Energy Management and Lighting, Sustainability/Business Continuity

Demand Response (DR): Reduce Costs; Stay Productive

As a facilities manager, you know that decreasing the energy consumption of your building is good for the planet and the bottom line. You may have already deployed effective strategies, including purchasing energy-efficient equipment and promoting a culture of conservation within the workplace. But did you know that there may be additional incentives for businesses depending on when you decrease your facility’s energy usage?

Green Energy Concept Demand Response

Mintr /

Grid modernization and the proliferation of advanced metering infrastructure (AMI) are helping transform how businesses interact with their electricity provider. Incentive programs, such as demand response (DR), are increasing around the country. If you participate in a DR program, you can further reduce electricity costs and help ensure critical equipment remains operational.

In the United States, buildings account for 41% of total energy consumption—more than the industrial (30%) and the transportation (29%) sectors. The energy demands of buildings can vary widely depending on equipment, climate, and the season. DR programs can help reduce peak demand, which benefits everyone, because when the grid can’t keep up with the demand created by the area it serves, your facility may experience unexpected and costly blackouts or brownouts (i.e., a drop in voltage of the power supply that can cause lights to dim and poor and/or disrupted operation of equipment).

Power failures hurt business

Think about it: Almost all critical business functions rely on power—Internet modems, computers, phone lines, lights, and specialized equipment for industrial and commercial operations. It is not only inconvenient to lose power at your facility but also it results in lost production time, resulting in huge losses. E Source, a utility market research and consulting company, reported that in a recent year, there was over $27 billion in losses from power outages for U.S. businesses across 8 major markets (batch manufacturing, continuous manufacturing, financial services/digital economy, offices, health care/hospitals, government/education, grocery/food stores, and retail).

While powerful storms may cause blackouts, failure of the power grid can happen for many reasons, including faulty equipment and demand exceeding supply. Businesses can experience economic losses from lost productivity during even a short power outage (from a momentary flicker to a few hours). Other impacts of outages can include spoilage at businesses that rely on refrigeration and even life-threatening health and safety hazards.

Peak demand

Energy demand fluctuates daily, monthly, and seasonally because a building’s energy usage depends on the climate and other conditions. At peak demand, there is a higher-than-average demand on the grid. Often this occurs during summer months, when all buildings are simultaneously running their AC to keep cool.

Ideally, the grid’s supply of energy should meet the demands of the consumers—but it doesn’t always, and when it doesn’t, there are two ways to meet the peak demand and avoid blackouts or brownouts:

  1. Increase the power supply. High peak demand can be met by having auxiliary plants (called peaker plants) come online. However, a drawback of these plants, according to GE, is that because “peakers operate only at times of peak demand, they fetch a far higher price per kilowatt hour than baseload power plants.…”3 In addition, “they’re used infrequently and only for a few hours per year—sometimes as little as 100 to 300.” The cost of running peaker plants that tend to be old and inefficient is usually passed on to consumers through their electric bills.
  2. Decrease the power demand. Special programs like DR can actually lower power demand and overcome the imbalance of supply and demand.

DR: The basics

Simply put, a DR program is when an electric utility provider calls on consumers to reduce their load during events that are triggered by certain conditions, such as high peak demand. While not every electric provider offers DR programs, according to the U.S. Department of Energy (DOE), “the electric power industry considers demand response programs as an increasingly valuable resource option whose capabilities and potential impacts are expanded by grid modernization efforts.” DR programs are also gaining popularity because they are a “greener” option than building new or running more power plants, many of which still burn fossil fuels.

DR programs come in a variety of forms, but the goal is always to reduce peak energy consumption so that demand does not exceed the grid capacity. Depending on the program, facilities opting to participate agree to decrease energy consumption by a certain percentage or by a specified number of kilowatts (kW). Each facility works with its utility company to determine the details of the customized DR program at its site, and often the utility company will provide incentives to facilities opting to participate.

Some DR programs are fully automated in which the AMI that works with load controllers and scheduling software can be engaged to decrease the energy consumption of your building’s AC, water heater, and other equipment. Other DR programs notify customers that they need to manually reduce their energy consumption for a predetermined length of time. Programs may also encourage postponing the operation of certain equipment to off-peak times or using an on-site generator to meet part or all of the load demands to reduce demand on the grid.

How to participate

Some of the largest electric providers in the United States offer DR programs, including PG&E, Southern California Edison, Florida Power and Light, Con Ed, NextEra, and NRG. Each program has different requirements and incentives, so contact your electric provider for more information on its specific program. It is helpful to know about the energy profile of your facility (i.e., what equipment consumes the most energy and what equipment is critical vs. what can be turned off with little or no consequence). Even if you may not think your facility is eligible, many utilities provide customized solutions tailored to your business—it is in their best interest to have you participate because it will increase grid reliability.

Incentives for participation

Besides demonstrating your businesses’ commitment to resource conservation and sustainability, there are often financial incentives in the form of payments or savings on your energy bill for participation in a DR program. For instance, Con Ed estimates that a business in New York City with 100 kW of energy enrolled in their DR program can generate up to $21,500 revenue per year. Incentives will vary depending on how many hours in advance of an event you are notified (a short notification period allows the grid operator increased flexibility, so it is more highly valued, and you may be compensated at a higher rate). Also, DR events do not occur regularly, so some programs may compensate facilities with “standby payments” for enrolling and being willing to reduce their demand, even if events do not occur.

If you are pursuing a Leadership in Energy and Environmental Design (LEED) green building certification for your new or existing building, you can earn credits in the Energy & Atmosphere category. The Demand Response credit has been renamed and updated to Grid Harmonization in the latest version of LEED (LEED v4.1). The credit can be obtained by buildings that participate in a DR program or have the infrastructure capable to participate in future DR programs when they become available.


It is the goal of utility companies to maintain grid reliability because blackouts or brownouts are bad for business—and bad for your business, too. To help maintain that reliability, utilities are willing to provide financial incentives to those who can reduce demand during peak periods. Participating in a DR program is a win-win for your business. By doing so, you can help offset your electricity costs and help ensure your critical functions and equipment remain in operation, keeping your facility productive.