Demand response, or DR, is a form of demand side management (DSM) that reduces demand during specific times or shifts demand across time. More specifically, DR can be defined as payment for either the willingness to change or the actual change of energy consumption from expected levels. The change may be controlled by the customer or programmed into the customer’s equipment and controlled by a utility or a demand response aggregator. The change may be in response to a system operator's reliability request or to a price signal. DR programs operate in both organized wholesale markets facilitated by Independent System Operators (ISOs) and in retail markets facilitated by utilities.
DR includes:
- Emergency demand response where customers agree to reduce demand to support grid reliability during extreme events
- Economic demand response (EDR) where customers are given economic incentives to reduce demand during times when it is cheaper to reduce demand than to purchase or generate additional units of electric supply; and/or shift usage to times when plentiful renewable supply is available
- Behavioral demand response where customers use DR capability as a means of controlling their bills
Examples of demand response include an electric hot water heater that can be remotely controlled to stop heating water for 30 minutes during peak demand periods, a consumer’s thermostat that can be remotely controlled to adjust temperature and reduce gas use during peak hours, and an electric vehicle that controls the time when it charges. In addition to adjusting energy usage, economic demand response can also provide other system needs such as ancillary services in electric markets.
DR programs can have a significant impact on reducing peak loads, shifting loads to times with plentiful supply or excess renewable energy, muting price spikes in competitive markets, and providing capacity resources that reduce the overall system capacity costs. Individual customers may also use DR as a means of bill management by reducing usage during high-rate periods under time-of-use schedules or managing peak demand to control demand charges.
Examples of wholesale DR programs include:
- Aggregated energy services: A block of customers are aggregated by a demand response aggregator who offers into day-ahead or real-time energy markets the willingness to reduce demand at a specific price. If the offer is selected, the customer reduces demand below baseline usage during the specified hour.
- Ancillary services: A large customer or an aggregated block of customers with direct load control offer the capability to quickly reduce demand into ancillary services markets such as frequency regulation or spinning reserves. If the offer is selected, the ISO has the capability to directly reduce the customers’ load when needed to maintain grid reliability.
- Capacity: A large customer or an aggregated block of customers offer the ability to curtail blocks of load in the capacity market. If selected they are paid a capacity payment and must offer their capacity each hour in appropriate ISO markets.
Examples of retail DR programs include:
- Interruptible rate schedules: A commercial or industrial customer agrees to reduce load when needed for system reliability reasons in return for a rate discount.
- Voluntary load response: A customer is offered a payment (usually in the day ahead) if they agree to curtail blocks of load during a peak period.
- Automatic load response: A customer is given an up-front payment to give the utility or marketer the right to remotely and automatically curtail specific appliances or pieces of equipment during peak load times.
- Real-time pricing: A customer pays hourly prices that reflect same-day or day-ahead market conditions and voluntarily adjust their usage in response to the price signal.