DR alters the energy consumption of utility consumers to balance the power demands with the corresponding limited supply. Power storage was not an option until recently, and therefore utilities minimize load by shifting to other energy sources onsite or offsite or by shutting down one or more generating units. DR programs provide industrial, residential and commercial consumers an opportunity to throttle their power usage during specific periods (e.g., peak hours) throughout the day when the electricity costs are high, and in emergencies (for instance, to prevent a blackout).

The objective of DR programs is to actively convert customers to modify power consumption as a response to demand signals. These decrease the high demands or avoid large-scale system emergencies. The program is known to be a highly cost-effective, efficient option over focusing on increasing of energy sources to meet the occasional demand spikes. The supply expectations need to reflect customer’s price signals or controls and allow dynamic alterations in usage. The rise of demand response programs is credited to the limited, costly options of adjusting supply to meet temporary peak demands as generating units are expensive to operate and maintain.

Basically, demand response is the economical-rationing method for the electricity supply. Utilities can accomplish this by offering compensation incentives and providing lower net unit cost in return for decreased energy consumption during the peak timing. This implies that the consumers that refuse to p decrease load despite signaling will be obligated to pay higher unit costs either directly or added into the standard rates.
There are three kinds of DR:

1. Emergency DR: This is to avoid involuntary service hindrances during the scarcity of supply.

2. Ancillary Services DR: Comprises of an array of specialty services required to ascertain the safe operation of the transmission grid that was conventionally supplied by generators.

3. Economic DR: The convenience to curtail usage when the generation or consumption of power has less value than paying for the electricity.

While DR generally indicates the mechanism of encouraging users to decrease demand to reduce peak demand for electrical power, very occasionally, the program may also be configured to increase load during periods of low demand and high generation. Hence, some DR systems might encourage arbitraging or energy conservation in between periods of high and low demand (or prices).

The transmission and power generation systems usually match and corresopond to the unforeseen events, forecasting error and peak demand. This lowers the peak demand variable and decreases the total cost of plant and capital required.