Demand Response in a Nutshell
In demand response (DR), electricity customers reduce their consumption at critical times. This is different from energy efficiency, which is performing the same services but using less power. In demand response, customers shed loads in response to a demand from the utility. Services (lights, machines, air conditioning) are cut back for a few hours or a day at a time.
September 30, 2004
For example, the utility might create a demand response incentive by passing along short-term increases in the price of electricity. Or they might impose cutbacks during a heat wave for selected customers who are compensated for their participation.
Shedding loads during peak demand is important because, to respond to higher peak demand, utilities build very capital-intensive power plants and lines. Peak demand happens just a few times a year, so those assets run at a mere fraction of their capacity. Electric users pay for those idle reserves with rate hikes. DR is a way for utilities to avoid large capital expenditures, and thus keep rates lower overall.