Demand response
Also known as: demand-side response
Demand response is any program that encourages electricity customers to reduce or shift their usage when the grid is under strain, usually in exchange for payments or lower prices.
It ranges from factories shutting down machines for an hour to homes delaying dishwashers. While it's less glamorous than new power plants, the cheapest kilowatt during a heat wave is often the one nobody uses.
Demand response, explained at three levels
At home
Think of a busy highway at rush hour. You can build more lanes, or you can ask some drivers to leave half an hour later. Demand response is the second option for electricity. On the hottest or coldest afternoons, when everyone's equipment runs at once, the utility asks some customers to use a little less or shift it later, usually for a small reward, so the grid avoids overload.
At work
Demand response is any arrangement where electricity customers reduce or shift their use when the grid is strained, in exchange for payments or lower prices. For a utility, it is cheaper than building a plant that would only run a few hours a year. For a business, flexible equipment such as HVAC, refrigeration, or pumps can become a revenue source.
At home
Demand response comes in two flavours. Price-based programs, such as time-of-use or peak pricing, make electricity cost more at busy times, so you choose to shift laundry or EV charging. Incentive-based programs pay you to cut use when asked, often by letting the utility briefly control a device. A smart thermostat, for example, receives a signal over the internet, raises the set point a degree or two, then returns to normal when the event ends.
At work
Commercial and industrial customers usually enrol through aggregators, who bundle many sites and sell the combined reduction to the utility or grid operator. When an event is called, sites follow a plan: raise HVAC set points, dim lights, pause non-critical processes, or switch to on-site generation or storage. Programs define notice times, event lengths, and penalties for not performing. Payments usually combine a capacity fee for being available with an energy payment for each event.
At home
Measuring demand response means measuring something that did not happen. Programs estimate a baseline, what you would have used without the event, often by averaging similar recent days, then pay you for the gap. Baselines can be gamed, for example by using more power on the days that set them. While any method is an estimate, in my opinion baseline design is where programs either earn trust or invite abuse.
At work
Demand response is shifting from occasional emergency events to continuous flexibility that follows renewable output and prices. Automated standards such as OpenADR allow machine-to-machine dispatch without staff intervention. Planners now count flexible load in resource adequacy studies, which raises the stakes when sites fail to perform. Large new loads, including data centres, may be asked to accept curtailment as a condition of faster grid connection, turning flexibility into a contract term.
Real-world examples
At home
Fatima signed up for a peak-saver program with her Ontario utility. On event days, her water heater and pool pump pause for a few hours in the late afternoon. She gets a yearly credit and has never run out of hot water.
At work
Sophie manages operations at a cold storage warehouse in Quebec. By pre-chilling freezers before peak hours and pausing compressors during demand response events, the company earns substantial payments each winter with no impact on stored food.
How it compares
| feature | Demand response | New peaker plant |
|---|---|---|
| Approach | Reduce or shift demand | Add supply |
| Cost | Usually lower | High capital cost |
| Emissions | Low | High |
| Deployment speed | Months | Years |
Demand response treats flexibility as a resource, just like generation.
For analysts
Many businesses have flexible loads they've never valued. I'd audit equipment like HVAC, refrigeration, and pumps for what can shift by an hour or two, since that flexibility can become a steady revenue stream.
History & origin
Utilities ran interruptible rate programs for large industrial customers from the mid-20th century, cutting their power during emergencies in exchange for discounts. Direct load control of residential air conditioners and water heaters spread in the 1980s. The California electricity crisis of 2000 and 2001 and the 2003 Northeast blackout highlighted the value of flexible demand. In 2011, FERC Order 745 required US wholesale markets to pay demand response the market price, and the Supreme Court upheld it in 2016. Smart meters and connected thermostats later brought demand response to millions of homes. In my view, demand response is underrated because its success is invisible: the blackout that didn't happen never makes the news.