WASHINGTON (CN) – Power companies that reduce their consumers’ demand for electricity during peak energy usage must be paid the same rate for the energy they do not use as the market would demand for generating the same electricity, according to new rules adopted by the Federal Energy Regulatory Commission.
“Demand response compensation,” as such payment is called, only applies to utilities that are part of organized wholesale energy markets, and means that if a utility can get its consumers to use less power so that power can be used in areas of higher or more critical demand, the utility must be paid the market rate at the instant the conserved power is made available.
The goal of demand response is to encourage more economically and environmentally efficient use of existing power plants and to give industry and grid operators a better sense of where and when new power plants should be brought on-line.
Utilities use price signals to reduce demand from consumers by charging a premium for power when demand is greatest and offering incentives to use power when demand is lowest.
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