Harnessing Residential Loads for Demand Response: Engineering and Economic Considerations

There exists disagreement on how Demand Response (DR) programs should be designed. This is likely because people from different fields view DR differently. For example, some see DR as a mechanism to improve electricity markets while others see it as a new control variable that can enhance power system reliability and security. In this paper, we review the many options for harnessing residential electric loads for DR and consider the engineering and economic implications associated with three specific cases: (1) price signals from the retailer, (2) direct load control via an aggregator providing some market-based service to the system operator, and (3) price/quantity bidding by individual loads into markets run by the system operator. While these cases are not meant to be exhaustive, they do comprise a wide spectrum of possible DR implementation options and so the engineering and economic considerations are quite different. Our goal is to understand which DR program designs are best suited to which applications. However, our broader aim is to bring the economist’s and engineer’s perspectives together in one paper as a way to increase mutual understanding and, ideally, move towards some consensus on residential DR design and deployment.