Demand response programs involve paying power consumers not to use power at certain times. Reducing peak load can save consumers money by avoiding the use of or even construction of “peakers”, generation facilities that are very expensive to run and that are only used at times of peak load. If I remember correctly, something like 15% of US generation capacity is only used 5% of the time. Demand response programs are very common in parts of Europe including Switzerland and Germany where they have been in wide use for at least ten years to reduce peak load and smooth out the diurnal load curve.
In March 2011, the Federal Energy Regulatory Commission (FERC) in Order No. 745, ruled that demand response, paying for reducing power demand, must be compensated at the same rate as power generation, all other things being equal. In other words, compensation for saving a megawatt-hr (negawatt) is the same as for generating a megawatt-hr.
In May 2014, the U.S. Court of Appeals in Washington, D.C. vacated FERC’s Order 745 stating that FERC overstepped its jurisdiction and that the decision about the compensation demand response providers must receive should lie with the states. This means that a negawatt does not necessarily equal a megawatt.
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