What Demand Response Actually Is

Demand response (DR) means agreeing to reduce your electricity use during periods of grid stress, in exchange for payment. To the grid operator, a customer cutting 500 kW does the same job as a power plant adding 500 kW.

That's why PJM and ISO-NE let commercial and industrial load take part in their capacity markets. You commit to reduce when called, and you're paid for that commitment much like a generator is paid for being available.

PJM: Demand Response in the Capacity Market

In PJM, businesses take part through a Curtailment Service Provider (CSP), which registers your load and handles dispatch and settlement.

Commitment

You commit a specific amount of reducible load, in kW, for a delivery year that runs June 1 through May 31. That commitment counts as a capacity resource.

Events

PJM calls on demand response during grid emergencies, typically extreme heat or cold. Notice can be as short as 30 minutes, so your plan has to work fast. Events are uncommon, and in many years few or none are called.

Payments

The commitment is valued at the capacity price, whether or not an event is called. At the 2028/29 price of $325.00/MW-day, 500 kW of commitment is worth about $59,300 a year in gross capacity value. The payment flows through the CSP, and the provider that enrolls you keeps a share, so your net amount depends on your agreement. Ask for that share in writing before you sign.

$59K
Gross yearly value of 500 kW at $325/MW-day
$119K
Gross yearly value of 1 MW at $325/MW-day
100 kW
Typical minimum commitment (aggregation is possible)

Penalties

If an event is called and you don't reduce to your committed level, you face non-performance charges, and they can be large. That's why sizing matters more than anything else.

Key point: the risk is manageable when the commitment is sized correctly. The mistake is committing more than your operations can reliably deliver on short notice. Commit only load you're confident you can drop every time.

ISO-NE: The Forward Capacity Market

In New England (Connecticut, Massachusetts, Rhode Island, New Hampshire, Maine, and Vermont), demand resources take part in the Forward Capacity Market (FCM).

Prices

The last three forward auctions cleared at $2.531, $2.590, and $3.580 per kW-month (FCA 16, 17, and 18, the last covering 2027/28). At those prices, 500 kW is worth roughly $15,500 to $21,500 a year in gross capacity value.

A market in transition

ISO-NE is redesigning its capacity market. Regulators approved delaying the next auction (FCA 19) to 2028 while ISO-NE moves from auctions held three years ahead to seasonal auctions held shortly before each delivery period. If you're planning a New England enrollment, the timing depends on that schedule.

Active and passive demand response

ISO-NE separates active demand response (reducing load when called) from passive demand response (permanent reductions such as efficiency upgrades that lower load during peak periods). Passive resources don't respond to calls, but they have to deliver lasting, measurable reductions.

Who Is a Good Fit

Size thresholds are lower than many businesses assume. The real test is whether you can reliably reduce:

  • Do you have load that can come down on short notice?
  • Can you hold that reduction for a few hours without real harm to operations?
  • Is the reducible load roughly 100 kW or more (or can it be combined with other sites)?

Facilities That Often Fit Well

Office buildings and commercial real estate

HVAC is the most common demand response resource. Pre-cooling plus setpoint changes during an event can take a meaningful share of load off with little impact on occupants.

Manufacturers

Deferrable processes, non-critical equipment, and compressed air systems are common candidates. The key is separating what can pause from what can't.

Cold storage

Refrigeration can be pulled down before an event and allowed to drift slightly during it, within safe limits set by your own food safety protocols.

Schools, campuses, and municipalities

Large HVAC loads and predictable schedules often make these good candidates, especially when buildings are lightly used in summer.

Who usually isn't a fit for active DR: facilities where any reduction during an event would create safety risks or major operational losses. Those sites should look at efficiency and passive options instead.

How the Money Flows (Including Ours)

Demand response payments come from the grid operator's capacity market and pass through the provider that registers you. That provider, and the broker who arranges the enrollment, is typically paid from a share of those payments. That includes us. There's nothing wrong with that arrangement as long as you know the split before you commit.

Getting Started

  1. Interval data: 12 months of 15-minute data from your utility.
  2. Load review: what's running during likely event windows, and how reliably it could come down.
  3. Sizing: commitment levels matched to what you can deliver every time.
  4. Value estimate: gross value at current prices, and your net share in writing.
  5. Enrollment: if you decide to go ahead, the registration and metering paperwork is handled for you.

The screening is free. If your facility isn't a good candidate, we'll tell you why.