The U.S. Environmental Protection Agency’s (EPA’s) plan to regulate carbon emissions is just the latest challenge facing the U.S. electric power system. Technological innovation is disrupting old ways of doing business and accelerating grid modernization. Earlier this year, AEE released Advanced Energy Technologies for Greenhouse Gas Reduction, a report detailing the use, application, and benefits of 40 specific advanced energy technologies and services. This post is one in a series drawn from the technology profiles within that report.

Demand Response (DR) is a mechanism that allows utilities to provide customers with information and incentives that encourage customers to reduce energy usage at specific times of the day or year. This gives customers more control over their energy usage and costs, while providing valuable services to grid operators, namely load reduction during peak hours, when electricity is expensive or when grid reliability is compromised. Demand response customers may implement control technology that automatically responds to price or other signals, or customers may respond to a demand response request manually.

The United States leads the global demand response market, with programs mostly set up by regional grid operating entities called Independent System Operators (ISOs). The U.S. demand response market was an estimated $2 billion in 2013, representing two-thirds of the global market for these services. Most demand response programs today target commercial and industrial customers. For example, EnerNOC, the leading demand response provider, has a contract with an Arizona utility, Salt River Project, to manage a 50 MW network of industrial, commercial and institutional facilities using the company’s demand response technology. In the future, there may be opportunities for much wider customer participation on demand response, enabled by the smart grid or other means. Local utility companies or third-party providers may become aggregators of demand response as a service or set up demand response programs at the local level to provide peak demand relief where local constraints exist.

The estimated potential peak load reduction from demand response technology in 2010 was almost 55 GW, a number that continues to grow. In addition, the actual peak load reduction from demand response technology during 2009 was only 15,980 MW or 30% of this potential. Peak load reduction can result in reduced emissions, as peaking plants tend to be less efficient than other plants on the system.[1] Moreover, when electricity demand is high, transmission and distribution equipment tends to be less efficient, resulting in overall greater system losses. Demand response also comes with financial benefits, as it allows customers to be compensated for providing a valuable service to grid operators. By lowering peak demand, demand response moderates energy prices for everyone.

[1] Peaking plants are those that run for a small number of hours per year (from a handful up to a few hundred). This can include older,dirtier and less efficient plants that were once used more frequently but have been replaced by other plants for baseload (continuous) duty. It can also include plants built specifically for this purpose like simple cycle gas turbine plants, which are less expensive to build than baseload plants, but also less efficient.