What is PJM demand response?

Why PJM specifically

PJM Interconnection operates the wholesale electricity market and transmission system across all or part of 13 states plus the District of Columbia — Pennsylvania, New Jersey, Maryland, Delaware, Virginia, West Virginia, Ohio, Kentucky, Indiana, Michigan, Illinois, North Carolina and Tennessee. It is the largest such market in the United States, which makes PJM's rules the operative ones for a very large share of the country's commercial and industrial load.

Demand response is treated in PJM as a supply resource. A megawatt not consumed during a shortage is functionally equivalent to a megawatt generated, and it is paid on that basis. 7,299 MW of demand response cleared for the 2027/28 delivery year.

The two things that get confused, and why it matters

Facilities routinely conflate two entirely separate mechanisms that both involve reducing load. They pay differently, they are triggered differently, and a strategy built for one does nothing for the other.

	Demand response	Peak load contribution management
What it is	Getting paid to curtail when called	Reducing a charge by lowering load on system peak hours
Trigger	PJM issues an event; usually hours of notice	The five highest system-demand hours of the summer, known only in retrospect
Payment	Capacity payment plus energy settlement	No payment — a lower capacity charge next delivery year
Risk	Non-performance penalties	Guessing wrong about which hours count

Peak load contribution (PLC) is the quantity that drives capacity cost. It is set by a facility's average load during roughly five coincident system peak hours in the preceding summer, and that quantity is then multiplied by the capacity price for the entire following delivery year.

That price has moved dramatically. PJM capacity cleared at $28.92 per MW-day for delivery year 2024/25, then $269.92, $329.17, $333.44 and $325.00 for 2028/29 — roughly $119,000 per megawatt per year, already contracted through May 2029. (Anchored on the 2028/29 clearing price and therefore conservative; two intervening years cleared higher.)

The price is settled. Nothing a facility does now changes it. The only remaining variable is the quantity, and the quantity is set by what the facility was drawing on about five summer afternoons.

Worked example

A plant with 2 MW of genuinely curtailable load — a set of chillers, a non-critical compressor, and a batch process that can be shifted.

Demand response revenue. PJM's Emergency Load Response value is currently cited at approximately $112,000 per MW-year.

• Gross: 2 MW × $112,000 = $224,000 a year
• A curtailment service provider aggregates and settles the participation and takes a share. Model 40–60% of gross reaching the facility.
• Net to the facility: $89,600 to $134,400 a year

Peak load contribution reduction, separately. If the same 2 MW can be held down during the five coincident peak hours, PLC falls by up to 2 MW:

• 2 MW × $119,000/MW-yr = $238,000 a year of avoided capacity cost, for the full following delivery year

The two are additive in principle and rarely fully additive in practice, because the load that is easiest to curtail on a called event is usually the same load that would have to come off during the coincident peaks. The honest planning assumption is that a facility captures most of one and part of the other.

What both require is the same data: knowing, at interval resolution and per circuit, which loads were running during those hours and which of them did not need to be. Whole-building interval data says the peak happened. Circuit-level data says which three things caused it. See what is a demand charge.

The obligations, which are the part that gets skipped

• Test events. Participants are typically required to demonstrate capability through a test, not merely to declare it.
• Non-performance penalties. Capacity Performance obligations carry financial penalties for failing to deliver committed reduction during an event. A facility that over-commits its curtailable megawatts converts a revenue programme into a liability.
• Measurement and verification. Reduction is settled against a customer baseline computed from historical interval data. A facility whose baseline is computed during an atypical period will be settled against the wrong number, and the time to check this is before enrolling.
• Notice periods vary by programme, and a process that needs four hours to shed safely is not eligible for a programme that gives thirty minutes.

What PJM demand response is not

It is not energy efficiency. Demand response reduces load for a few hours a handful of times a year and is paid for availability. Energy efficiency reduces consumption permanently. They are funded differently, measured differently, and a facility can do both.

It is not the capacity charge on your bill. The capacity charge is what the facility pays for its own peak load contribution. Demand response is what PJM pays the facility for being available to curtail. Same market, opposite direction of the money.

It is not free money. The capacity payment is compensation for a real obligation with real penalties, and a facility that cannot actually shed the megawatts it committed will discover that during an event, in August.

It is not the same as a utility's own load-management programme. Many utilities in the PJM footprint run their own curtailment programmes with different rules, different rates and different notice periods. Enrolling in one does not enrol you in the other, and the interaction between them needs checking.

The quoted rates are not a quotation. Programme values change auction to auction, curtailment service provider shares are negotiated, and the 40–60% net-to-customer range above is a planning assumption, not a term sheet.