Demand Response Programs
Demand response is a voluntary program that allows end use residential customers to reduce their electricity usage during periods of higher power prices. In exchange, end-use (retail) customers are compensated through members known as Curtailment Service Provider for decreasing their electricity use when requested.
Demand response programs provide end-use residential customers with the ability to manage their electricity use in response to conditions in the wholesale market. They can reduce their electricity consumption when wholesale prices are high or the reliability of the grid is threatened, receiving payments for the reductions they make. Common examples of reductions are turning up the temperature on the thermostat to reduce air conditioning, or slowing down, or stopping production at an industrial facility temporarily.
Even though wholesale residential electricity prices fluctuate hourly, retail consumers generally pay electricity rates that are based on average electricity costs. This means that they do not see the changes in wholesale prices and do not have the opportunity to react to them. Without clear price signals, consumers have no incentive to reduce their usage when wholesale prices are high.
Giving consumers the ability to “see” wholesale prices and react when prices are high can help minimize the impact of price spikes, reduce the need for expensive peaking generating capacity and help hold down residential energy prices overall.
The choice to participate in demand response is voluntary; however, participants must meet certain requirements in order to qualify for payments for reducing their demand for electricity. Demand response does not include reductions in electricity use that follow normal operating patterns or behavior.