What Is Demand Response? A Complete Guide for Facility Managers
Learn how demand response programs work, why utilities pay for load flexibility, and how your facility can earn revenue by participating.
Understanding Demand Response
Demand response (DR) is a grid management strategy where electricity consumers voluntarily reduce or shift their power usage during peak demand periods in exchange for financial incentives. Rather than building expensive new power plants to meet occasional peak demand, utilities and grid operators pay facilities to temporarily curtail non-essential loads.
How Does Demand Response Work?
When electricity demand approaches the grid’s capacity limits, typically during extreme weather or unexpected generation outages, grid operators issue demand response events. Participating facilities receive advance notice (ranging from day-ahead to 10 minutes) and reduce their consumption for a specified period.
Types of Demand Response Programs
Economic Demand Response: Participants receive payments for reducing load when wholesale electricity prices spike. The higher the price, the more you earn.
Emergency Demand Response: Called during grid emergencies, these programs offer premium payments for reliable curtailment when the grid is stressed.
Capacity Programs: Participants commit to being available for curtailment during specific seasons and receive ongoing capacity payments, plus additional payments when called.
What Loads Can Participate?
Almost any controllable load can participate in demand response:
- HVAC Systems: Pre-cooling buildings before events allows comfortable temperature drift during curtailment
- Lighting: Reducing non-essential lighting in warehouses, parking structures, and common areas
- Industrial Processes: Shifting batch processes, reducing compressed air pressure, or pausing non-critical equipment
- Pumping & Water Treatment: Adjusting pump schedules around DR events
- Refrigeration: Leveraging thermal mass to coast through events
Revenue Potential
Earnings vary by market and program, but typical ranges include:
| Facility Size | Annual Revenue Range |
|---|---|
| 500 kW – 2 MW | $25,000 – $150,000 |
| 2 MW – 10 MW | $100,000 – $750,000 |
| 10 MW+ | $500,000 – $2,000,000+ |
Getting Started
The best approach is to work with an experienced demand response aggregator like Rodan Energy who can:
- Assess your facility’s curtailment potential
- Handle all market enrollment and compliance
- Optimize your participation across multiple programs
- Manage dispatch and settlement
Ready to explore demand response for your facility? Contact our team for a free assessment.
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