Updated September 2026.
The grid has to be built for its busiest hour, usually a hot summer afternoon or a frigid winter morning. Some power plants exist only to run for those few peak hours a year, which makes that power very expensive. Demand response flips the approach. Instead of building more supply, it pays customers to use a bit less, or use it later, when the grid is stretched.
The main types
Programs where the utility calls the shots (“load response”):
- Direct load control. For homes and small businesses: the utility briefly cycles air conditioners, water heaters or pool pumps during peaks, in return for a credit.
- Curtailable load. Larger commercial and industrial sites agree to cut a set amount, often at least 100 kW, with 30 minutes to a couple of hours’ notice.
- Interruptible service. Industrial plants accept being cut off almost entirely during emergencies, for a lower rate.
Programs where price does the work (“price response”):
- Time-of-use rates. Power costs more at set peak hours, typically late afternoon to evening, and less overnight.
- Critical peak pricing. A handful of days a year, prices spike sharply for a few hours, and customers get a heads-up the day before.
- Real-time pricing. Mostly for large users, whose price follows the wholesale market hour by hour.
- Economic bidding. Big customers offer load reductions into wholesale markets as if they were power plants.
From air conditioners to virtual power plants
What’s changed is automation. Smart thermostats, EV chargers, water heaters and home batteries can now respond on their own, within seconds and without anyone noticing much. Grouped together, thousands of them act as a “virtual power plant” (VPP):
- Today: the US Department of Energy estimates 30–60 GW of VPP capacity already exists.
- By 2030: tripling it could meet 10–20% of peak demand and save around $10 billion a year in grid costs.
In the wholesale markets, FERC found that demand response could meet about 6.5% of peak demand in 2024. A 2020 FERC rule, Order 2222, is opening those markets further to aggregated home and business resources.
How to take part
Check your utility’s website for:
- “peak rewards” or “smart thermostat” programs, which often pay a sign-up bonus plus a yearly credit
- time-of-use rate plans
- programs for EV chargers or home batteries
Businesses can work with demand response aggregators, companies that bundle many customers’ flexibility and sell it into the market.
Related: Smart Grids and Renewable Energy, AI and the Power Grid and Smart Home Energy Monitors.
