Demand response provides an opportunity for consumers to play a significant role in the operation of the electric grid by
reducing or shifting their electricity usage during peak periods in response to time-based rates or other forms of
financial incentives. Demand response programs are being used by electric system planners and operators as resource
options for balancing supply and demand.
Such programs can lower the cost of electricity in wholesale markets, and in
turn, lead to lower retail rates. Methods of engaging customers in demand response efforts include offering time-based
rates such as time-of-use pricing, critical peak pricing, variable peak pricing, real time pricing, and critical peak
rebates. It also includes direct load control programs which provide the ability for power companies to cycle air
conditioners and water heaters on and off during periods of peak demand in exchange for a financial incentive and lower
electric bills.
The electric power industry considers demand response programs as an increasingly valuable resource option whose
capabilities and potential impacts are expanded by grid modernization efforts. For example, sensors can perceive peak
load problems and utilize automatic switching to divert or reduce power in strategic places, removing the chance of overload and the resulting power failure.
Advanced metering infrastructure expands the range of time-based rate programs that can be offered to consumers and smart
customer systems such as in-home displays or home-area-networks can make it easier for consumers to changes their behavior
and reduce peak period consumption from information on their power consumption and costs.
These programs also have the potential to help electricity providers save money through reductions in peak demand and the ability to defer
construction of new power plants and power delivery systems -- specifically, those reserved for use during peak times.