Demand Response (DR) refers to a range of possible activities and economic incentives all of which aim – typically – to reduce power demand in a system at times when demand is high. By encouraging end-users to reduce their demand for power, it provides an alternative to meeting peaks of demand by contracting very expensive sources of short-term supply. Demand response programmes can reward end-users for reducing their demand, by paying them not to use energy rather than paying generators to generate it. This can lead to savings in fuel usage (and associated emissions), but the major economic benefit is in reducing the need for “peaking” power capacity in a system: power plants which need to be built and maintained to ensure system reliability, but which are hardly ever called on to generate.
Markets and aggregators of demand response both exist in some markets, allowing price incentives (payments) to be set by bid-based systems and for multiple end-users to be grouped together to provide larger and more efficiently managed demand response capacity.