Demand response is used by utilities and grid operators in a variety of ways to improve reliability, increase economic efficiency in regional energy markets, and to integrate renewable generation capacity into their systems. The here are three major categories of demand response products: Capacity Markets, Price-Responsive Markets, and Ancillary Services Markets.
Even in the best of circumstances, the electricity grid will experience short-term, temporary changes in overall capacity. Utilities and grid operators must be prepared to account for a power plant or transmission line that unexpectedly goes out of service or for unforeseen increases or decreases electric demand. In addition, as utilities and grid operators increase their reliance on intermittent renewable generation capacity like wind and solar power, additional balancing resources are required to address any inconsistencies in generation, for example when sufficient wind and sun are not available.
Ancillary services products address these short-term imbalances in electricity markets by dispatching resources within seconds or minutes of an unacceptable imbalance, and demand response practitioners have a role to play in helping to balance the system on a short-term basis. Demand response can act as an ancillary service that responds just as quickly as an ancillary power plant would, in under a second or within minutes, depending on the type of ancillary service required. These conditions afford demand response practitioners an opportunity to tap into an additional payment stream for their participation ancillary services.