What Is Demand Response? A Guide for Businesses

Demand response is a program that pays businesses to temporarily reduce their electricity use when the power grid is under stress. For commercial real estate owners, it's one of the simplest ways to earn new revenue while supporting grid stability. Here's how it works, and how to know if your buildings are a good fit. 

What Is a Demand Response Program?

Demand response programs incentivize businesses to temporarily reduce their electricity usage during “peak demand” periods. Peak demand periods occur when the grid is under the most stress, typically during a heat wave or cold snap. 

Instead of relying on older power plants to meet sudden demand spikes, grid operators and utilities pay businesses to reduce their load for a short period. This provides the grid with relief without the time and cost of building new generation assets.

When managed properly, demand response programs can offer commercial real estate owners substantial financial benefits. 

Who Is a Good Fit for Demand Response?

Not every building is a strong candidate, but commercial properties with substantial load, operational flexibility or on-site generation can perform extremely well in demand response programs.

For example, an office building enrolled in a demand response program could adjust HVAC settings and dim or reduce lighting in common areas during a peak demand event. An industrial manufacturing facility could respond by moving operations to off-peak hours and utilizing backup generators. 

Demand response providers, including utilities and aggregators, work closely with businesses to design plans that fit their operations and avoid tenant disruptions. Most events last four to six hours, and businesses receive 24-hour notice ahead of peak events.

You Met the Demand, What’s the Reward? 

Compensation varies by region, building type and level of participation. Below are some of the main types of payments customers will see. 

• Capacity payments: Upfront payments for committing to a specific load reduction amount during the demand response season.

• Energy Payments: Additional payments based on how much electricity you actually reduce during an event. 

• Revenue protection: If curtailment temporarily slows operations, many programs compensate for lost production.

• Avoiding price spikes: customers will save money by not having to pay for energy when prices skyrocket. 

Beyond Money: The Sustainability Factor

Demand response is one of the most immediate sustainability wins available to commercial real estate portfolios. When demand spikes and no relief is available, grid operators often turn to older oil-fired plants that emit high levels of pollution. By participating in demand response programs commercial real estate owners help reduce emissions and can make progress towards their sustainability goals. 

It’s a rare win-win: better grid reliability and measurable environmental benefit.

So You Think Demand Response is Right for Your Company? 

While it may not be the perfect fit for every business, if your company can make some of the adjustments during a peak demand event it might be worth looking into. Customers can work directly with the utility and aggregators to find out if they’re eligible.

Key Takeaway

Demand response pays businesses to reduce electricity use for a few hours when the grid is under stress, in exchange for capacity payments, energy payments and protection against price spikes. Buildings with flexible operations, like adjustable HVAC or backup generators, tend to be the best fit. Beyond the revenue, participating also cuts reliance on the dirtiest peaking power plants, making it one of the few sustainability moves that pays for itself.