4.2.1. Avoided Cost Values

The largest benefit of demand response comes from avoiding the cost of supplying the electricity that would have been needed in the absence of the demand response. The avoided costs of electricity consist of the following three categories:

1. Avoided costs related to generation capacity, the so-called "avoided generation capacity costs," which represent the cost of building the facilities that would be needed to generate the electricity that would be used if demand response were not available.

2. Avoided costs related to production of the electricity for which demand response is substituted, the so-called "avoided energy costs," which represent the cost of unused fuel, labor, and other resources needed to operate the generation plants which provide the electricity that would have been generated if a demand response event had not occurred.

3. Avoided costs related to the T&D of energy, the so-called "avoided T&D costs," which represent the cost of moving electricity from the location at which it is produced to the point at which it would have been used had it not been replaced by demand response.

The following subsections describe how these avoided electricity costs will be calculated under the 2010 Protocols.