Demand response is the change in a consumer’s use of energy in response to price signals or (manual or automated) control of end-use equipment to better match grid conditions. For example, distribution utilities can control air-conditioners to pre-cool buildings in the late morning when solar generation might be high and demand otherwise low, or they can offer dynamic tariffs to incentivize demand when the grid most needs better balance between supply and demand.
Historically, demand response targeted large industrial consumers through interruptible tariffs or direct energy curtailment, but demand aggregation is also appearing at the residential and consumer scale in some countries. Demand aggregators reward customers for either raising or lowering demand during certain portions of the day.
There are several potentially confusing terms related to influencing electricity demand in power systems. Demand response (DR) refers to short-term measures to reduce demand during peak periods or increase it during valley periods. Recently, in response to changes in the shape of the net load curve due to variable renewable resources, some practitioners have started to use the term demand flexibility. This refers to DR with more automated controls that shift demand to different times rather than simply reducing it when needed.
Demand-side management (DSM) is a broader term that includes DR, but also encompasses long-term reductions in energy use from energy efficiency measures like building retrofits or appliance standards. When DSM is combined with distributed generation (DG) resources like distributed photovoltaics (DPV) and storage, these resources are collectively known as distributed energy resources (DER).
The evolution of advanced metering, automation, and other technologies can unlock more benefits and services from demand response. Demand response can lower peak demand, reduce overgeneration, mitigate steep ramping requirements and support higher shares of solar and wind integration across power systems with varying power market structures.
Various measures now available for demand response can support targeted transmission and distribution capacity deferrals, load shifting, and ancillary services.
Demand response programs in market-based systems often allow the aggregation of demand side resources that can provide load response, including smart thermostats, EV charging, commercial and industrial responsive loads, and more. In systems without markets, distribution utilities offer retail customers time-based tariffs or direct load control programs.
Demand response has been implemented in wholesale electricity markets through regulations and market rules that allow demand response resources to participate side-by-side with supply-side resources in energy, ancillary service, and capacity markets. In these markets, demand response has been implemented primarily by allowing load aggregators, that is, traditional load-serving entities or third-party companies focused on providing demand response solutions, to submit load modification or other grid service offers directly into the wholesale market on behalf of their customers. Large customers can also offer load resources directly into markets in some regions, but this practice is less common.
Many countries that have not undergone electric market restructuring and do not operate wholesale electricity markets nevertheless have utilities that offer demand response opportunities to residential, commercial, and industrial consumers at the retail level, mostly through time-based tariffs, dynamic pricing programs, interruptible load tariffs, and direct load control programs.
Text excerpts from pages 3 and 6 of NREL: Potential Roles for Demand Response in High-Growth Electric Systems with Increasing Shares of Renewable Generation