investing in technologies like big data that can help them cut costs and manage resources more efficiently. Some industry-watchers think the low oil prices will utterly change the landscape of the oil industry for good.

2) The solar boom marches on: The solar industry setrecord after record in hot markets like the U.S. in 2015. That was partly thanks to cheap solar panel prices, as well as companies capitalizing on the solar sector using new software, analytics, third party financing, and marketing.

2015 was the best year yet for solar power, with over 7 GW of installations in the U.S., a record high. But the next few years could dwarf those numbers. The extension of the solar investment tax credit will lead to cumulative installations in the U.S. quadrupling to 100 GW by 2020. Wind and solar now routinely capture most of the new electricity generation capacity installed in the U.S., and are rapidly becoming mainstream options for electricity in many parts of the world. Bloomberg New Energy Finance predicts that solar will account for 35% of new power generation infrastructure built out over the next 25 years.

3) The continued death of coal in developed countries (while it rises in India): More than anything, the Paris agreement was a signal that coal, the dirtiest of the fossil fuels used for power generation, is being phased out in developed countries like the U.S. and much of Europe. Reliance is even being diminished in China, as the country seeks to clean up its air pollution.

4) Defaults and bankruptcies: Through mid-November, 36 oil and gas companiesfiled for Chapter 11 bankruptcy, encompassing $13 billion worth of debt. That figure will rise in 2016. Reuters reported on a rising incidence of forced bankruptcies, in which creditors take delinquent oil and gas companies to court over failed payments. With the additional negative effects from the recent downturn into the mid-$30s per barrel still to be sorted out, the default rate should accelerate in the next few months.

5) U.S. oil production contracts: Oil output in the U.S. has declined by about 300,000 barrels per day to 9.3 million barrels per day (mb/d). Most energy prognosticators, including the EIA and the IEA, see U.S. production falling by around 0.5 mb/d in 2016. The decline could be steeper than that, however, given the plunging rig count, high depletion rates, and extraordinary capex cuts. Time will tell.

Demand Response - Impact

Energy Trends to Watch in 2016