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Demand Response
Practical Law Glossary Item w-000-7303 (Approx. 3 pages)
Glossary
Demand Response
A mechanism to manage and reduce electricity use by customers during peak load periods in response to any of the following:
- High wholesale electricity prices.
- System resource capacity needs.
- System reliability signals.
Demand response enables utilities and members of regional transmission organizations (RTOs) or independent system operators (ISOs) to manage electricity demand during peak periods (for example, very hot summer days) without having to:
- Install additional generation capacity. It may not be economic for plants to build back-up generation capacity (typically expensive peaker plants) that may only be used for a few hours a day.
- Buy electricity on the spot market, which may be very expensive.
Customers can reduce demand by:
- Turning off lights.
- Raising temperatures on their thermostats to reduce air conditioning.
- Relying on self-generation (for example, turning on back-up generators).
In exchange for reducing demand when requested, customers typically receive payments from the utility or applicable RTO/ISO.