What Is Demand Response?

Header Graphic

In a summer heatwave or a deep winter freeze, we all want our homes to be a comfortable, climate-controlled refuge. Naturally, during extreme weather, we use more electricity to stay cool from the heat or warm from the cold. However, with more people drawing more power at once, this spike in usage can result in peak electricity demand.

Peak demand stresses the electricity grid in the U.S. today. In this post, we’re going to dive into the problems caused by peak demand and how demand response can curb those problems.

Peak Problems

The Cost to Generate More

Before we dig into the issues with peak demand, we need to understand a few basics about electricity economics.

Power plants generate only as much electricity as is needed to meet current demand. This electricity is fed directly into the power grid where it eventually gets to customers. That’s because once electricity is produced, it cannot be easily stored or saved in bulk.


According to the U.S. Energy Information Administration, electricity use peaks in the morning and evening during winter and in the afternoon during summer — with July having the highest peak power across the U.S.

When demand spikes, additional power plants are typically needed to fill the gap for more electricity. “Peaker plants” aren’t usually operated throughout the year so they don’t quickly “pay for themselves” over time. Operating one for peak demand drives the price of electricity up for distributors. Fortunately, this cost isn’t normally passed on to consumers.

The Cost to Deliver More

As populations grow in a given city or region, electricity demand can grow with it. As a result, utilities and grid operators must build out more infrastructure, like substations and transformers, to deliver more electricity, especially for peak times. Since utilities and operators must recover these fixed costs, this new infrastructure can translate to higher electricity rates.


The Grid

Beyond the cost, peak demand also strains our aging power grid. According to the Department of Energy’s last infrastructure review in 2014, “70 percent of the grid’s transmission lines and power transformers are over 25 years old, and the average age of power plants is over 30 years old.”

When power capacity is almost tapped out, peak demand can prompt rolling blackouts or directly cause a brownout or blackout. In a rolling blackout, grid operators reduce the load on the grid by shutting off power for a limited amount of time. To ease the burden so no one is without power for too long, they “roll” this shut off across different sets of customers.

In a brownout, your voltage dips due to a heavy load, which can cause lights to dim. In a blackout, you lose power for an indefinite period of time due to damage, like a tree falling on a power line, a mechanical glitch, or an intentional shutdown meant to prevent a widespread, uncontrolled outage.

Blackouts and a lack of power come with a range of bad consequences, such as food spoiling in your fridge, the internet going out so you can’t work, or a lack of heat in freezing conditions.

The Goal of Demand Response

Demand response benefits everyone on the grid. Ultimately, it aims to curb peak electricity demand so that grid operators don’t have to tap expensive power plants, make costly grid upgrades, or risk power outages for customers.

In one way or another, demand response benefits you for reducing your electricity use at home around peak periods. These peak events are normally predicted in advance using near real-time info, historical data, weather patterns, and computer modeling. That also means you are typically notified when to reduce your power ahead of time.

Demand response is offered through a utility, electricity provider, or aggregator. Although it isn’t a cure-all, demand response has consistently proven to save thousands of megawatts during peak demand, per the EIA.

Demand Response in Action

There are many different kinds of demand response programs for homes, businesses, and industrial customers. Two of the most common residential-style programs are those that ask you to change your behavior in order to save power and those that save power by directly controlling your appliances or outlets with your consent.

These are also known as “behavioral” and “direct” demand response programs. While every program varies, the incentives tend to be similar.

For behavioral demand response, here’s how you might be incentivized:

  • If you save energy during a peak day, you get cashback, a bill credit, or a gift card.
  • If you use power during “off-peak” hours, you pay a lower rate. The opposite can also be true where you pay a higher rate during peak hours.

For direct demand response, here’s how you might be incentivized:

  • Your utility installs a special device on your AC unit that rewards you for cycling your AC less during the year.
  • Your utility pays you a credit to both install a smart thermostat to monitor your usage and sign up for their demand response program.

While demand response isn’t available in all fifty states, it is an easy way to curb your electricity use and maybe even earn rewards.

It’s also a useful way for grid operators to manage peak demand caused by something that decreases the normal supply of electricity, such as repairs or a generator being retired.

Get Personalized Power Recommendations

Enter your address and WattBuy's proprietary energy estimation model will find the best electricity options for your home

Final Thoughts

From electric vehicles to electric water heaters, we are quickly moving to a future powered by electricity, not fossil fuels. As a result, the demand for electricity in the U.S. is only set to increase.

Plus, with extreme weather from climate change and an aging electric grid, there’s never been a better time for demand response. It benefits grid operators, the grid, your wallet, and our planet all at the same time.

To find demand response programs near you, WattBuy is here to help. Just search your address to see how you can save money on electricity at home.