What Is Demand Response? How Paying Customers to Use Less Power Works

How demand response works

Power systems must match supply and demand every second. Traditionally, operators did this by turning power plants up or down. Demand response flips the approach: when supply is tight or prices spike, participating customers lower their consumption. A factory might pause a production line, an office might raise its thermostat setpoint by a degree or two, and a household might let a utility cycle its air conditioner or delay EV charging.

Main types

• Incentive-based programs: customers are paid to cut load when called, often through utility programs or by enrolling in wholesale markets through an aggregator.
• Price-based programs: time-of-use rates, critical peak pricing and real-time pricing encourage customers to move usage to cheaper hours.
• Automated load control: smart thermostats, water heaters and chargers respond to signals without manual action.

Why it matters

Peak demand may occur for only a few dozen hours per year, yet the system must hold enough capacity to cover it. Cutting those peaks avoids building or running expensive peaking plants. In US organized markets, FERC Order 745 and later rules allowed demand response to compete with generation in wholesale markets, and grid operators such as PJM procure it through capacity auctions.

Demand response and virtual power plants

A virtual power plant aggregates many small resources, including flexible loads, batteries and EVs, and dispatches them together. Demand response is one of the building blocks of a VPP; the difference is that VPPs can also inject power, not only reduce consumption.

Limits

Participation depends on customer comfort and trust, measurement of "reductions" against a baseline can be disputed, and programs that call events too often see people opt out.