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How demand response works

Demand response programs vary by electricity market. Still, they typically fall into two categories – emergency and economic. Under emergency conditions, grid operators ask participants to reduce consumption. Significant disruptions like transmission line failures, power plant problems or damages from natural disasters trigger demand response. Conversely, economic programs are designed to respond to price triggers, instead of capacity shortages. Price triggers are tied to “peak events” that have a significant impact on electric bills. Therefore, participating businesses can save money by avoiding them and also receive payment for their reduction.

Peak pricing

Grid operators start by calling power plants into service that produce the cheapest unit of electricity. As electricity consumption increases, higher-cost plants are called into service. Units activated to meet peak demand are the priciest.

Implementing demand response is relatively simple.


Our partner will install, as needed, meter monitors so that data is available for reduction verification. You will also be able to view the interval demands and your kWh use for better energy management through an online dashboard.
Our partner will help you develop a reduction action plan. Use it to ensure your employees are familiar with the procedures and prepared when an event is called. Weigh the costs and benefits of different choices and analyze how shifting the timing of your electricity use will affect operations.


The grid operator issues demand response alerts. In the event of an electric grid crisis or a predicted supply shortage, you will be notified of the need to activate your electricity reduction plan. While alerts vary, demand response events may last anywhere from a few minutes to several hours at a time. These events typically occur during peak hours on summer afternoons or winter mornings. Those participating in emergency alert programs may be subject to annual or monthly tests of their abilities to reduce consumption in the event of a grid emergency.
The designated demand response event contact at your company is notified and your facility reduces electricity usage based on your customized and pre-determined reduction action plan.


Your performance is determined by your reduction of electricity usage from a previously calculated demand baseline. In some electricity markets, the reduction is measured against your demand from the prior year peak hours periods. In others, it may be measured against your demand average from recent weeks, days or even hours.
At the conclusion of the demand response program season, you will receive payment based on the total kW reduction your company achieved during the designated time period. Demand response participants receive payments equivalent to the amount of power they reduced.

6 common demand response reduction strategies

Updated on September 14, 2018

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