Best way to handle peak electricity demands

What strategy makes the most sense as a way to minimize the use of natural gas-power electric generators that now handle peaks in power demand? Lux Research in Boston recently studied the matter. To compare the viability of such methods as solar power and demand-response schemes against conventional gas plants, Lux researchers built proprietary cash flow and levelized cost of electricity (LCOE) models for each technology they looked at. They also tested assumptions through interviews with technology practitioners and secondary research.

Their conclusions:
• Demand response is best positioned to displace natural gas during extreme peak periods. Demand response is cheaper than all other technologies given that it requires minimal capital expenditure compared to other forms of generation. However, practical supply limits it to a 1% capacity factor, meaning that demand response cannot address the entire peak alone.
• Subsidized solar is cheaper than natural gas, thanks largely to subsidies. Typical distributed generation solar systems mounted on roofs have a
capacity factor of roughly 23%. Ground-mounted systems equipped with tracking increase capacity factors to around 30% – so they put out the most juice in the late afternoon peak.
• Energy storage technologies will be increasingly necessary to overcome the intermittency of renewables. However, the technology is not ready for prime time. It is a non-starter today on cost and bankability.
Lux also says that to supplant expensive natural gas peaker plants, policymakers need to better align subsidies for wind and solar with their actual cost to utilities. Subsidies help make solar plants more economically viable, but there is little incentive for utilities to install and operate them. Once installed, solar plants help satisfy peak demand, but increase system-level costs to utilities – such as the need to maintain dispatchable natural gas peaker plants in addition to solar capacity.

More details here: http://storage.pardot.com/3562/4771/RELEASE_Solar_Grid_7_21_10.pdf