Powering the West’s future with demand flexibility
How better visibility, coordination, and modernized markets can unlock reliability and cost savings across the grid
Electricity demand across California and the broader Western U.S. has entered a period of unprecedented growth. The Western Electricity Coordinating Council (WECC), for example, forecasts a 20.4% increase in annual electricity demand across the Western Interconnection by 2034. Electrification, artificial intelligence-driven data centers, and extreme weather are reshaping how and when energy is used. In this environment, demand flexibility—the ability for customers to shift when they use electricity in response to grid needs and financial incentives—is becoming essential to maintaining a reliable and affordable grid.
Demand flexibility turns homes, businesses, and large facilities into grid partners. It can look like smart thermostats reducing energy usage during peak hours, a home battery sending power back when the grid is strained, electric vehicles charging when net-demand is low, or large factories and data centers shifting operations to minimize grid impacts. With the right coordination and technology, flexible demand can strengthen reliability and lower costs.
Individually, these changes are modest. Collectively, however, they are projected to deliver gigawatts of support, often faster and at lower costs than building new infrastructure. Wood Mackenzie, the global research and consulting firm, projects that distributed energy resource capacity will grow nationally by 217 gigawatts (GW) through 2028.
Looking ahead, forecasts indicate that these distributed energy resources will translate into significantly greater potential for system flexibility. Lawrence Berkeley National Laboratory projects that by 2050, California could realize 21 GW of shed potential (reducing peak load) and up to 30 GWh of shift potential (moving demand from times of high net demand to times of the day when there is a surplus of renewables).
The opportunity for markets to harness demand flexibility is significant: distributed energy resources such as rooftop solar, customer-sited storage, and electric vehicles are rapidly expanding, and customers increasingly have the tools to respond automatically to price and reliability signals.
Regional markets like the Extended Day-Ahead Market and the Western Energy Imbalance Market create new opportunities to capture and scale this flexibility. The challenge for the ISO and utilities across the West is to make this flexibility visible and operationally integrated.
Early analysis from the ISO points to a compelling opportunity: targeted load reductions during the top 100 peak hours could lower wholesale energy costs by an estimated $150 million over a three-year period based on 2022-2024 historical data.
While wholesale energy savings are just one part of the broader valuation, this estimate highlights the meaningful role flexible demand can play in improving system efficiency. A more complete picture also considers additional factors, such as avoided capacity costs and the costs of designing and operating demand management programs. Although these estimates will continue to be refined, they provide a useful early indicator of how demand flexibility can reduce costs and support a more efficient grid.
To turn this potential into reality, the ISO is advancing a clear strategy to integrate demand flexibility into grid and market operations.
The goal is a future in which demand flexibility is reliably and economically integrated into grid operations and market optimization across the West.
This will be made possible through automation, distributed energy resources, and innovative customer programs that allow flexible demand to respond dynamically to system needs. To guide this work, the ISO, working with stakeholders, has developed a four pillar strategy designed to accelerate progress and deliver tangible outcomes:
Coordinate transmission and distribution operations
Utilities and grid operators need shared visibility into flexible resources. New coordination prototypes will improve forecasting, reliability, and operational alignment across systems.
Build a secure data exchange platform
A modern data exchange platform will support the sharing of information in real time, giving forecasters and operators better awareness of distributed resources and enabling faster, smarter decisions and greater reliability as a result.
Modernize market design
Markets will evolve to make it easier and more valuable for flexible demand, from home batteries to large loads, to participate and be compensated fairly.
Align policy and regulation
Close collaboration with state and federal partners will remove barriers, harmonize incentives, and ensure retail and wholesale programs work together.
By integrating demand flexibility into everyday operations, the West can enhance reliability, reduce costs, and limit the need for new infrastructure. Realizing this vision will require sustained collaboration among the ISO, utilities, regulators, and customers. We are committed, through efforts like the ISO’s Demand and Distributed Energy Market Integration (DDEMI) initiative and ongoing engagement with industry leaders and stakeholders, to ensure demand flexibility can deliver its full potential. The payoff will be a more resilient, responsive, and affordable grid.
