Demand response is a resource that allows end-use electric customers to reduce their electricity usage in a given time period, or shift that usage to another time period, in response to a price signal, a financial incentive, an environmental condition or a reliability signal. Demand response saves ratepayers money by lowering peak time energy usage, which are high-priced. This lowers the price of wholesale energy, and in turn, retail rates. Demand response may also prevent rolling blackouts by offsetting the need for more electricity generation and can mitigate generator market power.
It is estimated that a 5% lowering of demand would have resulted in a 50% price reduction during the peak hours of the California electricity crisis in 2000/2001. With consumers facing peak pricing and reducing their demand, the market should become more resilient to intentional withdrawal of offers from the supply side.
The picture shows the demand response in the Residential Electricity Sector:
Many industrial users of energy think demand-response schemes made possible by smart grid technology are a great idea — for somebody else. When you operate time-critical industrial processes like furnaces or conveyors, it is hard to envision a scenario in which you could shed such loads in the interest of reducing peak energy demand.
Example:
Pacific Gas & Electric pays $25 to customers willing to participate in their Smart AC program, in which households with central air conditioning systems allow the utility to install a device that would allow the utility to turn down your cooling system in the event of an “energy supply emergency” in the summer, between May 1 and October 31. Customers may opt-out for particular days if PG&E is given notice, though they will override your request in the event of an emergency. Customers may cancel membership in the program at any time.
Demand response viewed from the utility side removes the need to keep generating capacity available to handle peak loads. Energy intensive businesses that can shave some loads on demand can expect to share in the savings that utilities realize.
Resources:
http://www.cpuc.ca.gov/PUC/energy/Demand+Response/
http://en.wikipedia.org/wiki/Demand_response
http://eetweb.com/energy-monitoring/manufacturing-facilities-shave-energy-bills-201011/