This report provides the findings by McKinsey Research in the area of Demand Response. According to them successful DSM programs incorporate some or all of the following six levers: rates, incentives, access to information, utility controls, education and marketing, and customer insight and verification. All these levers have been discussed and a sample of design options for each of these levers have been given. This report also contains interesting facts on the efficacy of such programs from McKinsey's experiences of working with utility companies. In a series of pilots conducted by Hydro One in Canada, customers reduced their electricity consumption by 6.5 percent based on information provided through an in-home display. Another interesting observation is that, providing both in home displays (IHDs) and pre-pay options resulted in energy conservation benefits of 13-15 percent, while IHDs alone yielded a median impact of 7 percent. McKinsey estimates that by 2020 United States could cut end-use energy consumption by 9.1 quadrillion BTUs, over one-fifth of its total projected demand. FERC estimates that demand response programs could cut peak demand by up to 20 percent within 10 years.
Smart grid provides the scale and scalability—to make demand-side management cost-effective and convenient. The increasing penetration of smart meters; the promise of ubiquitous data networks; and an intelligent grid give the DSM programs, now being designed by utilities, a number of crucial advantages over those of the past.