The Alchemy of Demand Response: Turning Demand into Supply

Paying customers to refrain from purchasing products they want seems to run counter to the normal operation of markets. Demand response should be interpreted not as a supply-side resource but as a secondary market that attempts to correct the misallocation of electricity among electric users caused by regulated average rate tariffs. In a world with costless metering, the DR solution results in inefficiency as measured by deadweight losses.