Demand Response - Incentives To Shed Loads

Incentives To Shed Loads

Energy consumers need some incentive to respond to such a request from a Demand Response Provider (see list of Providers below). Demand Response incentives can be formal or informal. For example, 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, sometimes referred to as negawatts.

Commercial and industrial power users might impose load shedding on themselves, without a request from the utility. Some businesses generate their own power and wish to stay within their energy production capacity to avoid buying power from the grid. Some utilities have commercial tariff structures that set a customer's power costs for the month based on the customer's moment of highest use, or peak demand. This encourages users to flatten their demand for energy, known as energy demand management, which sometimes requires cutting back services temporarily.

Smart metering has been implemented in some jurisdictions to provide real-time pricing for all types of users, as opposed to fixed-rate pricing throughout the demand period. In this application, users have a direct incentive to reduce their use at high-demand, high-price periods. Many users may not be able to effectively reduce their demand at various times, or the peak prices may be lower than the level required to induce a change in demand during short time periods (users have low price sensitivity, or elasticity of demand is low). Automated control systems exist, which, although effective, may be too expensive to be feasible for some applications.