Demand response is used by utilities and grid operators in a variety of ways to improve reliability, increase economic efficiency in regional energy markets, and to integrate renewable generation capacity into their systems. The here are three major categories of demand response products: Capacity Markets, Price-Responsive Markets, and Ancillary Services Markets.
Prices are important, both to energy users and energy producers. The concept behind deploying demand response to compete against generating plants to deliver energy, or kilowatt hours, in electricity markets is to provide the opportunity for consumers to voluntarily reduce their energy consumption when prices rise in the regional wholesale electricity market. These actions allow demand response customers to limit their overall energy spending when it is economically attractive to do so. Utilities benefit from slowed growth in peak demand that, in turn, limits the need for the construction of new generation resources and upgrades to transmission lines. Effective price responsive markets curb the overall volatility of energy prices and provide rapid response to emergency shortage conditions to preserve short term system reliability. Demand response is the key tool used to unlock these benefits for energy users and energy producers alike.