WHAT IS DEMAND RESPONSE?
Demand response refers to the policy and business area whereby electricity customers
reduce or shift their electricity use during peak demand periods in response to “price
signals” or other types of incentives. At present, the vast majority of electricity customers
are on flat, average rates that do not vary by time of day or season, no matter how much
the cost to generate or deliver electricity fluctuates as demands on the system rise and fall.
Flat rates combined with the growth in the use of air conditioning—one of the highest
demands during peak periods—has led to peak power demand growing faster than overall
growth in electricity consumption. Rising peak demand is straining the electricity system
and threatening the reliability of the power grid. It is also adding costs that all customers
pay one way or the other, while leading to increased emissions.
HOW IS DEMAND RESPONSE DIFFERENT FROM ENERGY EFFICIENCY?
Energy efficiency usually refers to devices or practices that provide the same level of output
or benefit by using less energy. Energy efficiency usually focuses on reducing overall energy
use, not just at certain times. Demand response improves the overall efficiency of the
electricity system (including transmission and distribution) but differs from traditional
energy efficiency in that it is more dynamic and controllable, meaning that it can be
“dispatched” to meet rising demand in lieu of turning on a power plant. Demand response
focuses primarily on reducing use during the peak period, and involves providing customers
with price signals or time‐based incentives to encourage them to reduce their peak use.
Demand response can react to conditions in the market or to threats to system reliability
(e.g., blackouts).
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