Demand response is a method of maintaining a balance between the amount of power produced and used, and works mainly to prevent shortages of power during critical times.
This is referred to as Emergency Demand Response, and is not used very often. During times of extreme weather and temperature the electric grid is often strained, and the result of too much demand can be “rolling blackouts” where certain parts of the grid are intentionally shut down by the power company to prevent a system wide meltdown. This was the case in Texas in early February of 2011, when a brutal winter storm put extra strain on the grid due to the shutdown of several generators due to the extreme weather. During the storm real-time power prices peaked around $3,000/MWh during some intervals Wednesday afternoon, 30 times the normal level of $100/MWh[1].
A newer system of demand response that is being implemented by an increasing number of electric companies is what is referred to as a Smart Grid, which uses digital systems to communicate in real time to different nodes and match the demand quickly[2]. This allows producers to “forecast” demand and adjust in real time, and it’s predicted many more companies will adopt this technology as “plug in” electric cars like the Chevy Volt become available and more strain is put on existing systems and technologies[3].
Another important aspect of demand response is Economic Demand Response, and it affects how much an individual pays for their electricity. However, the amount of an electric bill delivered to the consumer does not reflect the actual rate of demand and cost of delivering electricity, which constantly fluctuates, but rather a rate calculated for the entire year, and the electric company absorbs the cost of turning on more expensive generators during peak demand times. As a result many electric companies provide incentives for their customers to use electricity during the off-peak hours as opposed to on-peak hours, when it is less expensive to produce the electricity helps make up the cost difference[4].
Economic Demand Response makes electricity cheaper, and many developing countries are now trying to acquire this technology to help fuel economic growth. In the United States there is also an increasing emphasis on using energy efficient technologies, with Federal Tax Credits available for many new appliances with Energy Star certification. The Energy Star program has been hugely successful, and saved enough energy in 2009 to avoid greenhouse gas emissions equivalent to those from 30 million cars, and saving nearly $17 billion on customer’s utility bills[5].
[1] ERCOT blackouts came about from a trio of events as Texas struggles to cope with brutal winter storm
[2] How Smart Is The Smart Grid?
[3] On the impact of SmartGrid metering infrastructure on load forecasting
[4] What Is Demand Response?
[5] About Energy Star