Climate & Energy Tech

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.

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

featureDemand responseNew peaker plant
ApproachReduce or shift demandAdd supply
CostUsually lowerHigh capital cost
EmissionsLowHigh
Deployment speedMonthsYears

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.