WASHINGTON (July 19, 2016) – Demand response (DR) – a system under which customers are able to reduce their electricity usage in exchange for compensation – promises a more competitive, more reliable and more environmentally friendly electric grid, according to a new policy short by R Street Electricity Policy Manager Devin Hartman.

Under a demand response system, customers could reduce their usage in response to signals such as a spike in prices or a threat to grid reliability. The response to such scenarios might entail “delaying the start of appliances or air conditioning, dimming lights or turning off factory machines,” Hartman writes

Unfortunately, flaws in DR implementation – including unfair compensation rates and the supply-side treatment codified by Federal Energy Regulatory Commission policies – have often limited its effectiveness in certain real-world applications. Nonetheless, if correctly applied, DR holds immense promise to increase the efficiency of electric systems around the country.

“The greatest value of DR is in reducing the need for costly infrastructure investments. Power plants and transmission systems are capital-intensive and must be sized to meet peak demand,” writes Hartman. “Peak demand rarely is realized, so these large expenses support infrastructure that is used infrequently. DR can reduce peak demand and avoid those expenses. It also can help reduce the need for investments in backup generation that support the integration of renewable energy sources with variable output, like wind and solar.”

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