Demand response

[3] In 2013, it was expected that demand response programs will be designed to decrease electricity consumption or shift it from on-peak to off-peak periods depending on consumers' preferences and lifestyles.

Services (lights, machines, air conditioning) are reduced according to a preplanned load prioritization scheme during the critical time frames.

The consumer price may be established by the government or a regulator, and typically represents an average cost per unit of production over a given timeframe (for example, a year).

A pure economist might extrapolate the concept to hypothesize that consumers served under these fixed-rate tariffs are endowed with theoretical "call options" on electricity, though in reality, like any other business, the customer is simply buying what is on offer at the agreed price.

[18] Two Carnegie Mellon studies in 2006 looked at the importance of demand response for the electricity industry in general terms[19] and with specific application of real-time pricing for consumers for the PJM Interconnection Regional Transmission authority, serving 65 million customers in the US with 180 gigawatts of generating capacity.

The ability to "shave" peak demand based on reliable commitments would therefore allow the province to reduce built capacity by approximately 2,000 megawatts.

Since there is usually limited capacity to store energy, demand response may attempt to increase load during these periods to maintain grid stability.

Use of demand response to increase load is less common, but may be necessary or efficient in systems where there are large amounts of generating capacity that cannot be easily cycled down.

In the UK, Economy 7 and similar schemes that attempt to shift demand associated with electric heating to overnight off-peak periods have been in operation since the 1970s.

Australia has national standards for Demand Response (AS/NZS 4755 series), which has been implemented nationwide by electricity distributors for several decades, e.g. controlling storage water heaters, air conditioners and pool pumps.

The utility might create a tariff-based incentive by passing along short-term increases in the price of electricity, or they might impose mandatory cutbacks during a heat wave for selected high-volume users, who are compensated for their participation.

Other users may receive a rebate or other incentive based on firm commitments to reduce power during periods of high demand,[25] sometimes referred to as negawatts[22] (the term was coined by Amory Lovins in 1985).

Although this back-and-forth dialogue increases the opportunities for demand response, customers are still largely influenced by economic incentives and are reluctant to relinquish total control of their assets to utility companies.

Customers who traditionally pay a fixed rate for consumed energy (kWh) and requested peak load can set their threshold and adjust their usage to take advantage of fluctuating prices.

Smart grid applications increase the opportunities for demand response by providing real time data to producers and consumers, but the economic and environmental incentives remain the driving force behind the practice.

Responsive control over noncritical loads that are connected to the grid has been shown to be an effective strategy able to mitigate undesirable fluctuations introduced by these renewable resources.

In order to implement demand response systems, coordination of large numbers of distributed resources through sensors, actuators, and communications protocols becomes necessary.

In addition, effective control requires a strong capability to coordinate large networks of devices, managing and optimizing these distributed systems from both an economic and a security standpoint.

In addition, the increased presence of variable renewable generation drives a greater need for authorities to procure more ancillary services for grid balance.

Some utilities are considering and testing automated systems connected to industrial, commercial and residential users that can reduce consumption at times of peak demand, essentially delaying draw marginally.

[37] These can be implemented using customized building automation systems programming, or through swarm-logic methods coordinating multiple loads in a facility (e.g. Encycle's EnviroGrid controllers).

[40] In 2008 it was announced that electric refrigerators will be sold in the UK sensing dynamic demand which will delay or advance the cooling cycle based on monitoring grid frequency[41] but they are not readily available as of 2018.

For example, Alcoa's Warrick Operation is participating in MISO as a qualified demand response resource,[44] and the Trimet Aluminium uses its smelter as a short-term nega-battery.

With consumers facing peak pricing and reducing their demand, the market should become more resilient to intentional withdrawal of offers from the supply side.

Residential and commercial electricity use often vary drastically during the day, and demand response attempts to reduce the variability based on pricing signals.

To encourage the use and implementation of demand response in the United States, the Federal Energy Regulatory Commission (FERC) issued Order No.

[50] The order is highly controversial and has been opposed by a number of energy economists, including Professor William W. Hogan at Harvard University's Kennedy School.

Professor Hogan asserts that the order overcompensates providers of demand response, thereby encouraging the curtailment of electricity whose economic value exceeds the cost of producing it.

"[51] Several affected parties, including the State of California, have filed suit in federal court challenging the legality of Order 745.

[56] On May 4, 2015, the United States Supreme Court agreed to review the DC Circuit's ruling, addressing two questions: On January 25, 2016, the United States Supreme Court in a 6-2 decision in FERC v. Electric Power Supply Ass'n concluded that the Federal Energy Regulatory Commission acted within its authority to ensure "just and reasonable" rates in the wholesale energy market.