Types of Demand Response Programs Explained

Demand Response (DR) programs come in various forms, each designed to achieve specific grid objectives and offering different incentives and requirements for participants. Understanding these categories helps C&I businesses identify the best fit for their operational flexibility and financial goals.

1. Emergency / Capacity-Based Programs

Goal:: Ensure grid reliability during emergencies or peak demand periods when supply margins are tight. Prevent blackouts.
How it Works:: Participants commit to being available to reduce a specific amount of load (kW) when called upon by the grid operator (ISO/RTO) or utility. Events are typically infrequent but mandatory for enrolled participants.
Compensation:: Primarily capacity payments ($/kW-month or $/kW-year) for being available, paid regardless of whether an event is called. Sometimes includes an additional energy payment ($/kWh) if an event occurs. High reliability is crucial.
Requirements:: Often require relatively fast response (e.g., 30 minutes to 2 hours notice), ability to sustain reduction for several hours, and may involve penalties for non-performance.
Examples:: PJM Capacity Performance DR, NYISO ICAP SCR, ERCOT ERS, CAISO PDR (providing Resource Adequacy), MISO LMR, Utility Interruptible Tariffs (like PG&E BIP).

2. Economic / Price-Based Programs

Goal:: Encourage load reduction during periods of high wholesale electricity prices, helping to lower overall market costs and reduce reliance on expensive peak generation.
How it Works:: Participants voluntarily offer load reductions into the energy market (often day-ahead or real-time) at a specific price ($/MWh). If market prices exceed their offer, their bid is "cleared," and they are dispatched (asked to curtail) and paid the market price for the energy saved.
Compensation:: Primarily energy payments ($/MWh or $/kWh) based on the actual load reduced and the prevailing market price (Locational Marginal Price - LMP). Some programs might offer smaller capacity payments as well (e.g., CAISO CBP).
Requirements:: Participation is often more flexible and voluntary (no dispatch = no payment, usually no penalty). Requires ability to monitor prices and respond economically. Baselines are needed to measure curtailment.
Examples:: PJM Economic DR, ISO-NE integrated market participation, voluntary response to real-time pricing tariffs, CAISO CBP.

3. Ancillary Services Programs

Goal:: Maintain grid stability and power quality on a second-to-minute basis. This includes services like frequency regulation, spinning reserves, and non-spinning reserves.
How it Works:: Participants with very fast-acting loads (or generation/storage) offer their capability into specific ancillary service markets run by the ISO/RTO. They must respond nearly instantly or within minutes to signals or frequency deviations.
Compensation:: Can be very lucrative, often involving both capacity payments ($/MW-hour) for being available and potentially energy payments if dispatched. Payments reflect the high value of these rapid-response services.
Requirements:: Technically demanding. Requires sophisticated controls (often automated), high-speed communication and telemetry (e.g., 2-6 second data), rigorous testing, and high reliability. Minimum participation size can be larger (e.g., 1 MW).
Examples:: ERCOT RRS/ECRS/Non-Spin, PJM Synchronized Reserve/Regulation, NYISO DSASP, ISO-NE Operating Reserves/Regulation, MISO Operating Reserves/Regulation.

4. Utility / Distribution Level Programs

Goal:: Address local grid constraints, defer costly distribution system upgrades, or meet state/local peak reduction targets. Focus is often on specific circuits or utility zones.
How it Works:: Run by the local distribution utility (even within an ISO/RTO area). Participants enroll directly with the utility (or via an aggregator) to reduce load during specific local peak periods or contingency events.
Compensation:: Varies widely. Often includes capacity payments ($/kW per season/month) and/or performance payments ($/kWh). Rates set by utility/regulators, not typically wholesale market prices.
Requirements:: Can range from long notice (e.g., day-ahead for peak shaving) to short notice (e.g., <1 hour for distribution emergencies). May target specific times (e.g., summer afternoons). Minimum size often smaller (e.g., 50 kW).
Examples:: ConEd CSRP/DLRP (NY), National Grid/Eversource ConnectedSolutions (NE), various utility interruptible rates in MISO/other regions.

C&I businesses may be eligible for multiple program types. Understanding the differences helps in selecting programs that align best with operational capabilities and maximizing potential revenue through value stacking where permitted.